UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
under the Securities Exchange Act of 1934
For the month of October 2024
Commission File Number 001-33161
NORTH AMERICAN CONSTRUCTION GROUP LTD.
27287 - 100 Avenue
Acheson, Alberta T7X 6H8
(780) 960-7171
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F o Form 40-F ý
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rue 101(b)(1): o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o
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No. | | Documents and Exhibit Index |
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99.1 | | |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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NORTH AMERICAN CONSTRUCTION GROUP LTD. |
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By: | /s/ Jason Veenstra |
Name: | Jason Veenstra |
Title: | Chief Financial Officer |
Date: October 30, 2024
Table of Contents
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Management's Discussion and Analysis | |
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Interim Consolidated Financial Statements | |
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Letter to Shareholders
Dear Fellow Shareholders:
I am pleased to report our overall business performed slightly better than expected in the third quarter with our MacKellar business in Australia exceeding and our oil sands and joint venture interests meeting expectation.
In our oil sands business, we have fully adjusted our operational strategy to changing conditions. We are in contract discussions with customers which we expect to conclude before year-end. We believe we are again positioned as the preferred contractor in what we foresee will continue to be a stable and modestly growing oil sands contractor market for decades to come.
In our joint venture businesses, our Fargo flood diversion project achieved its construction peak in the third quarter and is now over half complete and progressing as planned. Our Nuna partnership also performed as planned in the quarter with a modest but meaningful profit. Year-on-year Nuna has far improved from the wildfire impacts and poor project performance of last year. We remain confident in the turn-around in our Nuna business and our ability to grow it profitably moving forward.
In Australia, MacKellar continues to out-perform and our integration is nearing completion with our ERP go-live having started last month and the phased roll out to be completed here in Q4. Our Australian team has demonstrated an amazing ability to continue their operational excellence, win work, and continue to grow while integrating major system and process improvements. We continue to see further opportunities in Australia to place projected under-utilized Canadian assets in 2025 and win additional work as well as more diversified work outside our major Queensland metallurgical and thermal coal markets.
Looking forward, we believe the fourth quarter will be another strong performance and expect a busy winter season in Canada and summer season in Australia to end the year within the guidance range provided in back in July. We expect the overall business to grow meaningfully year over year with Australia contributing more than half and the oil sands region around a quarter.
On capital allocation moving forward, we have announced both a 20% increase in dividends and an NCIB providing a clear intention to invest our increasing free cash flow in shareholder friendly ways while maintaining debt and liquidity that supports the ongoing growth of the overall business.
Our business and our share price have had some ups and downs this year and I am thankful to our shareholders for their continued support and patience as we set ourselves up for a strong year-end, positive growth and profitability in 2025, and a free cash flow allowing further investments to benefit our shareholders.
Regards,
Joseph Lambert
President & Chief Executive Officer
October 30, 2024
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This letter contains forward-looking information. Please see the “Forward Looking Information” section of the attached Management’s Discussion & Analysis for the period ended September 30, 2024, for a cautionary statement with respect to such information, including material factors or assumptions related to such information. |
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Management’s Discussion and Analysis
For the three and nine months ended September 30, 2024
October 30, 2024
The following Management’s Discussion and Analysis ("MD&A") is as of October 30, 2024, and should be read in conjunction with the attached unaudited interim consolidated financial statements and notes that follow for the three and nine months ended September 30, 2024, the audited consolidated financial statements and notes that follow for the year ended December 31, 2023, and our annual MD&A for the year ended December 31, 2023.
All financial statements have been prepared in accordance with United States ("US") generally accepted accounting principles ("GAAP"). Except where otherwise specifically indicated, all dollar amounts are expressed in Canadian dollars. The consolidated financial statements and additional information relating to our business, including our most recent Annual Information Form, are available on the Canadian Securities Administrators' SEDAR+ system at www.sedarplus.com, the US Securities and Exchange Commission's website at www.sec.gov and our Company website at www.nacg.ca.
A non-GAAP financial measure is generally defined by securities 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. Non-GAAP financial measures do not have standardized meanings under GAAP and therefore may not be comparable to similar measures presented by other issuers. In our MD&A, we use non-GAAP financial measures such as "adjusted EBIT", "adjusted EBITDA", "adjusted EBITDA margin", "adjusted EPS", "adjusted net earnings", "backlog", "capital additions", "capital expenditures, net", "capital inventory", "capital work in progress", "cash liquidity", "cash provided by operating activities prior to change in working capital", "cash related interest expense", "combined backlog", "combined gross profit", "combined gross profit margin", "equity investment EBIT", "equity method investment backlog", "free cash flow", "general and administrative expenses (excluding stock-based compensation)", "growth capital", "growth spending", "invested capital", "margin", "net debt", "share of affiliate and joint venture capital additions", "sustaining capital", "total capital liquidity", "total combined revenue", and "total debt". We provide tables in this document that reconcile non-GAAP measures used to amounts reported on the face of the consolidated financial statements. A summary of our non-GAAP measures is included below under the heading "Non-GAAP financial measures".
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Management's Discussion and Analysis September 30, 2024 | M-1 | North American Construction Group Ltd. |
OVERALL PERFORMANCE
Interim MD&A - Quarter 3 Highlights
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(Expressed in thousands of Canadian Dollars, except per share amounts) | | Three months ended |
| September 30, |
| | 2024 | | 2023(iv) | | Change |
Revenue | | $ | 286,857 | | | $ | 196,881 | | | $ | 89,976 | |
Total combined revenue(i) | | 367,155 | | | 274,757 | | | 92,398 | |
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Gross profit | | 65,098 | | | 26,518 | | | 38,580 | |
Gross profit margin(i) | | 22.7 | % | | 13.5 | % | | 9.2 | % |
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Combined gross profit(i) | | 80,415 | | | 38,004 | | | 42,411 | |
Combined gross profit margin(i)(ii) | | 21.9 | % | | 13.8 | % | | 8.1 | % |
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Operating income | | 53,805 | | | 14,344 | | | 39,461 | |
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Adjusted EBITDA(i)(iii) | | 106,384 | | | 59,371 | | | 47,013 | |
Adjusted EBITDA margin(i)(iii) | | 29.0 | % | | 21.6 | % | | 7.4 | % |
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Net income | | 13,901 | | | 11,387 | | | 2,514 | |
Adjusted net earnings(i) | | 31,253 | | | 14,295 | | | 16,958 | |
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Cash provided by operating activities | | 48,184 | | | 37,512 | | | 10,672 | |
Cash provided by operating activities prior to change in working capital(i) | | 79,838 | | | 41,666 | | | 38,172 | |
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Free cash flow(i) | | 10,785 | | | 8,940 | | | 1,845 | |
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Purchase of PPE | | 61,812 | | | 39,295 | | | 22,517 | |
Sustaining capital additions(i) | | 21,127 | | | 42,290 | | | (21,163) | |
Growth capital additions(i) | | 21,437 | | | 1,727 | | | 19,710 | |
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Basic net income per share | | $ | 0.52 | | | $ | 0.43 | | | $ | 0.09 | |
Adjusted EPS(i) | | $ | 1.17 | | | $ | 0.54 | | | $ | 0.63 | |
(i)See "Non-GAAP Financial Measures".
(ii)Combined gross profit margin is calculated using combined gross profit over total combined revenue.
(iii)Adjusted EBITDA margin is calculated using adjusted EBITDA over total combined revenue.
(iv)The prior year amounts are adjusted to reflect a change in accounting policy. See "Accounting Estimates, Pronouncements and Measures".
Revenue for 2024 Q3 of $286.9 million represented an increase of approximately $90.0 million (or 46%) from 2023 Q3. The increase is primarily due to the inclusion of results from the MacKellar Group ("MacKellar") following our acquisition on October 1, 2023.
The Heavy Equipment - Australia segment showed strong performance, driven by MacKellar’s Q3 results generated from stable operating conditions during the quarter. Equipment utilization of the MacKellar fleet for the quarter of 84% was similar to 2024 Q2 but generated higher revenue as growth assets commissioned late in the second quarter in Western Australia and Queensland provided full quarter contributions. The month of July was particularly strong with utilization being above the target of 85% while August and September averaged 82%. DGI Trading Pty Ltd. ("DGI") posted lower revenue in the quarter due to timing of large component sales but continues to benefit from international demand for low-cost used components and major parts required by heavy equipment fleets in the mining industry.
The Heavy Equipment - Canada segment posted a decline in revenue compared to the prior year as equipment utilization was 51% for the quarter in comparison to 56% in 2023 Q3. Quarter over quarter, the decrease in revenue represented a 23% decrease and was primarily driven by changes in work scopes at the Fort Hills and Syncrude mines offset by increases in operating hours at the Millennium mine. Additionally, the prior year's quarter benefited from higher utilization rates from NACG assets being operated at the gold mine in northern Ontario, a project that concluded in 2023 Q3. When comparing to 2024 Q2, top-line revenue achieved in the quarter was 8% higher on consistent operating conditions from July to September as well as increased work scopes at the Millennium mine.
Combined revenue of $367.2 million represented a $92.4 million (or 34%) increase from 2023 Q3. Our share of revenue generated in 2024 Q3 by joint ventures and affiliates was $80.3 million, compared to $77.9 million in 2023 Q3. The Fargo-Moorhead flood diversion project, which completed another strong operational quarter, posted a 32% increase from scopes completed in the prior quarter and surpassed the 50% completion mark during the
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Management's Discussion and Analysis September 30, 2024 | M-2 | North American Construction Group Ltd. |
quarter. Mostly offsetting this variance was the completion of the gold mine project in northern Ontario which occurred in 2023 Q3.
Combined gross profit and margin of $80.4 million and 21.9% compares favorably to the $38.0 million and 13.8% posted in the prior quarter and was the compilation of strong operations across all business lines. In particular, consistent weather conditions in Australia resulted in productive operations and a 24.6% gross margin over the three months. In Canada, heavy equipment operations posted a 19.4% margin as operations stabilized from the first half of the year. The joint ventures posted a 19.1% margin, up from 14.7% in the prior quarter, as Nuna returned to profitable operations. The increases in margin were offset slightly within the Fargo joint ventures as additional costs were recognized in the quarter primarily related to project cost escalation.
Adjusted EBITDA and the associated margin of $106.4 million and 29.0% exceeded our 2023 Q3 results of $59.4 million and 21.6%, respectively. As mentioned above and despite lower revenue in the oil sands region, effective and efficient operation of the heavy equipment fleets in Australia and Canada generated a strong EBITDA margin. EBITDA margin for this quarter was more consistent with the first quarter and is reflective of the underlying consistent business of our heavy equipment fleets.
Depreciation of our Canadian and Australian heavy equipment fleets was 13.4% of revenue in the quarter. Depreciation as a percentage of revenue was 16.4% for the Heavy Equipment - Canada fleet which is higher than our historical average as increased customer demand for heavy equipment rentals has changed the revenue profile. The Heavy Equipment - Australia fleet, which averaged approximately 11.7% of revenue reflected both productive operations in the quarter as well as the depreciation of fair market values allocated upon purchase. On a combined basis, depreciation averaged 12.1% of combined revenue in the quarter as the lower capital intensity in Fargo and Nuna joint ventures modestly reduced the ratio.
General and administrative expenses (excluding stock-based compensation) were $9.6 million, or 3.4% of revenue, compared to $6.9 million, or 3.5% of revenue in 2023 Q3. The increase in expenses reflects the acquisition of the MacKellar Group. Cash related interest expense for the quarter was $14.2 million at an average cost of debt of 6.5%, compared to $7.8 million at an average cost of debt of 7.1% in 2023 Q3, as rates posted by the Bank of Canada directly impact our Credit Facility and have a delayed impact on the rates for secured equipment-backed financing. Total interest expense was $15.0 million in the quarter, compared to $8.1 million in 2023 Q3 based on the debt financing incurred upon acquisition of the MacKellar Group on October 1, 2023.
Adjusted earnings per share ("EPS") of $1.17 on adjusted net earnings of $31.3 million was up 117% from the prior year figure of $0.54, consistent with the adjusted EBIT performance which was up 144% quarter over quarter. As mentioned above, the step-changes in interest from the MacKellar acquisition offset EBIT performance with the effective income tax rates being comparable for both quarters. Weighted-average common shares for the third quarters of 2024 and 2023 were relatively stable at 26,823,124 and 26,700,303, respectively, net of shares classified as treasury shares.
For the quarter, free cash flow generation was $10.8 million, driven primarily by adjusted EBITDA of $106.4 million. After accounting for sustaining capital additions of $21.1 million, cash interest expense of $14.2 million, and cash taxes paid of $9.3 million, the positive cash flow generation reached $61.8 million. However, changes in working capital and increases in capital work in progress deferred approximately $45 million of cash flow to future quarters, and the accumulation of distributable profits in our joint ventures negatively impacted cash flow by $10 million. Sustaining capital expenditures were focused on routine maintenance of heavy equipment fleets in Australia and Canada, with Canadian expenditures being lower than previous periods due to reduced operating hours and a disciplined approach in preparation for winter work scopes.
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Management's Discussion and Analysis September 30, 2024 | M-3 | North American Construction Group Ltd. |
FINANCIAL HIGHLIGHTS
Three and nine months ended September 30, 2024, results
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| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
(dollars in thousands, except per share amounts) | | 2024 | | 2023(iii) | | 2024 | | 2023(iii) |
Revenue | | $ | 286,857 | | | $ | 196,881 | | | $ | 860,197 | | | $ | 636,398 | |
Cost of sales | | 183,405 | | | 141,771 | | | 570,222 | | | 457,856 | |
Depreciation | | 38,354 | | | 28,592 | | | 121,918 | | | 89,329 | |
Gross profit | | $ | 65,098 | | | $ | 26,518 | | | $ | 168,057 | | | $ | 89,213 | |
Gross profit margin(i) | | 22.7 | % | | 13.5 | % | | 19.5 | % | | 14.0 | % |
General and administrative expenses (excluding stock-based compensation) | | 9,613 | | | 6,902 | | | 33,549 | | | 22,314 | |
Stock-based compensation expense | | 1,332 | | | 5,583 | | | 3,081 | | | 16,324 | |
Operating income | | 53,805 | | | 14,344 | | | 130,786 | | | 50,386 | |
Interest expense, net | | 15,003 | | | 8,119 | | | 44,939 | | | 22,941 | |
Net income | | 13,901 | | | 11,387 | | | 39,277 | | | 45,495 | |
Comprehensive income | | 15,016 | | | 10,287 | | | 41,030 | | | 44,033 | |
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Adjusted EBITDA(i) | | 106,384 | | | 59,371 | | | 286,516 | | | 195,827 | |
Adjusted EBITDA margin(i)(ii) | | 29.0 | % | | 21.6 | % | | 27.5 | % | | 22.4 | % |
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Per share information | | | | | | | | |
Basic net income per share | | $ | 0.52 | | | $ | 0.43 | | | $ | 1.47 | | | $ | 1.72 | |
Diluted net income per share | | $ | 0.47 | | | $ | 0.39 | | | $ | 1.32 | | | $ | 1.51 | |
Adjusted EPS(i) | | $ | 1.17 | | | $ | 0.54 | | | $ | 2.73 | | | $ | 1.96 | |
(i)See "Non-GAAP Financial Measures".
(ii)Adjusted EBITDA margin is calculated using adjusted EBITDA over total combined revenue.
(iii)The prior year amounts are adjusted to reflect a change in presentation. See "Accounting Estimates, Pronouncements and Measures".
Reconciliation of total reported revenue to total combined revenue
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| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
(dollars in thousands) | | 2024 | | 2023(ii) | | 2024 | | 2023(ii) |
Revenue from wholly-owned entities per financial statements | | $ | 286,857 | | | $ | 196,881 | | | $ | 860,197 | | | $ | 636,398 | |
Share of revenue from investments in affiliates and joint ventures | | 144,574 | | | 168,667 | | | 382,789 | | | 516,637 | |
Elimination of joint venture subcontract revenue | | (64,276) | | | (90,791) | | | (200,395) | | | (277,369) | |
Total combined revenue(i) | | $ | 367,155 | | | $ | 274,757 | | | $ | 1,042,591 | | | $ | 875,666 | |
(i)See "Non-GAAP Financial Measures".
(ii)The prior year amounts are adjusted to reflect a change in presentation. See "Accounting Estimates, Pronouncements and Measures".Reconciliation of reported gross profit to combined gross profit
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| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
(dollars in thousands) | | 2024 | | 2023(ii) | | 2024 | | 2023(ii) |
Gross profit from wholly-owned entities per financial statements | | $ | 65,098 | | | $ | 26,518 | | | $ | 168,057 | | | $ | 89,213 | |
Share of gross profit from investments in affiliates and joint ventures | | 15,317 | | | 11,486 | | | 37,172 | | | 40,968 | |
Combined gross profit(i) | | $ | 80,415 | | | $ | 38,004 | | | $ | 205,229 | | | $ | 130,181 | |
(i)See "Non-GAAP Financial Measures".
(ii)The prior year amounts are adjusted to reflect a change in presentation. See "Accounting Estimates, Pronouncements and Measures".
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Management's Discussion and Analysis September 30, 2024 | M-4 | North American Construction Group Ltd. |
Reconciliation of reported depreciation to combined depreciation
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| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
Depreciation from wholly-owned entities per financial statements | | $ | 38,354 | | | $ | 28,592 | | | $ | 121,918 | | | $ | 89,329 | |
Share of depreciation from investments in affiliates and joint ventures | | 5,953 | | | 4,976 | | | 14,439 | | | 13,572 | |
Combined depreciation(i) | | $ | 44,307 | | | $ | 33,568 | | | $ | 136,357 | | | $ | 102,901 | |
(i)See "Non-GAAP Financial Measures".Reconciliation of net income to adjusted net earnings, adjusted EBIT, and adjusted EBITDA
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| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
(dollars in thousands) | | 2024 | | 2023 | | 2024 | | 2023 |
Net income | | $ | 13,901 | | | $ | 11,387 | | | $ | 39,277 | | | $ | 45,495 | |
Adjustments: | | | | | | | | |
Loss (gain) on disposal of property, plant and equipment | | 348 | | | (311) | | | 641 | | | 189 | |
Write-down on assets held for sale | | — | | | — | | | 4,181 | | | — | |
Stock-based compensation (benefit) expense | | 1,332 | | | 5,583 | | | 3,081 | | | 16,324 | |
Change in fair value of contingent obligation from adjustments to estimates | | 17,727 | | | — | | | 26,585 | | | — | |
Restructuring costs | | — | | | — | | | 4,517 | | | — | |
Acquisition costs | | — | | | 1,161 | | | — | | | 1,161 | |
Loss on equity investment customer bankruptcy claim settlement | | — | | | — | | | — | | | 759 | |
Loss (gain) on derivative financial instruments | | 572 | | | (2,618) | | | 845 | | | (6,979) | |
Net unrealized loss (gain) on derivative financial instruments included in equity earnings in affiliates and joint ventures | | 1,836 | | | 572 | | | 2,806 | | | (649) | |
Tax effect of the above items | | (4,463) | | | (1,479) | | | (8,972) | | | (4,240) | |
Adjusted net earnings(i) | 0 | 31,253 | | | 14,295 | | | 72,961 | | | 52,060 | |
Adjustments: | | | | | | | | |
Tax effect of the above items | | 4,463 | | | 1,479 | | | 8,972 | | | 4,240 | |
Increase in fair value of contingent obligation from interest accretion expense | | 4,262 | | | — | | | 12,360 | | | — | |
Interest expense, net | | 15,003 | | | 8,119 | | | 44,939 | | | 22,941 | |
Income tax expense | | 6,768 | | | 1,733 | | | 16,325 | | | 11,892 | |
Equity earnings in affiliates and joint ventures(iii) | | (4,428) | | | (4,277) | | | (9,545) | | | (22,963) | |
Equity investment EBIT(i)(iii) | | 4,365 | | | 3,983 | | | 7,152 | | | 23,307 | |
Adjusted EBIT(i) | | 61,686 | | | 25,332 | | | 153,164 | | | 91,477 | |
Adjustments: | | | | | | | | |
Depreciation and amortization | | 38,662 | | | 28,884 | | | 122,844 | | | 90,239 | |
Write-down on assets held for sale | | — | | | — | | | (4,181) | | | — | |
Equity investment depreciation and amortization(i) | | 6,036 | | | 5,155 | | | 14,689 | | | 14,111 | |
Adjusted EBITDA(i) | | $ | 106,384 | | | $ | 59,371 | | | $ | 286,516 | | | $ | 195,827 | |
Adjusted EBITDA margin(i)(ii) | | 29.0 | % | | 21.6 | % | | 27.5 | % | | 22.4 | % |
(i)See "Non-GAAP Financial Measures".
(ii)Adjusted EBITDA margin is calculated using adjusted EBITDA over total combined revenue.
(iii)The prior year amounts are adjusted to reflect a change in presentation. See "Accounting Estimates, Pronouncements and Measures".
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Management's Discussion and Analysis September 30, 2024 | M-5 | North American Construction Group Ltd. |
Reconciliation of equity earnings in affiliates and joint ventures to equity investment EBIT
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| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
(dollars in thousands) | | 2024 | | 2023(ii) | | 2024 | | 2023(ii) |
Equity earnings in affiliates and joint ventures | | $ | 4,428 | | | $ | 4,277 | | | $ | 9,545 | | | $ | 22,963 | |
Adjustments: | | | | | | | | |
Interest (income) expense, net | | (618) | | | (742) | | | (1,337) | | | (915) | |
Income tax expense | | 738 | | | 448 | | | (698) | | | 1,294 | |
Loss (gain) on disposal of property, plant and equipment | | (183) | | | — | | | (358) | | | (35) | |
Equity investment EBIT(i) | | $ | 4,365 | | | $ | 3,983 | | | $ | 7,152 | | | $ | 23,307 | |
(i)See "Non-GAAP Financial Measures".
(ii)The prior year amounts are adjusted to reflect a change in presentation. See "Accounting Estimates, Pronouncements and Measures".Analysis of three and nine months ended September 30, 2024, results
Revenue
A breakdown of revenue by reportable segment is as follows:
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| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
Heavy Equipment - Canada | | $ | 132,654 | | | $ | 171,872 | | | $ | 413,742 | | | $ | 579,374 | |
Heavy Equipment - Australia | | 149,529 | | | 15,275 | | | 430,649 | | | 30,228 | |
Other | | 10,834 | | | 12,954 | | | 22,021 | | | 35,690 | |
Eliminations | | (6,160) | | | (3,220) | | | (6,215) | | | (8,894) | |
| | $ | 286,857 | | | $ | 196,881 | | | $ | 860,197 | | | $ | 636,398 | |
A breakdown of revenue by source is as follows:
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| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
Operations support services | | $ | 278,538 | | | $ | 174,486 | | | $ | 825,886 | | | $ | 578,450 | |
Equipment and component sales | | 7,708 | | | 22,395 | | | 32,178 | | | 49,399 | |
Construction services | | 611 | | | — | | | 2,133 | | | 8,549 | |
| | $ | 286,857 | | | $ | 196,881 | | | $ | 860,197 | | | $ | 636,398 | |
For the three months ended September 30, 2024, revenue was $286.9 million, up from $196.9 million in the same period last year. This quarter-over-quarter revenue growth was primarily driven by the October 2023 acquisition of MacKellar, contributing $149.5 million to the Heavy Equipment - Australia segment. Conversely, the Heavy Equipment - Canada segment experienced a decline in revenue due to a reduction in equipment utilization to 51%, compared to 56% in 2023 Q3. This decline was largely attributed to a contractual reduction in the overburden scope at the Fort Hills and Syncrude mines, which was partially offset by greater civil earthwork scopes at the Kearl mine as well as increased overburden and equipment rental scopes at the Suncor Base Mine.
For the nine months ended September 30, 2024, revenue totaled $860.2 million, up from $636.4 million in the same period last year, reflecting a 35% increase. This growth was driven by the same factors that influenced Q3, including the significant contributions from MacKellar offset by scope reductions in the Heavy Equipment - Canada segment.
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Management's Discussion and Analysis September 30, 2024 | M-6 | North American Construction Group Ltd. |
Gross profit
A breakdown of gross profit by reportable segment is as follows:
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| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
Heavy Equipment - Canada | | $ | 25,741 | | | $ | 20,237 | | | $ | 51,175 | | | $ | 73,253 | |
Heavy Equipment - Australia | | 36,847 | | | 4,218 | | | 106,930 | | | 9,033 | |
Other | | 2,311 | | | 3,048 | | | 8,616 | | | 8,837 | |
Eliminations | | 199 | | | (985) | | | 1,336 | | | (1,910) | |
| | $ | 65,098 | | | $ | 26,518 | | | $ | 168,057 | | | $ | 89,213 | |
A breakdown of cost of sales is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
(dollars in thousands) | | 2024 | | 2023 | | 2024 | | 2023 |
Salaries, wages, & benefits | | $ | 85,920 | | | $ | 55,304 | | | $ | 253,106 | | | $ | 193,010 | |
Repair parts & consumable supplies | | 50,305 | | | 40,091 | | | 172,226 | | | 132,759 | |
Subcontractor services | | 22,192 | | | 21,657 | | | 72,691 | | | 72,029 | |
Equipment & component sales | | 11,743 | | | 17,926 | | | 28,879 | | | 38,663 | |
Third-party rentals | | 6,799 | | | 3,878 | | | 22,255 | | | 10,745 | |
Fuel | | 3,169 | | | 1,155 | | | 11,086 | | | 4,940 | |
Other | | 3,277 | | | 1,760 | | | 9,979 | | | 5,710 | |
| | $ | 183,405 | | | $ | 141,771 | | | $ | 570,222 | | | $ | 457,856 | |
For the three months ended September 30, 2024, gross profit was $65.1 million with a 22.7% gross profit margin, up from a gross profit of $26.5 million and gross profit margin of 13.5% in the same period last year. The significant increase in gross margin is largely attributable to MacKellar, included within the Heavy Equipment - Australia segment, which recorded strong gross profit margins in the current quarter. MacKellar was acquired in October 2023 and has been a key driver of improved profitability.
The Heavy Equipment - Canada segment achieved a higher gross profit margin through improved cost management despite lower revenue levels this year compared to last year.
For the nine months ended September 30, 2024, gross profit was $168.1 million with a 19.5% gross profit margin, up from $89.2 million with a 14.0% gross profit margin in the same period last year. The year-over-year improvement in gross profit and margin was driven by the factors mentioned above, including the strong performance of the MacKellar acquisition and effective cost management in the Heavy Equipment - Canada segment.
A breakdown of depreciation by reportable segment is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
Heavy Equipment - Canada | | $ | 21,806 | | | $ | 28,126 | | | $ | 78,572 | | | $ | 88,266 | |
Heavy Equipment - Australia | | 17,482 | | | 50 | | | 44,452 | | | 140 | |
Eliminations | | (934) | | | 416 | | | (1,106) | | | 923 | |
| | $ | 38,354 | | | $ | 28,592 | | | $ | 121,918 | | | $ | 89,329 | |
For the three months ended September 30, 2024, depreciation was $38.4 million, or 13.4% of revenue, up from $28.6 million, or 14.5% of revenue, in the same period last year. The increased depreciation expense in the current quarter relates to the October 2023 acquisition of MacKellar which is shown in the Heavy Equipment - Australia segment. The decrease in depreciation in Heavy Equipment - Canada, is driven by decreased site activity.
For the nine months ended September 30, 2024, depreciation was $121.9 million, or 14.2% of revenue, up from $89.3 million, or 14.0% of revenue, in the same period last year. The increase in depreciation for the nine months ended September 30, 2024, is driven by the same Q3 factors discussed above.
| | | | | | | | |
Management's Discussion and Analysis September 30, 2024 | M-7 | North American Construction Group Ltd. |
Operating income
For the three months ended September 30, 2024, we recorded operating income of $53.8 million, an increase of $39.5 million from the $14.3 million for the same period last year, largely due to the contribution from MacKellar in the current quarter. General and administrative expense, excluding stock-based compensation expense, was $9.6 million (or 3.4% of revenue) for the quarter, higher than the $6.9 million (or 3.5% of revenue) in the prior year. The increase in gross expense can primarily be attributed to the addition of MacKellar. Stock-based compensation expense decreased by $4.3 million compared to the prior year primarily due to the fluctuating share price on the carrying value of our liability classified award plans.
For the nine months ended September 30, 2024, we recorded operating income of $130.8 million, an increase of $80.4 million from the $50.4 million for the same period last year. General and administrative expense, excluding stock-based compensation expense was $33.5 million (or 3.9% of revenue) compared to the $22.3 million (or 3.5% of revenue) for the nine months ended September 30, 2023. The increase in gross expense can be attributed to the same factors impacting the quarter. Stock-based compensation expense decreased by $13.2 million compared to the prior year primarily due to the fluctuating share price on the carrying value of our liability classified award plans.
Non-operating income and expense
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
(dollars in thousands) | | 2024 | | 2023 | | 2024 | | 2023 |
Equity earnings in affiliates and joint ventures(i) | | $ | (4,428) | | | $ | (4,277) | | | $ | (9,545) | | | $ | (22,963) | |
| | | | | | | | |
Credit Facility | | $ | 7,418 | | | $ | 2,852 | | | $ | 21,436 | | | $ | 9,262 | |
Convertible debentures | | 1,730 | | | 1,716 | | | 5,151 | | | 5,135 | |
Interest on customer supply chain financing | | 692 | | | 988 | | | 2,539 | | | 3,138 | |
Equipment financing | | 3,708 | | | 836 | | | 11,707 | | | 2,461 | |
Mortgage | | 237 | | | 244 | | | 716 | | | 737 | |
Other interest expense | | 438 | | | 1,187 | | | 1,087 | | | 1,331 | |
Cash interest expense | | $ | 14,223 | | | $ | 7,823 | | | $ | 42,636 | | | $ | 22,064 | |
Amortization of deferred financing costs | | 780 | | | 296 | | | 2,303 | | | 877 | |
Total interest expense, net | | $ | 15,003 | | | $ | 8,119 | | | $ | 44,939 | | | $ | 22,941 | |
| | | | | | | | |
Change in fair value of contingent obligation from adjustments to estimates | | $ | 17,727 | | | $ | — | | | $ | 26,585 | | | $ | — | |
Increase in fair value of contingent obligation from interest accretion expense | | 4,262 | | | — | | | 12,360 | | | — | |
Change in fair value of contingent obligations | | $ | 21,989 | | | $ | — | | | $ | 38,945 | | | $ | — | |
| | | | | | | | |
Loss (gain) on derivative financial instruments | | 572 | | | (2,618) | | | 845 | | | (6,979) | |
| | | | | | | | |
Current income tax expense | | $ | 2,238 | | | $ | 1,495 | | | $ | 5,003 | | | $ | 3,198 | |
Deferred income tax expense | | 4,530 | | | 238 | | | 11,322 | | | 8,694 | |
Income tax expense | | $ | 6,768 | | | $ | 1,733 | | | $ | 16,325 | | | $ | 11,892 | |
(i)The prior year amounts are adjusted to reflect a change in presentation. See "Accounting Estimates, Pronouncements and Measures".Equity earnings in affiliates and joint ventures
Equity earnings from affiliates and joint ventures, accounted for using the equity method, amounted to $4.4 million for the three months ended September 30, 2024, up from $4.3 million in the same period last year. This increase is the result of improved Nuna results from the same period in the previous year which was heavily impacted by ramp down activities following the completion in 2023 Q3 of the construction project at a gold mine in Northern Ontario.
For the nine months ended September 30, 2024, equity earnings were $9.5 million, compared to $23.0 million in the same period last year. This decrease was influenced by a reduction in overburden scopes completed by MNALP and the recognition of additional costs in the Fargo joint ventures related to project cost escalation, along with a one-time $4.5 million restructuring charge at Nuna incurred in 2024 Q1.
| | | | | | | | |
Management's Discussion and Analysis September 30, 2024 | M-8 | North American Construction Group Ltd. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended September 30, 2024 | | Nuna | | MNALP | | Fargo | | Other entities | | Total |
Revenues | | $ | 19,768 | | | $ | 70,438 | | | $ | 51,037 | | | $ | 3,331 | | | $ | 144,574 | |
Gross profit | | 3,792 | | | 2,391 | | | 8,914 | | | 220 | | | 15,317 | |
Income before taxes | | 3,006 | | | 1,740 | | | 288 | | | 174 | | | 5,208 | |
Net income | | $ | 2,265 | | | $ | 1,740 | | | $ | 288 | | | $ | 135 | | | $ | 4,428 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended September 30, 2023(i) | | Nuna | | MNALP | | Fargo | | Other entities | | Total |
Revenues | | $ | 40,090 | | | $ | 88,480 | | | $ | 38,677 | | | $ | 1,420 | | | $ | 168,667 | |
Gross profit | | 681 | | | 2,940 | | | 7,664 | | | 201 | | | 11,486 | |
Income before taxes | | (764) | | | 2,220 | | | 3,711 | | | (442) | | | 4,725 | |
Net income | | $ | (838) | | | $ | 2,220 | | | $ | 3,337 | | | $ | (442) | | | $ | 4,277 | |
(i)The prior year amounts are adjusted to reflect a change in presentation. See "Accounting Estimates, Pronouncements and Measures". | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nine months ended September 30, 2024 | | Nuna | | MNALP | | Fargo | | Other entities | | Total |
Revenues | | $ | 47,876 | | | $ | 219,465 | | | $ | 105,234 | | | $ | 10,214 | | | $ | 382,789 | |
Gross profit | | 4,367 | | | 7,788 | | | 24,129 | | | 888 | | | 37,172 | |
Income before taxes | | (4,140) | | | 5,651 | | | 6,053 | | | 1,696 | | | 9,260 | |
Net income | | $ | (3,748) | | | $ | 5,651 | | | $ | 6,053 | | | $ | 1,589 | | | $ | 9,545 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nine months ended September 30, 2023(i) | | Nuna | | MNALP | | Fargo | | Other entities | | Total |
Revenues | | $ | 146,699 | | | $ | 297,879 | | | $ | 67,242 | | | $ | 4,817 | | | $ | 516,637 | |
Gross profit | | 14,376 | | | 10,407 | | | 15,674 | | | 511 | | | 40,968 | |
Income before taxes | | 8,101 | | | 8,107 | | | 9,250 | | | (1,201) | | | 24,257 | |
Net income | | $ | 7,259 | | | $ | 8,107 | | | $ | 8,798 | | | $ | (1,201) | | | $ | 22,963 | |
(i)The prior year amounts are adjusted to reflect a change in presentation. See "Accounting Estimates, Pronouncements and Measures".Total interest expense, net
Total interest expense for the three months ended September 30, 2024, was $15.0 million, up from $8.1 million in the same period last year. For the nine months ended September 30, 2024, total interest expense rose to $44.9 million from $22.9 million in the prior year. The current year increases are primarily due to a higher balance and an increased variable rate on the Credit Facility, as well as increased equipment financing, largely from the addition of MacKellar.
Cash-related interest expense for the three months ended September 30, 2024, excluding the amortization of deferred financing costs of $0.8 million, was $14.2 million. This represents an average cost of debt of 6.5%, compared to 7.1% for the same period last year, when factoring in Credit Facility balances. For the nine months ended September 30, 2024, cash-related interest expense, excluding the amortization of deferred financing costs of $2.3 million, was $42.6 million, representing an average cost of debt of 6.8%, compared to 6.9% for the same period last year.
Change in fair value of contingent obligations
The change in fair value of contingent obligations of $22.0 million and $38.9 million for the three and nine months ended September 30, 2024, respectively ($nil for the three and nine months ended September 30, 2023) is due to the adjustments in forecasted income estimates and increases from interest accretion expense. The revised estimates reflect improved forecasted performance based on recent contract awards and capital investments.
Loss (gain) on derivative financial instruments
For the three and nine months ended September 30, 2024, we recognized an unrealized loss of $0.6 million and $0.8 million on a swap agreement. This loss is based on the difference between the par value of 583,725 shares at $26.73 each and an additional 100,000 shares at $25.36 each, and the TSX closing price of $25.29 on September 30, 2024.
In comparison, for the same periods in 2023, we recognized unrealized gains of $2.6 million and $7.0 million, respectively, from a different swap agreement. This agreement involved 200,678 shares at a par value of $14.38 and an additional 458,400 shares at a par value of $18.94. The TSX closing price of the shares on September 30, 2023, was $29.43. This swap agreement was completed on January 3, 2024.
| | | | | | | | |
Management's Discussion and Analysis September 30, 2024 | M-9 | North American Construction Group Ltd. |
Income tax expense
We recorded income tax expense of $6.8 million and $16.3 million for the three and nine months ended September 30, 2024, respectively ($1.7 million and $11.9 million for the three and nine months ended September 30, 2023). The variance in tax expense is in line with the change in income before taxes.
Net income and comprehensive income
For the three months ended September 30, 2024, we recorded $13.9 million of net income (basic net income per share of $0.52, diluted net income per share of $0.47 and adjusted net income per share of $1.17), compared to $11.4 million net income (basic net income per share of $0.43, diluted net income per share of $0.39 and adjusted net income per share of $0.54) recorded for the same period last year. The improved per share performance in the current quarter is a result of the improved net income.
For the nine months ended September 30, 2024, we recorded $39.3 million of net income (basic net income per share of $1.47, diluted net income per share of $1.32 and adjusted net income per share of $2.73), compared to $45.5 million net income (basic net income per share of $1.72, diluted net income per share of $1.51, and adjusted net income per share of $1.96) for the same period last year. The lower basic and diluted per share performance in the current nine month period is a result of the lower net income mostly related to Q1 compared to the prior year. Improved Adjusted EPS reflects the improved current period performance upon adjusting for certain non-cash and non-recurring items.
Reconciliation of basic net income per share to adjusted EPS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
(dollars in thousands) | | 2024 | | 2023 | | 2024 | | 2023 |
Net income | | $ | 13,901 | | | $ | 11,387 | | | $ | 39,277 | | | $ | 45,495 | |
Interest from convertible debentures (after tax) | | 1,509 | | | 1,462 | | | 4,490 | | | 4,441 | |
Diluted net income available to common shareholders | | $ | 15,410 | | | $ | 12,849 | | | $ | 43,767 | | | $ | 49,936 | |
| | | | | | | | |
Adjusted net earnings(i) | | $ | 31,253 | | | $ | 14,295 | | | $ | 72,961 | | | $ | 52,060 | |
| | | | | | | | |
Weighted-average number of common shares | | 26,823,124 | | | 26,700,303 | | | 26,762,439 | | | 26,509,360 | |
Weighted-average number of diluted common shares | | 33,087,074 | | | 33,007,609 | | | 33,087,074 | | | 33,007,609 | |
| | | | | | | | |
Basic net income per share | | $ | 0.52 | | | $ | 0.43 | | | $ | 1.47 | | | $ | 1.72 | |
Diluted net income per share | | $ | 0.47 | | | $ | 0.39 | | | $ | 1.32 | | | $ | 1.51 | |
Adjusted EPS(i) | | $ | 1.17 | | | $ | 0.54 | | | $ | 2.73 | | | $ | 1.96 | |
(i)See "Non-GAAP Financial Measures".Comprehensive income for the three and nine months ended September 30, 2024, was $15.0 million and $41.0 million, respectively, compared to $10.3 million and $44.0 million in the respective prior year periods, reflecting the effect of gains and losses on the translation of foreign currency results to Canadian dollars.
The table below summarizes our consolidated results for the preceding eight quarters:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
(dollars in millions, except per share amounts) | | Q3 2024 | | Q2 2024 | | Q1 2024 | | Q4 2023(iv) | | Q3 2023(iv) | | Q2 2023(iv) | | Q1 2023(iv) | | Q4 2022 |
Revenue | | $ | 286.9 | | | $ | 276.3 | | | $ | 297.0 | | | $ | 328.3 | | | $ | 196.9 | | | $ | 195.2 | | | $ | 244.3 | | | $ | 233.4 | |
Gross profit | | 65.1 | | | 49.7 | | | 53.3 | | | 65.6 | | | 26.5 | | | 21.6 | | | 41.1 | | | 42.6 | |
Adjusted EBITDA(i) | | 106.4 | | | 86.9 | | | 93.3 | | | 101.1 | | | 59.4 | | | 51.8 | | | 84.6 | | | 85.9 | |
Net income and comprehensive income | | 15.0 | | | 15.3 | | | 10.7 | | | 17.6 | | | 11.4 | | | 12.2 | | | 21.9 | | | 26.1 | |
Basic net income per share(ii) | | $ | 0.52 | | | $ | 0.52 | | | $ | 0.43 | | | $ | 0.66 | | | $ | 0.43 | | | $ | 0.46 | | | $ | 0.83 | | | $ | 0.99 | |
Diluted net income per share(ii) | | $ | 0.47 | | | $ | 0.47 | | | $ | 0.39 | | | $ | 0.58 | | | $ | 0.39 | | | $ | 0.42 | | | $ | 0.70 | | | $ | 0.84 | |
Adjusted EPS(i)(ii) | | $ | 1.17 | | | $ | 0.78 | | | $ | 0.78 | | | $ | 0.87 | | | $ | 0.54 | | | $ | 0.47 | | | $ | 0.95 | | | $ | 1.10 | |
| | | | | | | | | | | | | | | | |
Cash dividend per share(iii) | | $ | 0.10 | | | $ | 0.10 | | | $ | 0.10 | | | $ | 0.10 | | | $ | 0.10 | | | $ | 0.10 | | | $ | 0.10 | | | $ | 0.08 | |
(i)See "Non-GAAP Financial Measures".
(ii)Basic net income, diluted net income, and adjusted earnings per share for each quarter have been computed based on the weighted-average number of shares issued and outstanding during the respective quarter. Therefore, quarterly amounts are not additive and may not add to the associated annual or year-to-date totals.
(iii)The timing of payment of the cash dividend per share may differ from the dividend declaration date.
(iv)The prior year amounts are adjusted to reflect a change in presentation. See "Accounting Estimates, Pronouncements and Measures".
| | | | | | | | |
Management's Discussion and Analysis September 30, 2024 | M-10 | North American Construction Group Ltd. |
For a full discussion of the factors that can generally contribute to the variations in our quarterly financial results please see "Financial Highlights" in our annual MD&A for the year ended December 31, 2023.
LIQUIDITY AND CAPITAL RESOURCES
Summary of consolidated financial position
| | | | | | | | | | | | | | | | | | | | |
(dollars in thousands) | | September 30, 2024 | | December 31, 2023 | | Change |
Cash | | $ | 77,670 | | | $ | 88,614 | | | $ | (10,944) | |
Working capital assets | | | | | | |
Accounts receivable | | $ | 158,179 | | | $ | 97,855 | | | $ | 60,324 | |
Contract assets | | 16,128 | | | 35,027 | | | (18,899) | |
Inventories | | 77,150 | | | 64,962 | | | 12,188 | |
Prepaid expenses and deposits | | 8,477 | | | 7,402 | | | 1,075 | |
Working capital liabilities | | | | | | |
Accounts payable | | (123,110) | | | (146,190) | | | 23,080 | |
Accrued liabilities | | (47,724) | | | (72,225) | | | 24,501 | |
Contract liabilities | | (300) | | | (59) | | | (241) | |
Total net working capital (excluding cash and current portion of long-term debt)(i) | | $ | 88,800 | | | $ | (13,228) | | | $ | 102,028 | |
| | | | | | |
Property, plant and equipment | | 1,235,447 | | | 1,142,946 | | | 92,501 | |
Total assets | | 1,694,136 | | | 1,546,478 | | | 147,658 | |
| | | | | | |
Credit Facility(ii) | | 395,700 | | | 317,488 | | | 78,212 | |
Equipment financing(ii) | | 267,544 | | | 220,466 | | | 47,078 | |
Mortgage(ii) | | 27,810 | | | 28,429 | | | (619) | |
Contingent obligations(ii) | | 139,353 | | | 115,857 | | | 23,496 | |
Total debt(i) | | $ | 830,407 | | | $ | 682,240 | | | $ | 148,167 | |
Convertible debentures(ii) | | 129,750 | | | 129,750 | | | — | |
Cash | | (77,670) | | | (88,614) | | | 10,944 | |
Net debt(i) | | $ | 882,487 | | | $ | 723,376 | | | $ | 159,111 | |
Total shareholders' equity | | 391,914 | | | 356,654 | | | 35,260 | |
Invested capital(i) | | $ | 1,274,401 | | | $ | 1,080,030 | | | $ | 194,371 | |
(i)See "Non-GAAP Financial Measures".
(ii)Includes current portion.
As at September 30, 2024, we had $77.7 million in cash and $58.0 million of unused borrowing availability on the Credit Facility for a total liquidity of $135.7 million (defined as cash plus available and unused Credit Facility borrowings).
Our liquidity is complemented by available borrowings through our equipment leasing partners. As at September 30, 2024, our total available capital liquidity was $173.1 million (defined as total liquidity plus unused finance lease and other borrowing availability under our Credit Facility). Borrowing availability under finance lease obligations considers the current and long-term portion of finance lease obligations and financing obligations, including specific finance lease obligations for the joint ventures that we guarantee. Subsequent to September 30, 2024, on October 25, 2024, we entered into an amending agreement, improving our available liquidity. See Credit Facility section for more details.
| | | | | | | | |
Management's Discussion and Analysis September 30, 2024 | M-11 | North American Construction Group Ltd. |
| | | | | | | | | | | | | | |
(dollars in thousands) | | September 30, 2024 | | December 31, 2023 |
Cash | | $ | 77,670 | | | $ | 88,614 | |
Credit Facility borrowing limit | | 485,700 | | | 478,022 | |
Credit Facility drawn | | (395,700) | | | (317,488) | |
Letters of credit outstanding | | (32,011) | | | (31,272) | |
Cash liquidity(i) | | $ | 135,659 | | | $ | 217,876 | |
Finance lease borrowing limit | | 350,000 | | | 350,000 | |
Other debt borrowing limit | | 20,000 | | | 20,000 | |
Equipment financing drawn | | (267,544) | | | (220,466) | |
Guarantees provided to joint ventures | | (65,008) | | | (74,831) | |
Total capital liquidity(i) | | $ | 173,107 | | | $ | 292,579 | |
(i)See "Non-GAAP Financial Measures".As at September 30, 2024, we had $9.7 million in trade receivables that were more than 30 days past due, compared to $4.0 million as at December 31, 2023. As at September 30, 2024, and December 31, 2023, we did not have an allowance for credit losses related to our trade receivables as we believe that there is minimal risk in the collection of our trade receivables. We continue to monitor the creditworthiness of our customers. As at September 30, 2024, holdbacks totaled $0.6 million, consistent with $0.4 million as at December 31, 2023.
Capital additions
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Reconciliation to Statements of Cash Flows | | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
(dollars in thousands) | | 2024 | | 2023 | | 2024 | | 2023 |
Purchase of PPE | | $ | 61,812 | | | $ | 39,295 | | | $ | 203,772 | | | $ | 114,210 | |
Additions to intangibles | | 2,277 | | | 121 | | | 3,953 | | | 123 | |
Gross capital expenditures | | $ | 64,089 | | | $ | 39,416 | | | $ | 207,725 | | | $ | 114,333 | |
Proceeds from sale of PPE | | (9,485) | | | (1,769) | | | (11,080) | | | (4,809) | |
Change in capital inventory and capital work in progress(i) | | (12,040) | | | 4,141 | | | (31,498) | | | (4,485) | |
Capital expenditures, net(i) | | $ | 42,564 | | | $ | 41,788 | | | $ | 165,147 | | | $ | 105,039 | |
Finance lease additions | | — | | | 2,229 | | | 14,157 | | | 27,228 | |
Capital additions(i) | | $ | 42,564 | | | $ | 44,017 | | | $ | 179,304 | | | $ | 132,267 | |
(i)See "Non-GAAP Financial Measures". | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sustaining and growth additions | | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
(dollars in thousands) | | 2024 | | 2023 | | 2024 | | 2023 |
Sustaining | | $ | 21,127 | | | $ | 40,061 | | | $ | 132,474 | | | $ | 100,564 | |
Growth | | 21,437 | | | 1,727 | | | 60,987 | | | 4,475 | |
Capital expenditures, net(i) | | $ | 42,564 | | | $ | 41,788 | | | $ | 193,461 | | | $ | 105,039 | |
Sustaining | | — | | | 2,229 | | | 14,157 | | | 27,228 | |
Growth | | — | | | — | | | — | | | — | |
Finance lease additions | | $ | — | | | $ | 2,229 | | | $ | 14,157 | | | $ | 27,228 | |
Sustaining | | 21,127 | | | 42,290 | | | 118,317 | | | 127,792 | |
Growth | | 21,437 | | | 1,727 | | | 60,987 | | | 4,475 | |
Capital additions(i) | | $ | 42,564 | | | $ | 44,017 | | | $ | 179,304 | | | $ | 132,267 | |
(i)See "Non-GAAP Financial Measures".
| | | | | | | | |
Management's Discussion and Analysis September 30, 2024 | M-12 | North American Construction Group Ltd. |
A breakdown of net capital expenditures by reportable segment is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Three months ended |
| | September 30, 2024 | | September 30, 2023 |
| | Heavy Equipment - Canada | | Heavy Equipment - Australia | | Total | | Heavy Equipment - Canada | | Heavy Equipment - Australia | | Total |
Sustaining | | $ | 6,020 | | | $ | 15,107 | | | $ | 21,127 | | | $ | 42,290 | | | $ | — | | | $ | 42,290 | |
Growth | | — | | | 21,437 | | | 21,437 | | | 1,727 | | | — | | | 1,727 | |
Capital expenditures, net(i) | | $ | 6,020 | | | $ | 36,544 | | | $ | 42,564 | | | $ | 44,017 | | | $ | — | | | $ | 44,017 | |
(i)See "Non-GAAP Financial Measures". | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended | | Nine months ended |
| | September 30, 2024 | | September 30, 2023 |
| | Heavy Equipment - Canada | | Heavy Equipment - Australia | | Total | | Heavy Equipment - Canada | | Heavy Equipment - Australia | | Total |
Sustaining | | $ | 78,775 | | | $ | 39,542 | | | $ | 118,317 | | | $ | 127,792 | | | $ | — | | | $ | 127,792 | |
Growth | | 27 | | | 60,960 | | | 60,987 | | | 4,475 | | | — | | | 4,475 | |
Capital expenditures, net(i) | | $ | 78,802 | | | $ | 100,502 | | | $ | 179,304 | | | $ | 132,267 | | | $ | — | | | $ | 132,267 | |
(i)See "Non-GAAP Financial Measures". Capital additions for the three months ended September 30, 2024, are $42.6 million ($44.0 million in the prior year) and for the nine months ended September 30, 2024, are $179.3 million ($132.3 million in the prior year). Year-over-year capital spending increases largely relates to expenditures by MacKellar, included in Heavy Equipment - Australia. Growth capital additions relate to the purchase of heavy equipment assets to meet the strong customer demand in the Heavy Equipment - Australia segment. Sustaining capital additions were incurred on routine maintenance of the existing fleet in both segments.
We finance a portion of our heavy construction fleet through finance leases. For the nine months ended September 30, 2024, sustaining capital additions financed through finance leases was $14.2 million ($27.2 million for the same period in 2023). Our equipment fleet is currently split among owned (79%), finance leased (20%) and rented equipment (1%).
Summary of capital additions in affiliates and joint ventures
Not included in the reconciliation of capital additions above are capital additions made by our affiliates and joint ventures. The table below reflects our share of such net capital additions (disposals).
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
(dollars in thousands) | | 2024 | | 2023 | | 2024 | | 2023 |
Nuna | | $ | (1,469) | | | $ | 1,346 | | | $ | (1,246) | | | $ | 2,551 | |
MNALP | | 732 | | | 3,036 | | | 1,908 | | | 10,833 | |
Fargo | | 7,235 | | | 6,612 | | | 16,810 | | | 14,410 | |
Other | | — | | | (9) | | | (112) | | | (1,360) | |
Share of affiliate and joint venture capital additions(i) | | $ | 6,498 | | | $ | 10,985 | | | $ | 17,360 | | | $ | 26,434 | |
Capital additions within the Nuna joint ventures in both years and MNALP in the current year are considered to be sustaining in nature while the capital additions made by the MNALP in 2023 and Fargo joint ventures were growth given they represent initial investments.
For a complete discussion on our capital expenditures, please see "Liquidity and Capital Resources - Capital Resources" in our most recent annual MD&A for the year ended December 31, 2023.
| | | | | | | | |
Management's Discussion and Analysis September 30, 2024 | M-13 | North American Construction Group Ltd. |
Summary of consolidated cash flows
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
(dollars in thousands) | | 2024 | | 2023 | | 2024 | | 2023 |
Cash provided by operating activities | | $ | 48,184 | | | $ | 37,512 | | | $ | 119,063 | | | $ | 109,521 | |
Cash used in investing activities | | (60,221) | | | (26,970) | | | (198,919) | | | (107,123) | |
Cash provided by financing activities | | 19,979 | | | 9,250 | | | 68,404 | | | (29,639) | |
Increase (decrease) in cash | | $ | 7,942 | | | $ | 19,792 | | | $ | (11,452) | | | $ | (27,241) | |
Operating activities
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
(dollars in thousands) | | 2024 | | 2023 | | 2024 | | 2023 |
Cash provided by operating activities prior to change in working capital(i) | | $ | 79,838 | | | $ | 41,666 | | | $ | 222,641 | | | $ | 134,646 | |
Net changes in non-cash working capital | | (31,654) | | | (4,154) | | | (103,578) | | | (25,125) | |
Cash provided by operating activities | | $ | 48,184 | | | $ | 37,512 | | | $ | 119,063 | | | $ | 109,521 | |
(i)See "Non-GAAP Financial Measures".Cash provided by operating activities for the three months ended September 30, 2024, was $48.2 million, compared to cash provided by operating activities of $37.5 million for the three months ended September 30, 2023. Cash provided by operating activities for the nine months ended September 30, 2024, was $119.1 million, compared to cash provided by operating activities of $109.5 million for the nine months ended September 30, 2023.
Cash provided by or used in the net change in non-cash working capital specific to operating activities are summarized in the table below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
(dollars in thousands) | | 2024 | | 2023 | | 2024 | | 2023 |
Accounts receivable | | $ | (14,249) | | | $ | 346 | | | $ | (62,109) | | | $ | 5,241 | |
Contract assets | | (3,061) | | | (2,794) | | | 18,934 | | | 2,320 | |
Inventories | | (7,063) | | | (917) | | | (11,113) | | | (7,188) | |
Prepaid expenses and deposits | | (414) | | | 1,943 | | | (899) | | | 3,941 | |
Accounts payable | | 1,399 | | | (4,773) | | | (24,738) | | | (12,876) | |
Accrued liabilities | | (8,557) | | | 1,972 | | | (23,894) | | | (15,221) | |
Contract liabilities | | 291 | | | 69 | | | 241 | | | (1,342) | |
Net change in non-cash working capital | | $ | (31,654) | | | $ | (4,154) | | | $ | (103,578) | | | $ | (25,125) | |
Investing activities
Cash used in investing activities for the three months ended September 30, 2024, was $60.2 million, compared to cash used in investing activities of $27.0 million for the three months ended September 30, 2023. Current period investing activities largely relate to $61.8 million for the purchase of property, plant and equipment, partially offset by $9.5 million cash received on disposal of property, plant and equipment. Prior year investing activities included $39.3 million for the purchase of property, plant and equipment, partially offset by $1.8 million cash received on the disposal of property, plant and equipment.
Cash used in investing activities for the nine months ended September 30, 2024, was $198.9 million, compared to cash used in investing activities of $107.1 million for the nine months ended September 30, 2023. Current year to date investing activities largely relate to $203.8 million for the purchase of property, plant and equipment, partially offset by $4.0 million in cash settlement of a derivative financial instrument and $11.1 million in proceeds from the disposal of property, plant and equipment. Prior year investing activities included $114.2 million for the purchase of property, plant and equipment, offset by $4.8 million in proceeds from the disposal of property, plant and equipment.
Financing activities
Cash provided by financing activities during the three months ended September 30, 2024, was $20.0 million, which included $50.0 million in proceeds from long-term debt, offset by $25.3 million of long-term debt repayments and
| | | | | | | | |
Management's Discussion and Analysis September 30, 2024 | M-14 | North American Construction Group Ltd. |
dividend payments of $2.6 million. Cash provided by financing activities during the three months ended September 30, 2023, was $9.3 million, which included proceeds from long-term debt of $55.0 million, offset by $37.5 million of long-term debt repayments and dividend payments of $2.6 million.
Cash provided by financing activities during the nine months ended September 30, 2024, was $68.4 million, which included $201.3 million in proceeds from long-term debt, offset by $101.6 million of long-term debt repayments, $20.9 million in payments towards contingent obligations and dividend payments of $8.0 million. Cash used in financing activities during the nine months ended September 30, 2023, was $29.6 million, which included $95.0 million in proceeds from long-term debt, offset by $111.4 million of long-term debt repayments and dividend payments of $7.4 million.
Free cash flow
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
(dollars in thousands) | | 2024 | | 2023 | | 2024 | | 2023 |
Consolidated Statements of Cash Flows | | | | | | | | |
Cash provided by operating activities | | $ | 48,184 | | | $ | 37,512 | | | $ | 119,063 | | | $ | 109,521 | |
Cash used in investing activities | | (60,221) | | | (26,970) | | | (198,919) | | | (107,123) | |
Effect of exchange rate on changes in cash | | 1,385 | | | (1,100) | | | 508 | | | (1,462) | |
Growth capital additions(i)(ii) | | 21,437 | | | 1,727 | | | 60,987 | | | 4,475 | |
Capital additions financed by leases(i) | | — | | | (2,229) | | | (14,157) | | | (27,228) | |
Free cash flow(i) | | $ | 10,785 | | | $ | 8,940 | | | $ | (32,518) | | | $ | (21,817) | |
(i)See "Non-GAAP Financial Measures".
(ii)Included above in Cash used in investing activities.Free cash flow for the three and nine months ended September 30, 2024, were an inflow of cash of $10.8 million and use of cash of $32.5 million, respectively.
For the three months ended September 30, 2024, adjusted EBITDA of $106.4 million less sustaining capital additions of $21.1 million, cash interest expense of $14.2 million and cash taxes paid of $9.3 million generated $61.8 million of cash flow in the quarter. The difference of $51.0 million is primarily related to changes in working capital balances of $31.7 million and increases in capital work in progress of $12.0 million which occurred during the quarter.
For the nine months ended September 30, 2024, adjusted EBITDA of $286.5 million less sustaining capital additions of $118.3 million, cash interest expense of $34.0 million, and cash taxes paid of $15.6 million generated $118.6 million of cash flow year to date. The difference to free cash flow of $151.1 million is primarily related to changes in working capital balances of $103.6 million and increases in capital work in progress of $31.5 million which occurred during the nine months.
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Management's Discussion and Analysis September 30, 2024 | M-15 | North American Construction Group Ltd. |
Contractual obligations
Our principal contractual obligations relate to our long-term debt, finance and operating leases, and supplier contracts. The following table summarizes our future contractual obligations as of September 30, 2024, excluding interest where interest is not defined in the contract (operating leases and supplier contracts). The future interest payments were calculated using the applicable interest rates and balances as at September 30, 2024, and may differ from actual results.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments due by fiscal year |
(dollars in thousands) | | Total | | 2024 | | 2025 | | 2026 | | 2027 | | 2028 and thereafter |
Credit Facility | | $ | 451,830 | | | $ | 7,045 | | | $ | 27,950 | | | $ | 416,835 | | | $ | — | | | $ | — | |
Convertible debentures(i) | | 149,265 | | | 1,715 | | | 6,861 | | | 59,789 | | | 4,111 | | | 76,789 | |
Equipment financing(i) | | 295,748 | | | 29,126 | | | 96,676 | | | 68,615 | | | 61,928 | | | 39,403 | |
Contingent obligations | | 182,155 | | | 19,240 | | | 59,883 | | | 61,615 | | | 41,417 | | | — | |
Mortgage | | 39,685 | | | 446 | | | 1,783 | | | 1,783 | | | 1,783 | | | 33,890 | |
Operating leases(ii) | | 14,600 | | | 459 | | | 1,745 | | | 1,651 | | | 1,387 | | | 9,358 | |
Non-lease components of lease commitments(iii) | | 63 | | | (3) | | | 7 | | | 7 | | | 6 | | | 46 | |
Supplier contracts | | 5,706 | | | 5,706 | | | — | | | — | | | — | | | — | |
Contractual obligations | | $ | 1,139,052 | | | $ | 63,734 | | | $ | 194,905 | | | $ | 610,295 | | | $ | 110,632 | | | $ | 159,486 | |
(i)If not converted earlier.
(ii)Operating leases are net of receivables on subleases of $171 (2024 - $171).
(iii)Non-lease components of lease commitments are net of receivables on subleases of $5 (2024 - $5). These commitments include common area maintenance, management fees, property taxes and parking related to operating leases.
Our total contractual obligations of $1,139.1 million as at September 30, 2024, increased from $1,024.3 million as at December 31, 2023, primarily as a result of the increase to the Credit Facility of $61.8 million, an increase to equipment financing of $51.1 million, and an increase in contingent obligations of $12.3 million offset by a decrease in convertible debentures of $5.1 million. We have no off-balance sheet arrangements.
Credit Facility
On October 3, 2023, we entered into an Amended and Restated Credit Agreement (the "Credit Facility") with a banking syndicate. On October 26, 2023, we exercised the accordion feature to increase the size of the tranches as included in the amended agreement. The amended agreement matures on October 3, 2026, with an option to extend on an annual basis, subject to certain conditions. The agreement is comprised solely of a revolving facility that includes a Canadian dollar tranche of $280.0 million and an Australian dollar tranche of A$220.0 million, totaling $485.7 million of lending capacity using the exchange rate in effect as at September 30, 2024. The Credit Facility permits finance lease obligations to a limit of $350.0 million and certain other borrowings outstanding to a limit of $20.0 million. The permitted amount of $350.0 million for finance lease obligations includes guarantees provided by us to certain joint ventures.
As at September 30, 2024, the Credit Facility had borrowings of $395.7 million (December 31, 2023 - $317.5 million) and $32.0 million in issued letters of credit (December 31, 2023 - $31.3 million). At September 30, 2024, our unused borrowing availability under the Credit Facility was $58.0 million (December 31, 2023 - $129.3 million).
Under the terms of the Credit Facility the Total Debt to Bank EBITDA Ratio is to be maintained at less than or equal to 3.5:1. The Fixed Charge Coverage Ratio is to be maintained at a ratio greater than 1.1:1.
Financial covenants are to be tested quarterly on a trailing four quarter basis. As at September 30, 2024, we were in compliance with the Credit Facility covenants. We fully expect to maintain compliance with our financial covenants during the subsequent twelve-month period.
For complete discussion on our Credit Facility, including covenants, calculation of the borrowing base, allowable finance lease debt, and our credit rating, see "Liquidity and Capital Resources - Credit Facility" in our most recent annual MD&A.
Subsequent to September 30, 2024, on October 25, 2024, we entered into an amending agreement, further amending the Credit Facility and extending its maturity date by one year to October 3, 2027. The Credit Facility, as now amended, includes a Canadian dollar tranche of $300.0 million (increased from $280.0 million) and an Australian dollar tranche of A$250.0 million (increased from A$220.0 million), totaling $529.7 million of lending
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Management's Discussion and Analysis September 30, 2024 | M-16 | North American Construction Group Ltd. |
capacity using the exchange rate in effect as at October 25, 2024. The Credit Facility, as now amended, allows for an additional $400 million of secured equipment financing from third party providers (increased from $350 million).
Outstanding share data
Common shares
We are authorized to issue an unlimited number of voting common shares and an unlimited number of non-voting common shares. On June 12, 2014, we entered into a trust agreement whereby the trustee may purchase and hold voting common shares, classified as treasury shares on our Consolidated Balance Sheets, until such time that units issued under the equity classified long-term incentive plans are to be settled. Units granted under such plans typically vest at the end of a three-year term.
As at October 25, 2024, there were 27,827,282 voting common shares outstanding, which included 1,000,328 voting common shares held by the trust and classified as treasury shares on our consolidated balance sheets (27,827,282 common shares, including 996,435 common shares classified as treasury shares at September 30, 2024).
For a more detailed discussion of our share data, see "Capital Structure and Securities - Capital Structure" in our most recent AIF.
Convertible debentures
| | | | | | | | | | | | | | |
| | September 30, 2024 | | December 31, 2023 |
5.50% convertible debentures | | $ | 74,750 | | | $ | 74,750 | |
5.00% convertible debentures | | 55,000 | | | 55,000 | |
| | $ | 129,750 | | | $ | 129,750 | |
The terms of the convertible debentures are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Date of issuance | | Maturity | | Conversion price | | Debt issuance costs |
5.50% convertible debentures | | June 1, 2021 | | June 30, 2028 | | $ | 24.23 | | | $ | 3,531 | |
5.00% convertible debentures | | March 20, 2019 | | March 31, 2026 | | $ | 25.29 | | | $ | 2,691 | |
Interest on the 5.50% convertible debenture is payable semi-annually in arrears on June 30 and December 31 of each year. Interest on the 5.00% convertible debentures is payable semi-annually on March 31 and September 30 of each year.
The 5.50% convertible debentures may be redeemed at our option, in whole or in part, at any time on or after June 30, 2024, at a redemption price equal to the principal amount provided that the market price of the common shares is at least 125% of the conversion price ($30.625); and on or after June 30, 2026, at a redemption price equal to the principal amount. In each case, we are required to pay accrued and unpaid interest on the debentures redeemed.
The 5.00% convertible debentures are only redeemable under certain conditions after a change in control has occurred. If a change in control occurs, we are required to offer to purchase all of the 5.00% convertible debentures at a price equal to 101% of the principal amount plus accrued and unpaid interest to the date of purchase.
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Management's Discussion and Analysis September 30, 2024 | M-17 | North American Construction Group Ltd. |
Swap Agreement
On May 29, 2024, we entered into a swap agreement on its common shares with a financial institution for investment purposes. During the three and nine months ended September 30, 2024, we recognized an unrealized loss of $572 and $845 on this agreement based on the difference between the par value of the converted shares and the expected price of our shares at contract maturity. The agreement is for 583,725 shares at a par value of $26.73, and an additional 100,000 shares at a par value of $25.36 as at September 30, 2024. The TSX closing price of the shares as at September 30, 2024, was $25.29, resulting in a fair value of $845 being recorded to other long-term obligations on the Interim Consolidated Balance Sheets as at September 30, 2024. The swap has not been designated as a hedge for accounting purposes and therefore changes in the fair value of the derivative are recognized in the Interim Consolidated Statements of Operations and Comprehensive Income.
On October 5, 2022, we entered into a swap agreement on its common shares with a financial institution for investment purposes. This swap agreement was completed on January 3, 2024, at which point we realized a gain of $229, which had been recorded in the prior year as unrealized and extinguished the derivative financial instrument that had been recorded on the Consolidated Balance Sheets at December 31, 2023.
Share purchase agreement
Subsequent to period end, on October 30, 2024, we announced our intention to commence a normal course issuer bid ("NCIB") to purchase, for cancellation, up to 2,087,577 of our voting common shares, which represents approximately 10.0% of the public float and approximately 7.5% of the issued and outstanding common shares as of October 24, 2024. In order to comply with applicable securities laws, we will purchase a maximum of 1,391,364 common shares (or approximately 5.0% of the issued and outstanding voting common shares) on the NYSE and alternative trading systems. This NCIB is expected to commence on or about November 4, 2024 and will terminate no later than November 3, 2025.
Backlog
The following summarizes our non-GAAP reconciliation of backlog as at September 30, 2024:
| | | | | | | | | | | | | | |
(dollars in thousands) | | September 30, 2024 | | December 31, 2023 |
Remaining performance obligations per financial statements | | $ | 3,022 | | | $ | 22,797 | |
Add: undefined committed volumes | | 2,726,034 | | | 2,171,718 | |
Backlog(i) | | $ | 2,729,056 | | | $ | 2,194,515 | |
Equity method investment backlog(i) | | 420,568 | | | 536,623 | |
Combined backlog(i) | | $ | 3,149,624 | | | $ | 2,731,138 | |
(i)See "Non-GAAP Financial Measures".During the nine months ended September 30, 2024, our backlog increased $534.5 million, with a combined backlog rise of $418.5 million. This increase in combined backlog includes additions of $1,361.0 million, offset by recognized revenue of $942.5 million. Revenue generated from backlog during this period was $808.8 million. We estimate that $255.7 million of our backlog reported above will be performed over the remainder of 2024, with a full-year estimate of $1,064.5 million. For comparison, revenue generated from backlog for the year ended December 31, 2023, was $690.4 million.
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Management's Discussion and Analysis September 30, 2024 | M-18 | North American Construction Group Ltd. |
OUTLOOK
The following table provides projected key measures for 2024. These measures are predicated on contracts currently in place, including expected renewals, and the heavy equipment fleet that we own and operate.
| | | | | | | | |
Key measures | | 2024 |
Combined revenue(i) | | $1.4 - $1.5B |
Adjusted EBITDA(i) | | $395 - $415M |
Sustaining capital(i) | | $150 - $170M |
Adjusted EPS(i) | | $3.95 - $4.15 |
Free cash flow(i) | | $100 - $120M |
| | |
Capital allocation | | |
Growth spending(i) | | $85 - $95M |
Net debt leverage(i) | | Targeting 2.1x |
(i) See "Non-GAAP Financial Measures".ACCOUNTING ESTIMATES, PRONOUNCEMENTS AND MEASURES
Critical accounting estimates
The preparation of our consolidated financial statements, in conformity with US GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. For a full discussion of our critical accounting estimates, see "Critical Accounting Estimates" in our annual MD&A for the year ended December 31, 2023.
Change in significant accounting policy - Basis of presentation
During the first quarter of 2024, we changed our accounting policy for the elimination of our proportionate share of profit from downstream sales to affiliates and joint ventures to record through equity earnings in affiliates and joint ventures on the Consolidated Statements of Operations and Comprehensive Income. Prior to this change, we eliminated our proportionate share of profit on downstream sales to affiliates and joint ventures through revenue and cost of sales. The change in accounting policy simplifies the presentation for downstream profit eliminations and has no cumulative impact on retained earnings. We have accounted for the change retrospectively in accordance with the requirements of US GAAP Accounting Standards Codification ("ASC") 250 by restating the comparative period. For details of retrospective changes, refer to note 16 in the Financial Statements.
Issued accounting pronouncements not yet adopted
Joint venture formations
In August 2023, the FASB issued ASU 2023-05, Business Combinations - Joint Venture Formations. This accounting standard update was issued to create new requirements for valuing contributions made to a joint venture upon formation. This standard is effective January 1, 2025, with early adoption permitted. We are assessing the impact the adoption of this standard may have on its consolidated financial statements.
Segment reporting
In November 2023, the FASB issued ASU 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures. This accounting standard update was issued to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This standard is effective for annual statements for the fiscal year beginning January 1, 2024, with early adoption permitted. We are assessing the impact the adoption of this standard may have on its consolidated financial statements.
Income taxes
In December 2023, the FASB issued ASU 2023-09, Income Taxes: Improvements to Income Tax Disclosures. This accounting standard update was issued to increase transparency by improving income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. This standard is effective for annual statements for the fiscal year beginning January 1, 2025, with early adoption permitted. We are assessing the impact the adoption of this standard may have on its consolidated financial statements.
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Management's Discussion and Analysis September 30, 2024 | M-19 | North American Construction Group Ltd. |
Stock compensation
In March 2024, the FASB issued ASU 2024-01, Compensation - Stock Compensation. This accounting standard update was issued to reduce complexity in determining if profit interest awards are subject to Topic 718 and to reduce diversity in practice. This standard is effective for annual statements for the fiscal year beginning January 1, 2025. We are assessing the impact the adoption of this standard may have on its consolidated financial statements.
Non-GAAP financial measures
We believe that the below non-GAAP financial measures are all meaningful measures of business performance because they include or exclude items that are or are not directly related to the operating performance of our business. Management reviews these measures to determine whether property, plant and equipment are being allocated efficiently.
"Adjusted EBIT" is defined as adjusted net earnings before the effects of interest expense, income taxes, and equity earnings in affiliates and joint ventures, but including the equity investment EBIT from our affiliates and joint ventures accounted for using the equity method.
"Adjusted EBITDA" is defined as adjusted EBIT before the effects of depreciation, amortization, and equity investment depreciation and amortization.
"Adjusted EPS" is defined as adjusted net earnings, divided by the weighted-average number of common shares.
"Adjusted net earnings" is defined as net 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, and certain other non-cash items included in the calculation of net income. These adjustments are tax effected in the calculation of adjusted net earnings.
As adjusted EBIT, adjusted EBITDA, adjusted net earnings and adjusted EPS are non-GAAP financial measures, our computations may vary from others in our industry. These measures should not be considered as alternatives to operating income or net income as measures of operating performance or cash flows and they have important limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of our results as reported under US GAAP. For example, adjusted EBITDA does not:
•reflect our cash expenditures or requirements for capital expenditures or capital commitments or proceeds from capital disposals;
•reflect changes in our cash requirements for our working capital needs;
•reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt;
•include tax payments or recoveries that represent a reduction or increase in cash available to us; or
•reflect any cash requirements for assets being depreciated and amortized that may have to be replaced in the future.
"Backlog" is a measure of the amount of secured work we have outstanding and, as such, is an indicator of a base level of future revenue potential. We define backlog as work that has a high certainty of being performed as evidenced by the existence of a signed contract or work order specifying expected job scope, value and timing. Backlog, while not a GAAP term is similar in nature and definition to the "transaction price allocated to the remaining performance obligations", defined under US GAAP and reported in "Note 5 - Revenue" in our financial statements. When the two numbers differ, the variance relates to expected scope where we have a contractual commitment, but the customer has not yet provided specific direction. Our equity consolidated backlog is calculated based on backlog amounts from our joint venture and affiliates and taken at our ownership percentage.
"Capital additions" is defined as capital expenditures, net and lease additions.
"Capital expenditures, net" is defined as growth capital and sustaining capital. We believe that capital expenditures, net and its components are a meaningful measure to assess resource allocation.
"Capital inventory" is defined as rotatable parts included in property, plant and equipment held for use in the overhaul of property, plant and equipment.
"Capital work in progress" is defined as sustaining capital prior to commissioning and not available for use.
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Management's Discussion and Analysis September 30, 2024 | M-20 | North American Construction Group Ltd. |
"Cash liquidity" is defined as cash plus available and unused Credit Facility less outstanding letters of credit.
"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.
"Cash related interest expense" is defined as total interest expense less amortization of deferred financing costs.
“Combined backlog” is a measure of the total of backlog from wholly-owned entities plus equity method investment backlog.
"Combined depreciation" is defined as consolidated depreciation per the financial statements combined with our share of depreciation from affiliates and joint ventures that are accounted for using the equity method.
"Combined gross profit" is defined as consolidated gross profit per the financial statements combined with our share of gross profit from affiliates and joint ventures that are accounted for using the equity method. This measure is reviewed by management to assess the impact of affiliates and joint ventures' gross profit on our adjusted EBITDA margin.
"Equity investment EBIT" is defined as our proportionate share (based on ownership interest) of equity earnings in affiliates and joint ventures before the effects of gain or loss on disposal of property, plant and equipment, interest expense, and income taxes.
"Equity method investment backlog" is a measure of our proportionate share (based on ownership interest) of backlog from affiliates and joint ventures that are accounted for using the equity method.
"Free cash flow" is defined as cash from operations less cash used in investing activities including finance lease additions but excluding cash used for growth capital. We believe that free cash flow is a relevant measure of cash available to service our total debt repayment commitments, pay dividends, fund share purchases and fund both growth capital expenditures and potential strategic initiatives.
“General and administrative expenses (excluding stock-based compensation)” is a measure of general and administrative expenses recorded on the statement of operations less expenses related to stock-based compensation.
"Growth capital" and "growth capital additions" are defined as new or used revenue-generating and customer facing assets which are not intended to replace an existing asset. These expenditures result in a meaningful increase to earnings and cash flow potential.
"Invested capital" is defined as total shareholders' equity plus net debt.
"Net debt" is defined as total debt less cash and cash equivalents recorded on the balance sheets. Net debt is used by us in assessing our debt repayment requirements after using available cash.
"Share of affiliate and joint venture capital additions" is defined as our proportionate share (based on ownership interest) of capital expenditures, net and lease additions from affiliates and joint ventures that are accounted for using the equity method.
"Sustaining capital" is defined as expenditures, net of routine disposals, related to property, plant and equipment which have been commissioned and are available for use operated to maintain and support existing earnings and cash flow potential and do not include the characteristics of growth capital.
"Total capital liquidity" is defined as total liquidity plus unused finance lease and other borrowing availability under our Credit Facility.
"Total combined revenue" is defined as consolidated revenue per the financial statements combined with our share of revenue from affiliates and joint ventures that are accounted for using the equity method. This measure is reviewed by management to assess the impact of affiliates and joint ventures' revenue on our adjusted EBITDA margin.
"Total debt" is defined as the sum of the outstanding principal balance (current and long-term portions) of: (i) finance leases; (ii) borrowings under our credit facilities (excluding outstanding Letters of Credit); (iii) mortgage; (iv) promissory notes; (v) financing obligations; and (vi) vendor financing, excluding convertible debentures. We believe total debt is a meaningful measure in understanding our complete debt obligations.
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Management's Discussion and Analysis September 30, 2024 | M-21 | North American Construction Group Ltd. |
Non-GAAP ratios
"Margin" is defined as the financial number as a percent of total reported revenue. We will often identify a relevant financial metric as a percentage of revenue and refer to this as a margin for that financial metric.
"Adjusted EBITDA Margin" is defined as adjusted EBITDA divided by total combined revenue.
"Combined depreciation margin" is defined as combined depreciation divided by total combined revenue.
"Combined gross profit margin" is defined as combined gross profit divided by total combined revenue.
We believe that presenting relevant financial metrics as a percentage of revenue is a meaningful measure of our 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.
Supplementary Financial Measures
"Gross profit margin" represents gross profit as a percentage of revenue.
"Total net working capital (excluding cash)" represents net working capital, less the cash balance.
INTERNAL SYSTEMS AND PROCESSES
Evaluation of disclosure controls and procedures
Our disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose is recorded, processed, summarized and reported within the time periods specified under Canadian and US securities laws. They include controls and procedures designed to ensure that information is accumulated and communicated to management, including the Chief Executive Officer and the Executive Vice President & Chief Financial Officer to allow timely decisions regarding required disclosures.
An evaluation was carried out under the supervision of and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the US Securities Exchange Act of 1934, as amended, and in National Instrument 52-109 under the Canadian Securities Administrators Rules and Policies. Based on this evaluation, our Chief Executive Officer and the Chief Financial Officer concluded that as of September 30, 2024, such disclosure controls and procedures were effective.
Management’s report on internal control over financial reporting
There have been no significant changes to our internal controls over financial reporting ("ICFR") for the three and nine months ended September 30, 2024, that have materially affected, or are reasonably likely to affect, our ICFR.
LEGAL AND LABOUR MATTERS
Laws and Regulations and Environmental Matters
Please see "Our Business - Health, Safety and Environmental" in our most recent Annual Information Form for a complete discussion on this topic.
Employees and Labour Relations
As at September 30, 2024, we had 194 salaried employees (September 30, 2023 - 209 salaried employees) and 1,087 hourly employees (September 30, 2023 - 1,542 hourly employees) in our western Canadian operations (excluding employees employed by affiliates and joint ventures). Of the hourly employees, approximately 81% of the employees are union members and work under collective bargaining agreements (September 30, 2023 - 83% of the employees). Our hourly workforce fluctuates according to the seasonality of our business and the staging and timing of projects by our customers. The hourly workforce for our ongoing operations ranges in size from approximately 700 employees to approximately 1,800 employees, depending on the time of year, types of work, and duration of awarded projects. We also utilize the services of subcontractors in our business. Subcontractors perform an estimated 7% to 10% of the work we undertake.
As at September 30, 2024, we had 229 salaried employees and 1,012 hourly employees in our Australian operations. Approximately 650 are covered under the Fair Work Act and Modern Awards agreement. This
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Management's Discussion and Analysis September 30, 2024 | M-22 | North American Construction Group Ltd. |
agreement outlines the minimum pay rates and conditions of employment for employees and is up for review in late 2025.
FORWARD-LOOKING INFORMATION
Our MD&A is intended to enable readers to gain an understanding of our current results and financial position. To do so, we provide information and analysis comparing results of operations and financial position for the current period to that of the preceding periods. We also provide analysis and commentary that we believe is necessary to assess our future prospects. Accordingly, certain sections of this report, as well as the accompanying Letter to Shareholders, contain forward-looking information that is based on current plans and expectations. Our forward-looking information is information that is subject to known and unknown risks and other factors that may cause future actions, conditions or events to differ materially from the anticipated actions, conditions or events expressed or implied by such forward-looking information. Readers are cautioned that actual events and results may vary from the forward-looking information.
Forward-looking information is information that does not relate strictly to historical or current facts and can be identified by the use of the future tense or other forward-looking words such as "believe", "continue", "expect", "project", "will" or the negative of those terms or other variations of them or comparable terminology.
Examples of such forward-looking information in this document include, but are not limited to, statements with respect to the following, each of which is subject to significant risks and uncertainties and is based on a number of assumptions which may prove to be incorrect:
•Statements regarding finalization of contracts currently in negotiation.
•Our expectations about the future stability and growth of the oil sands contractor market.
•Our belief that our Nuna joint venture will continue its turnaround and will grow profitably in the future.
•Our expectation that our ERP roll-out in Australia will be completed in Q4 2024.
•Our expectation that we will continue to be able to relocate under-utilized Canadian assets to Australia and win additional and more diversified work in Australia.
•Our belief that Q4 2024 will continue to improve off the Q3 2024 results and that we will have a busy winter, with the full year results being within the guidance range provided in Q2 2024.
•Our belief that there is minimal risk in the collection of our trade receivables.
•Any statements regarding future contractual obligations, including projected interest payments.
•Our expectation that we will maintain compliance with financial covenants during the next twelve-month period.
•All statements regarding levels of backlog and the periods of time over which we expect to perform backlog.
•All financial guidance provided in the "Outlook" section of this MD&A and in the accompanying Letter to Shareholders, including projections related to combined revenue, Adjusted EBITDA, sustaining capital, Adjusted EPS, free cash flow, growth spending and net debt leverage.
Assumptions
Material factors or assumptions used to develop forward-looking statements include, but are not limited to:
•oil and coal prices remaining stable and not dropping significantly in 2024 or 2025;
•worldwide demand for metallurgical coal and thermal coal remaining stable;
•oil sands production continuing to be resilient to drops in oil prices due to our customer's desire to lower their operating cost per barrel;
•continuing demand for heavy construction and earth-moving services, including in diversified resources and geographies;
•continuing demand for external heavy equipment maintenance services and our ability to hire and retain sufficient qualified personnel and to have sufficient maintenance facility capacity to capitalize on that demand;
•our ability to maintain our expenses at current levels in proportion to our revenue;
•work continuing to be required under our master services agreements with various customers and such master services agreements remaining intact;
•our customers' continued willingness and ability to meet their contractual obligations to us;
•our customers' continued economic viability, including their ability to pay us in a timely fashion;
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Management's Discussion and Analysis September 30, 2024 | M-23 | North American Construction Group Ltd. |
•our customers and potential customers continuing to outsource activities for which we are capable of providing services;
•our ability to source and maintain the right size and mix of equipment in our fleet and to secure specific types of rental equipment to support project development activity that enables us to meet our customers' variable service requirements while balancing the need to maximize utilization of our own equipment and that our equipment maintenance costs are similar to our historical experience;
•our continued ability to access sufficient funds to meet our funding requirements;
•our success in executing our business strategy, identifying and capitalizing on opportunities, managing our business, maintaining and growing our relationships with customers, retaining new customers, competing in the bidding process to secure new projects and identifying and implementing improvements in our maintenance and fleet management practices;
•our relationships with the unions representing certain of our employees continuing to be positive; and
•our success in improving profitability and continuing to strengthen our balance sheet through a focus on performance, efficiency and risk management.
These material factors and assumptions are subject to the risks and uncertainties highlighted in our MD&A for the year ended December 31, 2023, and in our most recently filed Annual Information Form.
While we anticipate that subsequent events and developments may cause our views to change, we do not have an intention to update this forward-looking information, except as required by applicable securities laws. This forward-looking information represents our views as of the date of this document and such information should not be relied upon as representing our views as of any date subsequent to the date of this document. We have attempted to identify important factors that could cause actual results, performance or achievements to vary from those current expectations or estimates expressed or implied by the forward-looking information. However, there may be other factors that cause results, performance or achievements not to be as expected or estimated and that could cause actual results, performance or achievements to differ materially from current expectations. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those expected or estimated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. These factors are not intended to represent a complete list of the factors that could affect us. See "Assumptions" above, "Assumptions" and "Business Risk Factors" in our annual MD&A for the year ended December 31, 2023, and risk factors highlighted in materials filed with the securities regulatory authorities filed in the United States and Canada from time to time, including, but not limited to, our most recent Annual Information Form.
Risk Management
We are exposed to liquidity, market and credit risks associated with its financial instruments. Management performs a risk assessment on a continual basis to help ensure that all significant risks related to our Company and operations have been reviewed and assessed to reflect changes in market conditions and operating activities.
Market Risk
Market risk is the risk that the future revenue or operating expense related cash flows, the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices such as foreign currency exchange rates and interest rates. The level of market risk to which we are exposed to at any point in time varies depending on market conditions, expectations of future price or market rate movements, and composition of our financial assets and liabilities held, non-trading physical assets, and contract portfolios. We have experienced no material change in market risk as of the quarter ended September 30, 2024. For a full discussion of market risk please see our annual MD&A for the year ended December 31, 2023.
ADDITIONAL INFORMATION
Our corporate head office is located at 27287 - 100 Avenue, Acheson, Alberta, T7X 6H8. Telephone and facsimile are 780-960-7171 and 780-969-5599, respectively.
Additional information relating to us, including our AIF dated December 31, 2023, can be found on the Canadian Securities Administrators' SEDAR+ System at www.sedarplus.com, the Securities and Exchange Commission’s website at www.sec.gov and on our Company website at www.nacg.ca.
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Management's Discussion and Analysis September 30, 2024 | M-24 | North American Construction Group Ltd. |
Interim Consolidated Balance Sheets
(Expressed in thousands of Canadian Dollars)
(Unaudited)
| | | | | | | | | | | | | | | | | |
| Note | | September 30, 2024 | | December 31, 2023 |
Assets | | | | | |
Current assets | | | | | |
Cash | | | $ | 77,670 | | | $ | 88,614 | |
Accounts receivable | 4, 7 | | 158,179 | | | 97,855 | |
Contract assets | 5(b) | | 16,128 | | | 35,027 | |
Inventories | 6 | | | 77,150 | | | 64,962 | |
Prepaid expenses and deposits | | | 8,477 | | | 7,402 | |
Assets held for sale | | | 7,355 | | | 1,340 | |
| | | 344,959 | | | 295,200 | |
Property, plant and equipment, net of accumulated depreciation of $474,655 (December 31, 2023 – $423,345) | | | 1,235,447 | | | 1,142,946 | |
Operating lease right-of-use assets | | | 13,404 | | | 12,782 | |
Investments in affiliates and joint ventures | 7 | | | 85,192 | | | 81,435 | |
Other assets | | | 5,082 | | | 7,144 | |
Intangible assets | | | 10,052 | | | 6,971 | |
Total assets | | | $ | 1,694,136 | | | $ | 1,546,478 | |
Liabilities and shareholders’ equity | | | | | |
Current liabilities | | | | | |
Accounts payable | | | $ | 123,110 | | | $ | 146,190 | |
Accrued liabilities | | | 47,724 | | | 72,225 | |
Contract liabilities | 5(b) | | 300 | | | 59 | |
Current portion of long-term debt | 8 | | | 94,485 | | | 81,306 | |
Current portion of contingent obligations | 13(a), 14 | | 37,601 | | | 22,501 | |
Current portion of operating lease liabilities | | | 1,852 | | | 1,742 | |
| | | 305,072 | | | 324,023 | |
Long-term debt | 8 | | | 723,487 | | | 611,313 | |
Contingent obligations | 13(a), 14 | | 101,752 | | | 93,356 | |
Operating lease liabilities | | | 12,010 | | | 11,307 | |
Other long-term obligations | | | 41,768 | | | 41,001 | |
Deferred tax liabilities | | | 118,133 | | | 108,824 | |
| | | 1,302,222 | | | 1,189,824 | |
Shareholders' equity | | | | | |
Common shares (authorized – unlimited number of voting common shares; issued and outstanding – September 30, 2024 - 27,827,282 (December 31, 2023 – 27,827,282)) | 9(a) | | 229,455 | | | 229,455 | |
Treasury shares (September 30, 2024 - 996,435 (December 31, 2023 - 1,090,187)) | 9(a) | | (15,809) | | | (16,165) | |
Additional paid-in capital | | | 22,524 | | | 20,739 | |
Retained earnings | | | 154,398 | | | 123,032 | |
Accumulated other comprehensive income (loss) | | | 1,346 | | | (407) | |
Shareholders' equity | | | 391,914 | | | 356,654 | |
Total liabilities and shareholders’ equity | | | $ | 1,694,136 | | | $ | 1,546,478 | |
Subsequent events (notes 8a, 9d)
See accompanying notes to interim consolidated financial statements.
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Interim Consolidated Financial Statements (Unaudited) September 30, 2024 | F-1 | North American Construction Group Ltd. |
Interim Consolidated Statements of Operations and
Comprehensive Income
(Expressed in thousands of Canadian Dollars, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| Note | | 2024 | | 2023 | | 2024 | | 2023 |
| | | | | Restated Notes 2, 16 | | | | Restated Notes 2, 16 |
Revenue | 2, 5, 16 | | $ | 286,857 | | | $ | 196,881 | | | $ | 860,197 | | | $ | 636,398 | |
Cost of sales | 2, 11, 16 | | 183,405 | | | 141,771 | | | 570,222 | | | 457,856 | |
Depreciation | | | 38,354 | | | 28,592 | | | 121,918 | | | 89,329 | |
Gross profit | | | 65,098 | | | 26,518 | | | 168,057 | | | 89,213 | |
General and administrative expenses | | | 10,945 | | | 12,485 | | | 36,630 | | | 38,638 | |
Loss (gain) on disposal of property, plant and equipment | | | 348 | | | (311) | | | 641 | | | 189 | |
Operating income | | | 53,805 | | | 14,344 | | | 130,786 | | | 50,386 | |
Equity earnings in affiliates and joint ventures | 2, 7, 16 | | (4,428) | | | (4,277) | | | (9,545) | | | (22,963) | |
Interest expense, net | 12 | | | 15,003 | | | 8,119 | | | 44,939 | | | 22,941 | |
Change in fair value of contingent obligations | 13(a) | | 21,989 | | | — | | | 38,945 | | | — | |
Loss (gain) on derivative financial instruments | 13(b) | | 572 | | | (2,618) | | | 845 | | | (6,979) | |
Income before income taxes | | | 20,669 | | | 13,120 | | | 55,602 | | | 57,387 | |
Current income tax expense | | | 2,238 | | | 1,495 | | | 5,003 | | | 3,198 | |
Deferred income tax expense | | | 4,530 | | | 238 | | | 11,322 | | | 8,694 | |
Net income | | | $ | 13,901 | | | $ | 11,387 | | | $ | 39,277 | | | $ | 45,495 | |
Other comprehensive income | | | | | | | | | |
Unrealized foreign currency translation (gain) loss | | | (1,115) | | | 1,100 | | | (1,753) | | | 1,462 | |
Comprehensive income | | | $ | 15,016 | | | $ | 10,287 | | | $ | 41,030 | | | $ | 44,033 | |
Per share information | | | | | | | | | |
Basic net income per share | 9(b) | | $ | 0.52 | | | $ | 0.43 | | | $ | 1.47 | | | $ | 1.72 | |
Diluted net income per share | 9(b) | | $ | 0.47 | | | $ | 0.39 | | | $ | 1.32 | | | $ | 1.51 | |
See accompanying notes to interim consolidated financial statements.
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Interim Consolidated Financial Statements (Unaudited) September 30, 2024 | F-2 | North American Construction Group Ltd. |
Interim Consolidated Statements of Changes in
Shareholders’ Equity
(Expressed in thousands of Canadian Dollars)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common shares | | Treasury shares | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive income (loss) | | Equity |
Balance at December 31, 2022 | | $ | 229,455 | | | $ | (16,438) | | | $ | 22,095 | | | $ | 70,501 | | | $ | 306 | | | $ | 305,919 | |
Net income | | — | | | — | | | — | | | 45,495 | | | — | | | 45,495 | |
Unrealized foreign currency translation loss | | — | | | — | | | — | | | — | | | (1,462) | | | (1,462) | |
Dividends ($0.30 per share) | | — | | | — | | | — | | | (7,936) | | | — | | | (7,936) | |
Purchase of treasury shares | | — | | | (5,878) | | | — | | | — | | | — | | | (5,878) | |
Stock-based compensation | | — | | | 6,264 | | | (2,766) | | | — | | | — | | | 3,498 | |
Balance at September 30, 2023 | | $ | 229,455 | | | $ | (16,052) | | | $ | 19,329 | | | $ | 108,060 | | | $ | (1,156) | | | $ | 339,636 | |
| | | | | | | | | | | | |
Balance at December 31, 2023 | | $ | 229,455 | | | $ | (16,165) | | | $ | 20,739 | | | $ | 123,032 | | | $ | (407) | | | $ | 356,654 | |
Net income | | — | | | — | | | — | | | 39,277 | | | — | | | 39,277 | |
Unrealized foreign currency translation gain | | — | | | — | | | — | | | — | | | 1,753 | | | 1,753 | |
Dividends ($0.30 per share) | | — | | | — | | | — | | | (7,911) | | | — | | | (7,911) | |
Purchase of treasury shares | | — | | | (2,362) | | | — | | | — | | | — | | | (2,362) | |
Stock-based compensation | | — | | | 2,718 | | | 1,785 | | | — | | | — | | | 4,503 | |
Balance at September 30, 2024 | | $ | 229,455 | | | $ | (15,809) | | | $ | 22,524 | | | $ | 154,398 | | | $ | 1,346 | | | $ | 391,914 | |
See accompanying notes to interim consolidated financial statements.
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Interim Consolidated Financial Statements (Unaudited) September 30, 2024 | F-3 | North American Construction Group Ltd. |
Interim Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian Dollars)
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| Note | | 2024 | | 2023 | | 2024 | | 2023 |
Cash provided by (used in): | | | | | | | | | |
Operating activities: | | | | | | | | | |
Net income | | | $ | 13,901 | | | $ | 11,387 | | | $ | 39,277 | | | $ | 45,495 | |
Adjustments to reconcile to net cash from operating activities: | | | | | | | | | |
Depreciation | | | 38,354 | | | 28,592 | | | 121,918 | | | 89,329 | |
Amortization of deferred financing costs | 12 | | | 780 | | | 296 | | | 2,303 | | | 877 | |
Loss (gain) on disposal of property, plant and equipment | | | 348 | | | (311) | | | 641 | | | 189 | |
Loss (gain) on derivative financial instruments | | | 572 | | | (2,618) | | | 845 | | | (6,979) | |
Stock-based compensation expense | | | 1,332 | | | 5,583 | | | 3,081 | | | 16,324 | |
Equity earnings in affiliates and joint ventures | 7 | | | (4,428) | | | (4,277) | | | (9,545) | | | (22,963) | |
Cash settlement of deferred share units | | | — | | | (471) | | | — | | | (7,817) | |
Dividends and advances received from affiliates and joint ventures | 7 | | | 82 | | | 2,549 | | | 3,584 | | | 10,715 | |
Change in fair value of contingent obligations | 13(a) | | 21,989 | | | — | | | 38,945 | | | — | |
Other adjustments to cash from operating activities | | | 2,378 | | | 698 | | | 10,270 | | | 782 | |
Deferred income tax expense | | | 4,530 | | | 238 | | | 11,322 | | | 8,694 | |
Net changes in non-cash working capital | 15(b) | | (31,654) | | | (4,154) | | | (103,578) | | | (25,125) | |
| | | 48,184 | | | 37,512 | | | 119,063 | | | 109,521 | |
Investing activities: | | | | | | | | | |
Purchase of property, plant and equipment | | | (61,812) | | | (39,295) | | | (203,772) | | | (114,210) | |
Additions to intangible assets | | | (2,277) | | | (121) | | | (3,953) | | | (123) | |
Proceeds on disposal of property, plant and equipment | | | 9,485 | | | 1,769 | | | 11,080 | | | 4,809 | |
Net payment on the wind up of affiliates and joint ventures | 7 | | | — | | | — | | | — | | | (387) | |
Net advances of loans with affiliates and joint ventures | | | (5,617) | | | 10,677 | | | (6,289) | | | 2,788 | |
Cash settlement of derivative financial instruments | | | — | | | — | | | 4,015 | | | — | |
| | | (60,221) | | | (26,970) | | | (198,919) | | | (107,123) | |
Financing activities: | | | | | | | | | |
Proceeds from long-term debt | 8 | | | 50,014 | | | 55,000 | | | 201,291 | | | 95,000 | |
Repayment of long-term debt | 8 | | | (25,277) | | | (37,494) | | | (101,596) | | | (111,401) | |
Payments towards contingent consideration | 13, 14 | | — | | | — | | | (20,907) | | | — | |
Financing costs | | | (13) | | | — | | | (62) | | | — | |
Dividends paid | 9(c) | | (2,612) | | | (2,641) | | | (7,960) | | | (7,360) | |
Purchase of treasury shares | 9(a) | | (2,133) | | | (5,615) | | | (2,362) | | | (5,878) | |
| | | 19,979 | | | 9,250 | | | 68,404 | | | (29,639) | |
Increase (decrease) in cash | | | 7,942 | | | 19,792 | | | (11,452) | | | (27,241) | |
Effect of foreign exchange rate on changes in cash | | | 1,385 | | | (1,100) | | | 508 | | | (1,462) | |
Cash, beginning of period | | | 68,343 | | | 21,749 | | | 88,614 | | | 69,144 | |
Cash, end of period | | | $ | 77,670 | | | $ | 40,441 | | | $ | 77,670 | | | $ | 40,441 | |
Supplemental cash flow information (note 15(a)).
See accompanying notes to interim consolidated financial statements.
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Interim Consolidated Financial Statements (Unaudited) September 30, 2024 | F-4 | North American Construction Group Ltd. |
Notes to Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2024
(Expressed in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
1. Nature of operations
North American Construction Group Ltd. ("NACG" or the "Company") was formed under the Canada Business Corporations Act. The Company and its predecessors have been operating continuously since 1953 providing a wide range of mining and heavy construction services to customers in the resource development and industrial construction sectors within Canada, the United States, and Australia. A significant portion of services are primarily focused on supporting the construction and operation of surface mines.
2. Significant accounting policies
Basis of presentation
These interim consolidated financial statements are prepared in accordance with United States generally accepted accounting principles ("US GAAP"). These interim consolidated financial statements include the accounts of the Company, and its wholly-owned incorporated subsidiaries in Canada, the United States, and Australia. All significant intercompany transactions and balances are eliminated upon consolidation. The Company also holds ownership interests in other corporations, partnerships and joint ventures.
Except as noted below, The Company has prepared these interim consolidated financial statements on the same basis as its annual consolidated financial statements.
The Company's full year results are not likely to be a direct multiple of any particular quarter or combination of quarters due to seasonality. Oil sands mining in Canada revenues are typically highest in the first quarter of each year as ground conditions are most favorable for this type of work while civil construction revenues are typically highest during the third and fourth quarter, as weather conditions during these seasons are most favorable for this type of work. Rental and production-related mine support revenue in the Queensland region can be impacted by the rainy cyclone season from November through February. During this period, heavy rains can temporarily suspend mining operations from both the direct impacts to the mine itself as well as flooding that can damage perimeter roads required for critical supplies and parts. In addition to revenue variability, gross profit margins can be negatively affected in less active periods because the Company is likely to incur higher maintenance and repair costs due to its equipment being available for servicing.
Change in significant accounting policy - Basis of presentation
During the first quarter of 2024, the Company changed its accounting policy for the elimination of its proportionate share of profit from downstream sales to affiliates and joint ventures to record through equity earnings in affiliates and joint ventures on the Consolidated Statements of Operations and Comprehensive Income. Prior to this change, the Company eliminated its proportionate share of profit on downstream sales to affiliates and joint ventures through revenue and cost of sales. The change in accounting policy simplifies the presentation for downstream profit eliminations and has no cumulative impact on retained earnings. The Company has accounted for the change retrospectively in accordance with the requirements of US GAAP Accounting Standards Codification ("ASC") 250 by restating the comparative period. For details of retrospective changes, refer to note 16 in these Financial Statements.
| | | | | | | | |
Interim Consolidated Financial Statements (Unaudited) September 30, 2024 | F-5 | North American Construction Group Ltd. |
3. Recent accounting pronouncements not yet adopted
a) Joint venture formations
In August 2023, the FASB issued ASU 2023-05, Business Combinations - Joint Venture Formations. This accounting standard update was issued to create new requirements for valuing contributions made to a joint venture upon formation. This standard is effective January 1, 2025, with early adoption permitted. The Company is assessing the impact the adoption of this standard may have on its consolidated financial statements.
b) Segment reporting
In November 2023, the FASB issued ASU 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures. This accounting standard update was issued to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This standard is effective for annual statements for the fiscal year beginning January 1, 2024, with early adoption permitted. The Company is assessing the impact the adoption of this standard may have on its consolidated financial statements.
c) Income taxes
In December 2023, the FASB issued ASU 2023-09, Income Taxes: Improvements to Income Tax Disclosures. This accounting standard update was issued to increase transparency by improving income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. This standard is effective for annual statements for the fiscal year beginning January 1, 2025, with early adoption permitted. The Company is assessing the impact the adoption of this standard may have on its consolidated financial statements.
d) Stock compensation
In March 2024, the FASB issued ASU 2024-01, Compensation - Stock Compensation. This accounting standard update was issued to reduce complexity in determining if profit interest awards are subject to Topic 718 and to reduce diversity in practice. This standard is effective for annual statements for the fiscal year beginning January 1, 2025. The Company is assessing the impact the adoption of this standard may have on its consolidated financial statements.
4. Accounts receivable
| | | | | | | | | | | | | | |
| | September 30, 2024 | | December 31, 2023 |
Trade | | $ | 61,347 | | | $ | 65,386 | |
Holdbacks | | 642 | | | 363 | |
Accrued trade receivables | | 73,518 | | | 16,556 | |
Contract receivables | | $ | 135,507 | | | $ | 82,305 | |
Other | | 22,672 | | | 15,550 | |
| | $ | 158,179 | | | $ | 97,855 | |
The Company has not recorded an allowance for credit losses and there has been no change to this estimate in the period. Included within other are commodity tax receivables, receivables from related parties, and other non-trade receivables.
| | | | | | | | |
Interim Consolidated Financial Statements (Unaudited) September 30, 2024 | F-6 | North American Construction Group Ltd. |
5. Revenue
a) Disaggregation of revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
Revenue by source | | | | | | | | |
Operations support services | | $ | 278,538 | | | $ | 174,486 | | | $ | 825,886 | | | $ | 578,450 | |
Equipment and component sales | | 7,708 | | | 22,395 | | | 32,178 | | | 49,399 | |
Construction services | | 611 | | | — | | | 2,133 | | | 8,549 | |
| | $ | 286,857 | | | $ | 196,881 | | | $ | 860,197 | | | $ | 636,398 | |
| | | | | | | | |
Revenue by commercial terms | | | | | | | | |
Time & materials | | $ | 265,148 | | | $ | 104,153 | | | $ | 747,944 | | | $ | 380,320 | |
Unit price | | 19,023 | | | 90,114 | | | 102,361 | | | 244,665 | |
Lump-sum | | 2,686 | | | 2,614 | | | 9,892 | | | 11,413 | |
| | $ | 286,857 | | | $ | 196,881 | | | $ | 860,197 | | | $ | 636,398 | |
| | | | | | | | |
Timing of revenue recognized | | | | | | | | |
As-invoiced | | $ | 273,828 | | | $ | 101,002 | | | $ | 775,263 | | | $ | 389,426 | |
Cost-to-cost percent complete | | 5,321 | | | 73,484 | | | 52,756 | | | 197,573 | |
Point-in-time | | 7,708 | | | 22,395 | | | 32,178 | | | 49,399 | |
| | $ | 286,857 | | | $ | 196,881 | | | $ | 860,197 | | | $ | 636,398 | |
b) Contract balances
| | | | | | | | | | | | | | |
| | September 30, 2024 | | December 31, 2023 |
Contract assets | | $ | 16,128 | | | $ | 35,027 | |
| | | | |
Contract liabilities | | | | |
Contract liabilities | | 300 | | | 59 | |
Long-term contract liabilities (included in other long-term obligations) | | 20,795 | | | 16,114 | |
| | $ | 21,095 | | | $ | 16,173 | |
Contract assets include unbilled amounts representing revenue recognized from work performed where the Company does not yet have an unconditional right to compensation. These balances generally relate to revenue accruals on contracts where the percentage of completion method of revenue recognition requires an accrual over what has been billed and revenue recognized from variable consideration related to unapproved contract modifications.
Contract liabilities consist of advance payments, billings in excess of costs incurred and estimated earnings on uncompleted contracts and upfront payments from customers for long-term contracts to assist with operations scaling. During the three and nine months ended September 30, 2024, the Company recognized revenue of $9 and $59, respectively, that was included in the contract liability balance as of June 30, 2024 and December 31, 2023, respectively ($nil and $1,411 in 2023 that was included in the contract balance as of June 30, 2023, and December 31, 2022, respectively).
| | | | | | | | |
Interim Consolidated Financial Statements (Unaudited) September 30, 2024 | F-7 | North American Construction Group Ltd. |
c) Transaction price allocated to the remaining performance obligations
As at September 30, 2024, the transaction price allocated to remaining performance obligations is $3,022, of which $2,140 is expected to be recognized within the three months remaining in 2024. This includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period. Included is all consideration from contracts with customers, excluding amounts that are recognized using the as-invoiced method and any constrained amounts of revenue.
d) Unapproved contract modifications
The Company recognized revenue from variable consideration related to unpriced contract modifications for the three and nine months ended September 30, 2024, of $552 and $3,053, respectively (three and nine months ended September 30, 2023 - $4,491). The Company has settled $3,944 of the balance in 2024. The Company has recorded amounts in current assets related to uncollected consideration from revenue recognized on unpriced contract modifications as at September 30, 2024, of $8,848 (December 31, 2023 - $9,482).
6. Inventories
| | | | | | | | | | | | | | |
| | September 30, 2024 | | December 31, 2023 |
Repair parts | | $ | 49,262 | | | $ | 41,358 | |
Tires and track frames | | 5,704 | | | 6,478 | |
Fuel and lubricants | | 1,852 | | | 1,941 | |
Parts and supplies | | 56,818 | | | 49,777 | |
Parts, supplies and components for equipment rebuilds | | 18,923 | | | 13,898 | |
Customer rebuild work in process | | 1,409 | | | 1,287 | |
| | $ | 77,150 | | | $ | 64,962 | |
7. Investments in affiliates and joint ventures
| | | | | | | | |
Affiliate or joint venture name: | | Interest |
Nuna Group of Companies ("Nuna") | | |
Nuna Logistics Ltd. | | 49 | % |
North American Nuna Joint Venture | | 50 | % |
Nuna East Ltd. | | 37 | % |
Nuna Pang Contracting Ltd. | | 37 | % |
Nuna West Mining Ltd. | | 49 | % |
Mikisew North American Limited Partnership ("MNALP") | | 49 | % |
Fargo joint ventures ("Fargo") | | |
ASN Constructors ("ASN") | | 30 | % |
Red River Valley Alliance LLC ("RRVA") | | 15 | % |
NAYL Realty Inc. | | 49 | % |
BNA Remanufacturing Limited Partnership | | 50 | % |
Barrooghumba WPH Pty Ltd. | | 50 | % |
Ngaliku WPH Pty Ltd. | | 50 | % |
The following table summarizes the movement in the investments in affiliates and joint ventures balance:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
Balance, beginning of the period | | $ | 81,206 | | | $ | 82,736 | | | $ | 81,435 | | | $ | 75,637 | |
Share of net income | | 4,428 | | | 4,277 | | | 9,545 | | | 22,963 | |
Dividends and advances received from affiliates and joint ventures | | (82) | | | (2,549) | | | (3,584) | | | (12,928) | |
Intercompany eliminations | | (360) | | | 798 | | | (2,204) | | | (410) | |
Balance, end of the period | | $ | 85,192 | | | $ | 85,262 | | | $ | 85,192 | | | $ | 85,262 | |
| | | | | | | | |
Interim Consolidated Financial Statements (Unaudited) September 30, 2024 | F-8 | North American Construction Group Ltd. |
a) Affiliate and joint venture condensed financial data
The financial information for the Company's share of the investments in affiliates and joint ventures accounted for using the equity method is summarized as follows:
Balance Sheets
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2024 | | Nuna | | MNALP | | Fargo | | Other entities | | Total |
Assets | | | | | | | | | | |
Cash | | $ | 650 | | | $ | 5,174 | | | $ | 74,417 | | | $ | 278 | | | $ | 80,519 | |
Other current assets | | 42,123 | | | 46,193 | | | 6,948 | | | 4,894 | | | 100,158 | |
Non-current assets | | 18,526 | | | 38,092 | | | 237,202 | | | 5,677 | | | 299,497 | |
Total assets | | $ | 61,299 | | | $ | 89,459 | | | $ | 318,567 | | | $ | 10,849 | | | $ | 480,174 | |
Liabilities | | | | | | | | | | |
Contract liabilities | | $ | 1,186 | | | $ | 150 | | | $ | 60,961 | | | $ | 1,540 | | | $ | 63,837 | |
Other current liabilities (excluding current portion of long-term debt) | | 9,556 | | | 40,026 | | | 47,559 | | | 613 | | | 97,754 | |
Long-term debt (including current portion) | | 8,836 | | | 32,039 | | | 181,326 | | | 6,083 | | | 228,284 | |
Non-current liabilities | | 4,716 | | | — | | | 391 | | | — | | | 5,107 | |
Total liabilities | | $ | 24,294 | | | $ | 72,215 | | | $ | 290,237 | | | $ | 8,236 | | | $ | 394,982 | |
Net investments in affiliates and joint ventures | | $ | 37,005 | | | $ | 17,244 | | | $ | 28,330 | | | $ | 2,613 | | | $ | 85,192 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2023 | | Nuna | | MNALP | | Fargo(i) | | Other entities | | Total |
Assets | | | | | | | | | | |
Cash | | $ | 9,944 | | | $ | 4,184 | | | $ | 87,418 | | | $ | 222 | | | $ | 101,768 | |
Other current assets | | 34,937 | | | 36,060 | | | 23,284 | | | 4,593 | | | 98,874 | |
Non-current assets | | 23,884 | | | 37,103 | | | 154,090 | | | 10,434 | | | 225,511 | |
Total assets | | $ | 68,765 | | | $ | 77,347 | | | $ | 264,792 | | | $ | 15,249 | | | $ | 426,153 | |
Liabilities | | | | | | | | | | |
Contract liabilities | | $ | 7,817 | | | $ | — | | | $ | 76,481 | | | $ | 52 | | | $ | 84,350 | |
Other current liabilities (excluding current portion of long-term debt) | | 5,145 | | | 29,216 | | | 33,122 | | | 1,871 | | | 69,354 | |
Long-term debt (including current portion) | | 9,631 | | | 36,596 | | | 132,818 | | | 6,221 | | | 185,266 | |
Non-current liabilities | | 4,985 | | | — | | | 589 | | | 174 | | | 5,748 | |
Total liabilities | | $ | 27,578 | | | $ | 65,812 | | | $ | 243,010 | | | $ | 8,318 | | | $ | 344,718 | |
Net investments in affiliates and joint ventures | | $ | 41,187 | | | $ | 11,535 | | | $ | 21,782 | | | $ | 6,931 | | | $ | 81,435 | |
(i) For December 31, 2023, the Company reclassified $18,728 from non-current assets to other current assets to align with a presentation change made by the equity investee in the current year.
Included within the Company's share of Nuna September 30, 2024, current assets are contract assets of $7,838 from variable consideration related to unapproved contract modifications (December 31, 2023 – $8,701).
| | | | | | | | |
Interim Consolidated Financial Statements (Unaudited) September 30, 2024 | F-9 | North American Construction Group Ltd. |
Statements of Operations
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended September 30, 2024 | | Nuna | | MNALP | | Fargo | | Other entities | | Total |
Revenues | | $ | 19,768 | | | $ | 70,438 | | | $ | 51,037 | | | $ | 3,331 | | | $ | 144,574 | |
Gross profit | | 3,792 | | | 2,391 | | | 8,914 | | | 220 | | | 15,317 | |
Income before taxes | | 3,006 | | | 1,740 | | | 288 | | | 174 | | | 5,208 | |
Net income | | $ | 2,265 | | | $ | 1,740 | | | $ | 288 | | | $ | 135 | | | $ | 4,428 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended September 30, 2023 | | Nuna | | MNALP | | Fargo | | Other entities | | Total |
Revenues | | $ | 40,090 | | | $ | 88,480 | | | $ | 38,677 | | | $ | 1,420 | | | $ | 168,667 | |
Gross profit | | 681 | | | 2,940 | | | 7,664 | | | 201 | | | 11,486 | |
Income before taxes | | (764) | | | 2,220 | | | 3,711 | | | (442) | | | 4,725 | |
Net income | | $ | (838) | | | $ | 2,220 | | | $ | 3,337 | | | $ | (442) | | | $ | 4,277 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nine months ended September 30, 2024 | | Nuna | | MNALP | | Fargo | | Other entities | | Total |
Revenues | | $ | 47,876 | | | $ | 219,465 | | | $ | 105,234 | | | $ | 10,214 | | | $ | 382,789 | |
Gross profit | | 4,367 | | | 7,788 | | | 24,129 | | | 888 | | | 37,172 | |
Income before taxes | | (4,140) | | | 5,651 | | | 6,053 | | | 1,696 | | | 9,260 | |
Net income | | $ | (3,748) | | | $ | 5,651 | | | $ | 6,053 | | | $ | 1,589 | | | $ | 9,545 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nine months ended September 30, 2023 | | Nuna | | MNALP | | Fargo | | Other entities | | Total |
Revenues | | $ | 146,699 | | | $ | 297,879 | | | $ | 67,242 | | | $ | 4,817 | | | $ | 516,637 | |
Gross profit | | 14,376 | | | 10,407 | | | 15,674 | | | 511 | | | 40,968 | |
Income before taxes | | 8,101 | | | 8,107 | | | 9,250 | | | (1,201) | | | 24,257 | |
Net income | | $ | 7,259 | | | $ | 8,107 | | | $ | 8,798 | | | $ | (1,201) | | | $ | 22,963 | |
b) Related parties
The following table provides the material aggregate outstanding balances with affiliates and joint ventures. Accounts
payable and accrued liabilities due to joint ventures and affiliates do not bear interest, are unsecured, and without
fixed terms of repayment. Accounts receivable from certain joint ventures and affiliates bear interest at various rates and all other accounts receivable amounts are non-interest bearing.
| | | | | | | | | | | | | | |
| | September 30, 2024 | | December 31, 2023 |
Accounts receivable | | $ | 71,987 | | | $ | 41,157 | |
Contract assets | | 14,682 | | | 12,019 | |
Other assets | | 56 | | | 350 | |
Accounts payable and accrued liabilities | | 20,848 | | | 15,087 | |
The Company enters into transactions with a number of its joint ventures and affiliates that involve providing services primarily consisting of subcontractor services, equipment rental revenue, and sales of equipment and components. These transactions were conducted in the normal course of operations, which were established and agreed to as consideration by the related parties. For the three months ended September 30, 2024, and 2023, revenue earned from these services was $130,913 and $178,909, respectively. For the nine months ended September 30, 2024, and 2023, revenue earned from these services was $407,971 and $583,379, respectively. The majority of services are being completed through the MNALP joint venture which performs the role of contractor and subcontracts work to the Company. Accounts receivable balances from MNALP are recorded when MNALP bills the external customer and are settled when MNALP receives payment. At September 30, 2024, MNALP had recorded accounts receivable of $83,378 on its balance sheet (December 31, 2023 – $61,111).
| | | | | | | | |
Interim Consolidated Financial Statements (Unaudited) September 30, 2024 | F-10 | North American Construction Group Ltd. |
8. Long-term debt
| | | | | | | | | | | | | | | | | |
| Note | | September 30, 2024 | | December 31, 2023 |
Credit Facility | 8(a) | | $ | 395,700 | | | $ | 317,488 | |
Equipment financing | 8(b) | | 267,544 | | | 220,466 | |
Convertible debentures | 8(c) | | 129,750 | | | 129,750 | |
Mortgage | | | 27,810 | | | 28,429 | |
Unamortized deferred financing costs | | | (2,832) | | | (3,514) | |
| | | $ | 817,972 | | | $ | 692,619 | |
Less: current portion of long-term debt | | | (94,485) | | | (81,306) | |
| | | $ | 723,487 | | | $ | 611,313 | |
a) Credit Facility
On October 3, 2023, the Company entered into an Amended and Restated Credit Agreement (the "Credit Facility") with a banking syndicate. On October 26, 2023, the Company exercised the accordion feature to increase the size of the tranches as included in the amended agreement. The amended agreement matures on October 3, 2026, with an option to extend on an annual basis, subject to certain conditions. The agreement is comprised solely of a revolving facility that includes a Canadian dollar tranche of $280.0 million and an Australian dollar tranche of A$220.0 million, totaling $485.7 million of lending capacity using the exchange rate in effect as at September 30, 2024. The Credit Facility permits finance lease obligations to a limit of $350.0 million and certain other borrowings outstanding to a limit of $20.0 million. The permitted amount of $350.0 million for finance lease obligations includes guarantees provided by the Company to certain joint ventures.
As at September 30, 2024, there was $32.0 million (December 31, 2023 - $31.3 million) in issued letters of credit under the Credit Facility and the unused borrowing availability was $58.0 million (December 31, 2023 - $129.3 million).
As at September 30, 2024, there was $20.0 million in borrowing availability under finance lease obligations (December 31, 2023 - $60.1 million). Borrowing availability under finance lease obligations considers the current and long-term portion of finance lease obligations and financing obligations, including the finance lease obligations for the joint ventures that the Company guarantees.
The Credit Facility has two financial covenants that must be tested quarterly on a trailing four-quarter basis. As at September 30, 2024, the Company was in compliance with its financial covenants.
•The first covenant is the Total Debt to Bank EBITDA Ratio.
◦"Total Debt" is defined as the sum of the outstanding principal balance (current and long-term portions) of: (i) finance leases; (ii) borrowings under credit facilities (excluding outstanding Letters of Credit); (iii) mortgage; (iv) promissory notes; (v) financing obligations; and (vi) vendor financing, excluding convertible debentures.
◦"Bank EBITDA" is defined as earnings before interest, taxes, depreciation and amortization, excluding the effects of unrealized foreign exchange gain or loss, realized and unrealized gain or loss on derivative financial instruments, cash and non-cash stock-based compensation expense, gain or loss on disposal of property, plant and equipment, acquisition costs, and certain other noncash items included in the calculation of net income.
◦The Total Debt to Bank EBITDA Ratio must be less than or equal to 3.5:1.
•The second covenant is the Fixed Charge Coverage Ratio which is defined as Bank EBITDA less maintenance capital expenditures, cash distributions (dividends, share buybacks, etc.), and cash taxes compared to Fixed Charges.
◦"Fixed Charges" is defined as cash interest and all scheduled principal debt repayments.
◦The Fixed Charge Coverage Ratio is to be maintained at a ratio greater than 1.1:1.
The Credit Facility bears interest at Canadian prime rate, U.S. Dollar Base Rate, Australian Bank Bill Swap Reference Rate ("BBSY"), Term CORRA Margin Rate and Daily Compounded CORRA Margin Rate, or the Secured
| | | | | | | | |
Interim Consolidated Financial Statements (Unaudited) September 30, 2024 | F-11 | North American Construction Group Ltd. |
Overnight Financing Rate ("SOFR") (all such terms as used or defined in the Credit Facility), plus applicable margins. The Company is also subject to non-refundable standby fees, 0.40% to 0.70% depending on the Company's Total Debt to Bank EBITDA Ratio. The Credit Facility is secured by a lien on all of the Company's existing and after-acquired property.
The Company acts as a guarantor for drawn amounts under revolving equipment lease credit facilities which have a combined capacity of $115.0 million for MNALP, an affiliate of the Company. This equipment lease credit facility will allow MNALP to avail the credit through a lease agreement and/or equipment finance contract with appropriate supporting documents. As at September 30, 2024, the Company has provided guarantees on this facility of $65.0 million (December 31, 2023 - $74.7 million). There have been no instances or indication that payments will not be made by MNALP; therefore, no liability has been recorded related to this guarantee.
Subsequent to September 30, 2024, on October 25, 2024, the Company entered into an amended and restated senior secured credit facility. The maturity date has been extended by one year to October 3, 2027. The Credit Facility includes a Canadian dollar tranche of $300.0 million (increased from $280.0 million) and an Australian dollar tranche of A$250.0 million (increased from A$220.0 million), totaling $529.7 million of lending capacity using the exchange rate in effect as at October 25, 2024. The Credit Facility allows for an additional $400 million of secured equipment financing from third party providers (increased from $350 million).
b) Equipment financing
| | | | | | | | | | | | | | | | | | | | |
| | Note | | September 30, 2024 | | December 31, 2023 |
Finance lease obligations | | | | $ | 63,336 | | | $ | 52,851 | |
Financing obligations | | 8(d) | | 201,644 | | | 162,266 | |
Promissory notes | | | | 2,564 | | | 5,349 | |
| | | | $ | 267,544 | | | $ | 220,466 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Three months ended |
| | September 30, 2024 | | September 30, 2023 |
| | Additions | | Payments | | Change in foreign exchange rates | | Additions | | Payments |
Finance lease obligations | | $ | 8,985 | | | $ | (6,623) | | | $ | 339 | | | $ | 2,229 | | | $ | (7,353) | |
Financing obligations | | 21,029 | | | (17,952) | | | 3,559 | | | — | | | (3,459) | |
Promissory notes | | — | | | (494) | | | — | | | — | | | (1,482) | |
| | $ | 30,014 | | | $ | (25,069) | | | $ | 3,898 | | | $ | 2,229 | | | $ | (12,294) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended | | Nine months ended |
| | September 30, 2024 | | September 30, 2023 |
| | Additions | | Payments | | Change in foreign exchange rates | | Additions | | Payments |
Finance lease obligations | | $ | 30,054 | | | $ | (20,963) | | | $ | 1,394 | | | $ | 27,228 | | | $ | (20,573) | |
Financing obligations | | 92,076 | | | (57,229) | | | 4,531 | | | — | | | (10,823) | |
Promissory notes | | — | | | (2,785) | | | — | | | — | | | (4,407) | |
| | $ | 122,130 | | | $ | (80,977) | | | $ | 5,925 | | | $ | 27,228 | | | $ | (35,803) | |
c) Convertible debentures
| | | | | | | | | | | | | | |
| | September 30, 2024 | | December 31, 2023 |
5.50% convertible debentures | | $ | 74,750 | | | $ | 74,750 | |
5.00% convertible debentures | | 55,000 | | | 55,000 | |
| | $ | 129,750 | | | $ | 129,750 | |
| | | | | | | | |
Interim Consolidated Financial Statements (Unaudited) September 30, 2024 | F-12 | North American Construction Group Ltd. |
The terms of the convertible debentures are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Date of issuance | | Maturity | | Conversion price | | Debt issuance costs |
5.50% convertible debentures | | June 1, 2021 | | June 30, 2028 | | $ | 24.23 | | | $ | 3,531 | |
5.00% convertible debentures | | March 20, 2019 | | March 31, 2026 | | $ | 25.29 | | | $ | 2,691 | |
Interest on the 5.50% convertible debentures is payable semi-annually in arrears on June 30 and December 31 of each year. Interest on the 5.00% convertible debentures is payable semi-annually on March 31 and September 30 of each year.
The conversion price is adjusted upon certain events, including: the subdivision or consolidation of the outstanding common shares, issuance of certain options, rights or warrants, distribution of cash dividends in an amount greater than $0.192 for the 5.50% convertible debentures or $0.12 per common share for the 5.00% convertible debentures, and other reorganizations such as amalgamations or mergers.
The 5.50% convertible debentures are redeemable on and after June 30, 2024, and prior to June 30, 2026 at the option of the Company at the redemption price equal to the principal amount of the debentures plus accrued and unpaid interest thereon up to but excluding the date set for redemption provided, among other things, the current market price is at least 125% of the conversion price ($30.625) on the date on which notice of the redemption is given. On or after June 30, 2026, the debentures may be redeemed at the option of the Company at the redemption price equal to the principal amount of the debentures plus accrued and unpaid interest.
Both the 5.00% convertible debentures and the 5.50% convertible debentures are redeemable under certain conditions after a change in control has occurred. If a change in control occurs, the Company is required to offer to purchase all of the convertible debentures at a price equal to 101% of the principal amount plus accrued and unpaid interest to the date of purchase. The 5.00% convertible debentures are otherwise not redeemable by the Company.
d) Financing obligations
During the three and nine months ended September 30, 2024, the Company recorded new financing obligations of $21.0 million and $92.1 million, respectively. The financing contracts expire between August 2026 and September 2029 and bear interest between 5.56% and 7.92%. The financing obligations are secured by the corresponding property, plant and equipment.
9. Shares
a) Common shares
| | | | | | | | | | | | | | | | | | | | |
| | Common shares | | Treasury shares | | Common shares, net of treasury shares |
Issued and outstanding as at December 31, 2023 | | 27,827,282 | | | (1,090,187) | | | 26,737,095 | |
Purchase of treasury shares | | — | | | (11,748) | | | (11,748) | |
Settlement of certain equity classified stock-based compensation | | — | | | 105,500 | | | 105,500 | |
Issued and outstanding as at September 30, 2024 | | 27,827,282 | | | (996,435) | | | 26,830,847 | |
| | | | | | | | |
Interim Consolidated Financial Statements (Unaudited) September 30, 2024 | F-13 | North American Construction Group Ltd. |
b) Net income per share
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
Net income | | $ | 13,901 | | | $ | 11,387 | | | $ | 39,277 | | | $ | 45,495 | |
Interest from convertible debentures (after tax) | | 1,509 | | | 1,462 | | | 4,490 | | | 4,441 | |
Diluted net income available to common shareholders | | $ | 15,410 | | | $ | 12,849 | | | $ | 43,767 | | | $ | 49,936 | |
| | | | | | | | |
Weighted-average number of common shares | | 26,823,124 | | | 26,700,303 | | | 26,762,439 | | | 26,509,360 | |
Weighted-average effect of dilutive securities | | | | | | | | |
Dilutive effect of treasury shares | | 1,004,158 | | | 1,126,979 | | | 1,064,843 | | | 1,317,922 | |
Dilutive effect of 5.00% convertible debentures | | 2,174,773 | | | 2,129,307 | | | 2,174,773 | | | 2,129,307 | |
Dilutive effect of 5.50% convertible debentures | | 3,085,019 | | | 3,051,020 | | | 3,085,019 | | | 3,051,020 | |
Weighted-average number of diluted common shares | | 33,087,074 | | | 33,007,609 | | | 33,087,074 | | | 33,007,609 | |
| | | | | | | | |
Basic net income per share | | $ | 0.52 | | | $ | 0.43 | | | $ | 1.47 | | | $ | 1.72 | |
Diluted net income per share | | $ | 0.47 | | | $ | 0.39 | | | $ | 1.32 | | | $ | 1.51 | |
For the three and nine months ended September 30, 2024 and 2023, all securities were dilutive.
c) Dividends
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Date declared | | Per share | | Shareholders on record as of | | Paid or payable to shareholders | | Total paid or payable |
Q1 2023 | | February 14, 2023 | | $ | 0.10 | | | March 3, 2023 | | April 6, 2023 | | $ | 2,621 | |
Q2 2023 | | April 25, 2023 | | $ | 0.10 | | | May 26, 2023 | | July 7, 2023 | | $ | 2,641 | |
Q3 2023 | | July 25, 2023 | | $ | 0.10 | | | August 31, 2023 | | October 6, 2023 | | $ | 2,674 | |
Q4 2023 | | October 31, 2023 | | $ | 0.10 | | | November 30, 2023 | | January 5, 2024 | | $ | 2,674 | |
Q1 2024 | | February 20, 2024 | | $ | 0.10 | | | March 8, 2024 | | April 5, 2024 | | $ | 2,674 | |
Q2 2024 | | April 30, 2024 | | $ | 0.10 | | | May 31, 2024 | | July 5, 2024 | | $ | 2,612 | |
Q3 2024 | | July 31, 2024 | | $ | 0.10 | | | August 30, 2024 | | October 4, 2024 | | $ | 2,625 | |
d) Share purchase program
Subsequent to period end, on October 30, 2024, the Company announced its intention to commence a normal course issuer bid ("NCIB") to purchase, for cancellation, up to 2,087,577 of its voting common shares, which represents approximately 10.0% of the public float and approximately 7.5% of the issued and outstanding common shares as of October 24, 2024. In order to comply with applicable securities laws, the Company will purchase a maximum of 1,391,364 common shares (or approximately 5.0% of the issued and outstanding voting common shares) on the NYSE and alternative trading systems. This NCIB is expected to commence on or about November 4, 2024 and will terminate no later than November 3, 2025.
10. Segmented information
a) General information
The Company provides a wide range of mining and heavy civil construction services to customer in the resource development and industrial construction sectors within Canada, the United States, and Australia. A significant portion of services are primarily focused on supporting the construction and operation of surface mines. The Company considers the basis on which it is organized, including geographic areas, to identify its operating segments. Operating segments of the Company are defined as components of the Company for which separate financial information is available and are evaluated regularly by the chief operating decision maker when allocating resources and assessing performance. The chief operating decision makers ("CODMs") are the President & CEO and the CFO of the Company.
The Company’s reportable segments are Heavy Equipment - Canada, Heavy Equipment - Australia, and Other. Heavy Equipment - Canada and Heavy Equipment - Australia include all of aspects of the mining and heavy civil construction services provided within those geographic areas. Other includes mine management contract work in the United States, external maintenance and rebuild programs and equity method investments.
| | | | | | | | |
Interim Consolidated Financial Statements (Unaudited) September 30, 2024 | F-14 | North American Construction Group Ltd. |
Segment performance is evaluated by the CODMs based on gross profit and is measured consistently with gross profit in the consolidated financial statements. Inter-segment revenues are eliminated on consolidation and reflected in the Eliminations column.
b) Results by reportable segment
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended September 30, 2024 | | Heavy Equipment - Canada | | Heavy Equipment - Australia | | Other | | Eliminations | | Total |
Revenue from external customers | | $ | 132,654 | | | $ | 149,767 | | | $ | 4,426 | | | $ | — | | | $ | 286,847 | |
Revenue from intersegment transactions | | — | | | (238) | | | 6,408 | | | (6,160) | | | 10 | |
Depreciation expense | | 21,806 | | | 17,482 | | | — | | | (934) | | | 38,354 | |
Segment gross profits | | 25,741 | | | 36,847 | | | 2,311 | | | 199 | | | 65,098 | |
Purchase of property, plant and equipment | | 7,120 | | | 54,692 | | | — | | | — | | | 61,812 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended September 30, 2023 | | Heavy Equipment - Canada | | Heavy Equipment - Australia | | Other | | Eliminations | | Total |
Revenue from external customers | | $ | 171,256 | | | $ | 12,069 | | | $ | 7,421 | | | $ | — | | | $ | 190,746 | |
Revenue from intersegment transactions | | 616 | | | 3,206 | | | 5,533 | | | (3,220) | | | 6,135 | |
Depreciation expense | | 28,126 | | | 50 | | | — | | | 416 | | | 28,592 | |
Segment gross profits | | 20,237 | | | 4,218 | | | 3,048 | | | (985) | | | 26,518 | |
Purchase of property, plant and equipment | | 39,295 | | | — | | | — | | | — | | | 39,295 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nine months ended September 30, 2024 | | Heavy Equipment - Canada | | Heavy Equipment - Australia | | Other | | Eliminations | | Total |
Revenue from external customers | | $ | 413,742 | | | $ | 430,701 | | | $ | 14,954 | | | $ | — | | | $ | 859,397 | |
Revenue from intersegment transactions | | — | | | (52) | | | 7,067 | | | (6,215) | | | 800 | |
Depreciation expense | | 78,572 | | | 44,452 | | | — | | | (1,106) | | | 121,918 | |
Segment gross profits | | 51,175 | | | 106,930 | | | 8,616 | | | 1,336 | | | 168,057 | |
Purchase of property, plant and equipment | | 82,291 | | | 121,481 | | | — | | | — | | | 203,772 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nine months ended September 30, 2023 | | Heavy Equipment - Canada | | Heavy Equipment - Australia | | Other | | Eliminations | | Total |
Revenue from external customers | | $ | 576,184 | | | $ | 27,022 | | | $ | 19,639 | | | $ | — | | | $ | 622,845 | |
Revenue from intersegment transactions | | 3,190 | | | 3,206 | | | 16,051 | | | (8,894) | | | 13,553 | |
Depreciation expense | | 88,266 | | | 140 | | | — | | | 923 | | | 89,329 | |
Segment gross profits | | 73,253 | | | 9,033 | | | 8,837 | | | (1,910) | | | 89,213 | |
Purchase of property, plant and equipment | | 114,210 | | | — | | | — | | | — | | | 114,210 | |
Revenue from intersegment transactions includes transactions with the Company’s joint ventures accounted for using the equity method which are not eliminated upon consolidation.
| | | | | | | | | | | | | | |
Segment assets | | September 30, 2024 | | December 31, 2023 |
Heavy Equipment - Canada | | $ | 1,125,880 | | | $ | 1,079,370 | |
Heavy Equipment - Australia | | 846,512 | | | 718,114 | |
Other | | 316,890 | | | 307,850 | |
Eliminations | | (595,146) | | | (558,856) | |
| | $ | 1,694,136 | | | $ | 1,546,478 | |
| | | | | | | | |
Interim Consolidated Financial Statements (Unaudited) September 30, 2024 | F-15 | North American Construction Group Ltd. |
c) Reconciliation of total gross profit for reportable segments to income before income taxes
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
Total gross profit for reportable segments | | $ | 65,098 | | | $ | 26,518 | | | $ | 168,057 | | | $ | 89,213 | |
Reconciling items: | | | | | | | | |
General and administrative costs | | 10,945 | | | 12,485 | | | 36,630 | | | 38,638 | |
Loss (gain) on disposal of property, plant and equipment | | 348 | | | (311) | | | 641 | | | 189 | |
Interest expense | | 15,003 | | | 8,119 | | | 44,939 | | | 22,941 | |
Equity earnings in affiliates and joint ventures | | (4,428) | | | (4,277) | | | (9,545) | | | (22,963) | |
Loss (gain) on derivative financial instruments | | 572 | | | (2,618) | | | 845 | | | (6,979) | |
Change in fair value of contingent obligations | | 21,989 | | | — | | | 38,945 | | | — | |
Income before income taxes | | $ | 20,669 | | | $ | 13,120 | | | $ | 55,602 | | | $ | 57,387 | |
d) Geographic information
i) Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
Canada | | $ | 135,253 | | | $ | 186,082 | | | $ | 421,789 | | | $ | 606,413 | |
Australia | | 149,529 | | | 8,185 | | | 430,649 | | | 22,361 | |
United States | | 2,075 | | | 2,614 | | | 7,759 | | | 7,624 | |
| | $ | 286,857 | | | $ | 196,881 | | | $ | 860,197 | | | $ | 636,398 | |
Revenue from external customers is attributed to countries on the basis of the customer's location.
ii) Long lived assets
| | | | | | | | | | | | | | |
| | September 30, 2024 | | December 31, 2023 |
Canada | | $ | 597,134 | | | $ | 601,537 | |
Australia | | 666,851 | | | 568,306 | |
| | $ | 1,263,985 | | | $ | 1,169,843 | |
Long lived assets consists of property, plant and equipment, lease assets, deferred tax assets, and other assets including intangibles. Geographic information is attributed to countries based on the location of the assets.
11. Cost of sales
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
Salaries, wages, & benefits | | $ | 85,920 | | | $ | 55,304 | | | $ | 253,106 | | | $ | 193,010 | |
Repair parts & consumable supplies | | 50,305 | | | 40,091 | | | 172,226 | | | 132,759 | |
Subcontractor services | | 22,192 | | | 21,657 | | | 72,691 | | | 72,029 | |
Equipment & component sales | | 11,743 | | | 17,926 | | | 28,879 | | | 38,663 | |
Third-party rentals | | 6,799 | | | 3,878 | | | 22,255 | | | 10,745 | |
Fuel | | 3,169 | | | 1,155 | | | 11,086 | | | 4,940 | |
Other | | 3,277 | | | 1,760 | | | 9,979 | | | 5,710 | |
| | $ | 183,405 | | | $ | 141,771 | | | $ | 570,222 | | | $ | 457,856 | |
| | | | | | | | |
Interim Consolidated Financial Statements (Unaudited) September 30, 2024 | F-16 | North American Construction Group Ltd. |
12. Interest expense, net
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
Credit Facility | | $ | 7,418 | | | $ | 2,852 | | | $ | 21,436 | | | $ | 9,262 | |
Equipment financing | | 3,708 | | | 836 | | | 11,707 | | | 2,461 | |
Convertible debentures | | 1,730 | | | 1,716 | | | 5,151 | | | 5,135 | |
Interest on customer supply chain financing | | 692 | | | 988 | | | 2,539 | | | 3,138 | |
Mortgage | | 237 | | | 244 | | | 716 | | | 737 | |
Amortization of deferred financing costs | | 780 | | | 296 | | | 2,303 | | | 877 | |
Interest expense | | $ | 14,565 | | | $ | 6,932 | | | $ | 43,852 | | | $ | 21,610 | |
Other interest expense, net | | 438 | | | 1,187 | | | 1,087 | | | 1,331 | |
| | $ | 15,003 | | | $ | 8,119 | | | $ | 44,939 | | | $ | 22,941 | |
13. Financial instruments and risk management
a) Fair value measurements
The fair values of the Company’s cash, accounts receivable, accounts payable, and accrued liabilities approximate their carrying amounts due to the nature of the instrument or the relatively short periods to maturity for the instruments. The Credit Facility has a carrying value that approximates the fair value due to the floating rate nature of the debt. The promissory notes have a carrying value that is not materially different than their fair value due to similar instruments bearing similar interest rates.
Financial instruments with carrying amounts that differ from their fair values are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | September 30, 2024 | | December 31, 2023 |
| | Fair Value Hierarchy Level | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Convertible debentures | | Level 1 | | 129,750 | | | 147,354 | | | 129,750 | | | 160,072 | |
Financing obligations | | Level 2 | | 201,644 | | | 199,906 | | | 162,266 | | | 159,900 | |
Mortgage | | Level 2 | | 27,810 | | | 24,351 | | | 28,429 | | | 22,780 | |
The Company classifies contingent obligations related to contingent consideration on the MacKellar and DGI acquisitions (note 14), comprised of a contingent payment, deferred consideration and earn-out payments, as Level 3 due to the lack of relevant observable market data over fair value inputs. The contingent obligation is measured at fair value by discounting estimated future payments to the net present value using Level 3 inputs. The Company believes the discount rates used to discount the components of the contingent obligation reflect market participant assumptions.
The contingent payment is based on forecasted performance for a specific MacKellar customer which is expected to be paid in full. The deferred consideration is a MacKellar vendor-provided debt mechanism to be paid out evenly over four years.
The Company uses projected MacKellar and DGI financial results to value the anticipated future earn-out payments. The estimated liability is based on forecasted information and as such, could result in a range of outcomes. The impact of a reasonably possible change of +/- 10% in forecasted net income on the fair value of the earn-out obligation is estimated to be between a $9,481 decrease to a $9,481 increase on the fair value as at September 30, 2024. During the nine months ended September 30, 2024, there has been no change in the valuation approach or technique.
| | | | | | | | |
Interim Consolidated Financial Statements (Unaudited) September 30, 2024 | F-17 | North American Construction Group Ltd. |
Reconciliation of Level 3 recurring fair value measurements:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
Balance, beginning of the period | | $ | 113,828 | | | $ | 2,210 | | | $ | 115,857 | | | $ | 3,862 | |
Changes in fair value recognized in earnings | | 21,989 | | | — | | | 38,945 | | | — | |
Changes in foreign exchange rates | | 3,536 | | | (179) | | | 5,458 | | | (203) | |
Payments | | — | | | — | | | (20,907) | | | (1,628) | |
Balance, end of the period | | $ | 139,353 | | | $ | 2,031 | | | $ | 139,353 | | | $ | 2,031 | |
Changes in estimated fair values are recorded in the Consolidated Statements of Operations and Comprehensive Income. Changes in the fair value of the contingent obligation are due to adjustments in forecasted income estimates and increases from interest accretion expense. The revised estimates for the three and nine months ended September 30, 2024, reflect improved forecasted performance based on recent contract awards and capital investments.
b) Swap agreement
On May 29, 2024, the Company entered into a swap agreement on its common shares with a financial institution for investment purposes. During the three and nine months ended September 30, 2024, the Company recognized an unrealized loss of $572 and $845, respectively, on this agreement based on the difference between the par value of the converted shares and the expected price of the Company’s shares at contract maturity. The agreement is for 583,725 shares at a par value of $26.73, and an additional 100,000 shares at a par value of $25.36 as at September 30, 2024. The TSX closing price of the shares as at September 30, 2024, was $25.29, resulting in a fair value of $845 being recorded to other long-term obligations on the Interim Consolidated Balance Sheets as at September 30, 2024. The swap has not been designated as a hedge for accounting purposes and therefore changes in the fair value of the derivative are recognized in the Interim Consolidated Statements of Operations and Comprehensive Income.
On October 5, 2022, the Company entered into a swap agreement on its common shares with a financial institution for investment purposes. This swap agreement was completed on January 3, 2024, at which point the Company realized a gain of $229, which had been recorded in the prior year as unrealized and extinguished the derivative financial instrument that had been recorded on the Consolidated Balance Sheets at December 31, 2023.
c) Risk management
The Company is exposed to liquidity, market and credit risks associated with its financial instruments. Management performs a risk assessment on a continual basis to ensure that significant risks have been reviewed and assessed to reflect changes in market conditions and operating activities.
The Company is exposed to concentration risk through its revenues which is mitigated by the customers being large investment grade organizations. The credit worthiness of new customers is subject to review by management through consideration of the type of customer and the size of the contract. The Company has also mitigated this risk through diversification of its operations. This diversification has primarily come through investments in joint ventures which are accounted for using the equity method. Revenues of $144,574 and $382,789, respectively, for the three and nine months ended September 30, 2024 ($168,667 and $516,637, respectively, for the three and nine months ended September 30, 2023) from the Company's share of these investments are not included in revenue reported in the consolidated financial statements.
The following customers accounted for 10% or more of revenue reported in the financial statements:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
Customer A | | 29 | % | | — | % | | 27 | % | | — | % |
Customer B | | 25 | % | | 21 | % | | 23 | % | | 28 | % |
Customer C | | 13 | % | | 37 | % | | 13 | % | | 29 | % |
Customer D | | 7 | % | | 6 | % | | 10 | % | | 11 | % |
Customer E | | 1 | % | | 22 | % | | 2 | % | | 22 | % |
| | | | | | | | |
Interim Consolidated Financial Statements (Unaudited) September 30, 2024 | F-18 | North American Construction Group Ltd. |
Customer A relates to the Heavy Equipment - Australia segment. All remaining significant customers that exceed 10% of revenue in 2024 and 2023 fall under the Heavy Equipment - Canada segment.
Where the Company generates revenue under its subcontracting arrangement with MNALP, the final end customer is represented in the table above.
The Company is largely protected against inflation risk as customer contracts contain terms that require annual price increases. The timing of these increases pose a short-term risk to financial results as cost increases are realized immediately and contractual increases are calculated using public reporting of index values, which lag actual cost increases by one to three months.
14. Business acquisition
MacKellar Group
On October 1, 2023, the Company acquired 100% of the shares and business of MacKellar Group (“MacKellar”), a privately owned Australia-based provider of heavy earthworks solutions to the mining and civil sectors for total consideration of $179,668 including a cash payment and contingent consideration comprised of a contingent payment based on forecasted performance for a specific customer which is expected to be paid in full, an earn-out mechanism based on MacKellar’s future net income generated over four years, and deferred consideration which is a vendor provided debt mechanism to be paid out evenly over four years and was estimated based on unaudited financial statements at closing. The acquisition of MacKellar significantly expanded the Company's capability and allows the Company to serve a highly valuable and diversified base of customers in Australia.
The following table summarizes the total consideration paid for MacKellar and the fair values of the assets acquired and liabilities assumed at the acquisition date:
| | | | | | | | |
| | October 1, 2023 |
Cash consideration | | $ | 65,572 | |
Earn-out at estimated fair value | | 79,839 | |
Deferred consideration at estimated fair value | | 27,014 | |
Contingent payment at estimated fair value | | 7,243 | |
Total consideration transferred | | $ | 179,668 | |
| | |
Equipment financing assumed | | 203,946 | |
Total purchase price | | $ | 383,614 | |
| | |
Purchase price allocation to assets acquired and liabilities assumed: | | |
Cash | | $ | 13,901 | |
Accounts receivable | | 65,033 | |
Contract assets | | 713 | |
Inventories | | 12,155 | |
Prepaid expenses | | 2,187 | |
Property, plant and equipment | | 394,394 | |
Investments in affiliates and joint ventures | | 85 | |
Intangible assets | | 690 | |
Accounts payable | | (45,829) | |
Accrued liabilities | | (22,464) | |
Other long-term obligations | | (16,934) | |
Deferred income tax liabilities | | (20,317) | |
Third party equipment financing assumed: | | |
Financing obligations | | (173,430) | |
Finance leases | | (30,516) | |
Total identifiable net assets at fair value | | $ | 179,668 | |
NACG’s existing Credit Facility funded the partial payout of equipment financing assumed as part of the Transaction in the amount of $73,657 for financing obligations and $18,509 for finance leases.
The gross amount of accounts receivable approximated its fair value with no expected uncollectible amounts as of the acquisition date.
The Company engaged a third-party specialist to determine the fair value of the property, plant and equipment using a market based approach, based primarily on the selling price of comparable assets.
| | | | | | | | |
Interim Consolidated Financial Statements (Unaudited) September 30, 2024 | F-19 | North American Construction Group Ltd. |
During the three and nine months ended September 30, 2024, the Company recognized $144,420 and $406,518 of revenue and $17,375 and $54,514 of net income, respectively, from MacKellar recorded in the Consolidated Statement of Operations and Comprehensive Income.
The following unaudited pro forma information reflects the impact of the transaction on the Company's consolidated results as if it had occurred on January 1, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
Revenue | | $ | 286,857 | | | $ | 336,169 | | | $ | 860,197 | | | $ | 1,013,224 | |
Net income | | 13,833 | | | 24,209 | | | 39,101 | | | 82,498 | |
These pro forma amounts have been calculated after applying NACG accounting policies and adjusting the results of MacKellar to reflect the depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant, and equipment had been applied from January 1, 2023, with the consequential tax effects.
The unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred on January 1, 2023, nor are they indicative of future results of operations.
15. Other information
a) Supplemental cash flow information
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
Cash paid during the period for: | | | | | | | | |
Interest | | $ | 10,993 | | | $ | 6,448 | | | $ | 33,955 | | | $ | 21,725 | |
Income taxes | | 9,288 | | | — | | | 15,597 | | | 1,370 | |
Cash received during the period for: | | | | | | | | |
Interest | | 67 | | | 40 | | | 236 | | | 398 | |
Operating subleases included in cash from operations | | 170 | | | 1,295 | | | 512 | | | 4,887 | |
Non-cash transactions: | | | | | | | | |
Addition of property, plant and equipment by means of finance leases | | — | | | 2,229 | | | 14,157 | | | 27,228 | |
Increase in assets held for sale, offset by property, plant and equipment | | 6,114 | | | 658 | | | 15,988 | | | 3,939 | |
Non-cash working capital exclusions: | | | | | | | | |
Net decrease in accounts receivable related to realized gain on derivative financial instruments | | — | | | — | | | (4,015) | | | — | |
Net decrease (increase) in accounts payable and accrued liabilities related to loans from affiliates and joint ventures | | 2,000 | | | (15,764) | | | 2,088 | | | (2,264) | |
Net decrease in accrued liabilities related to the current portion of deferred stock units liability | | — | | | — | | | — | | | 5,099 | |
Net increase in accrued liabilities related to the current portion of acquisition DGI earn-out liability | | — | | | (9) | | | — | | | (1,448) | |
Net (increase) decrease in accrued liabilities related to taxes payable | | (535) | | | 809 | | | (535) | | | 1,049 | |
Net decrease (increase) in accrued liabilities related to dividend payable | | 49 | | | (33) | | | 49 | | | (576) | |
Non-cash working capital movement from change in foreign exchange rates | | | | | | | | |
Increase in accounts receivable | | 1,479 | | | — | | | 2,230 | | | — | |
Increase in contract assets | | 181 | | | — | | | 35 | | | — | |
Increase in inventory | | 699 | | | — | | | 1,075 | | | — | |
Increase in prepaid expenses | | 73 | | | — | | | 128 | | | — | |
Increase in accounts payable | | (1,969) | | | — | | | (1,658) | | | — | |
Increase in accrued liabilities | | (695) | | | — | | | (995) | | | — | |
| | | | | | | | |
Interim Consolidated Financial Statements (Unaudited) September 30, 2024 | F-20 | North American Construction Group Ltd. |
b) Net change in non-cash working capital
The table below represents the cash (used in) provided by non-cash working capital:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
Operating activities: | | | | | | | | |
Accounts receivable | | $ | (14,249) | | | $ | 346 | | | $ | (62,109) | | | $ | 5,241 | |
Contract assets | | (3,061) | | | (2,794) | | | 18,934 | | | 2,320 | |
Inventories | | (7,063) | | | (917) | | | (11,113) | | | (7,188) | |
Prepaid expenses and deposits | | (414) | | | 1,943 | | | (899) | | | 3,941 | |
Accounts payable | | 1,399 | | | (4,773) | | | (24,738) | | | (12,876) | |
Accrued liabilities | | (8,557) | | | 1,972 | | | (23,894) | | | (15,221) | |
Contract liabilities | | 291 | | | 69 | | | 241 | | | (1,342) | |
| | $ | (31,654) | | | $ | (4,154) | | | $ | (103,578) | | | $ | (25,125) | |
16. Change in significant accounting policy - Basis of presentation
The following tables summarize the effect of the change in accounting policy (note 2) on the Consolidated Statement of Operations and Comprehensive Income for the three and nine months ended September 30, 2024, and 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, 2024 | | Three months ended September 30, 2023 |
| | Without change | | Adjustments | | As reported | | As originally reported | | Adjustments | | As reported |
Revenue | | $ | 287,837 | | | $ | (980) | | | $ | 286,857 | | | $ | 194,744 | | | $ | 2,137 | | | $ | 196,881 | |
Cost of sales | | 184,280 | | | (875) | | | 183,405 | | | 139,840 | | | 1,931 | | | 141,771 | |
Gross profit | | 65,203 | | | (105) | | | 65,098 | | | 26,312 | | | 206 | | | 26,518 | |
Equity earnings in affiliates and joint ventures | | (4,323) | | | (105) | | | (4,428) | | | (4,483) | | | 206 | | | (4,277) | |
Net income | | 13,901 | | | — | | | 13,901 | | | 11,387 | | | — | | | 11,387 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended September 30, 2024 | | Nine months ended September 30, 2023 |
| | Without change | | Adjustments | | As reported | | As originally reported | | Adjustments | | As reported |
Revenue | | $ | 862,852 | | | $ | (2,655) | | | $ | 860,197 | | | $ | 630,922 | | | $ | 5,476 | | | $ | 636,398 | |
Cost of sales | | 572,591 | | | (2,369) | | | 570,222 | | | 452,831 | | | 5,025 | | | 457,856 | |
Gross profit | | 168,343 | | | (286) | | | 168,057 | | | 88,762 | | | 451 | | | 89,213 | |
Equity earnings in affiliates and joint ventures | | (9,259) | | | (286) | | | (9,545) | | | (23,414) | | | 451 | | | (22,963) | |
Net income | | 39,277 | | | — | | | 39,277 | | | 45,495 | | | — | | | 45,495 | |
| | | | | | | | |
Interim Consolidated Financial Statements (Unaudited) September 30, 2024 | F-21 | North American Construction Group Ltd. |
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
I, Joseph Lambert, the Chief Executive Officer of North American Construction Group Ltd., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of North American Construction Group Ltd. (the "issuer") for the interim period ended September 30, 2024.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures ("DC&P") and internal control over financial reporting ("ICFR"), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings
A. designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
I. material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
II. information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
B. designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
5.1 Control framework: The control framework the issuer's other certifying officer(s) and I used to design the issuer's ICFR is the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework ("COSO").
5.2 ICFR – material weakness relating to design: N/A
5.3 Limitation on scope and design: N/A
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on July 1, 2024, and ended on September 30, 2024, that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
Date: October 30, 2024
| | | | | | | | | | | | | | | | | | | | |
/s/ Joseph Lambert | | | | | | |
Joseph Lambert, Chief Executive Officer | | | | | | |
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
I, Jason Veenstra, the Chief Financial Officer of North American Construction Group Ltd., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of North American Construction Group Ltd. (the "issuer") for the interim period ended September 30, 2024.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures ("DC&P") and internal control over financial reporting ("ICFR"), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings
A. designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
I. material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
II. information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
B. designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
5.1 Control framework: The control framework the issuer's other certifying officer(s) and I used to design the issuer's ICFR is the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework ("COSO").
5.2 ICFR – material weakness relating to design: N/A
5.3 Limitation on scope and design: N/A
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on July 1, 2024, and ended on September 30, 2024, that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
Date: October 30, 2024
| | |
/s/ Jason Veenstra |
Jason Veenstra, Chief Financial Officer |
News Release
North American Construction Group Ltd. Announces
Results for the Third Quarter Ended September 30, 2024
ACHESON, Alberta, October 30, 2024 - North American Construction Group Ltd. ("NACG") (TSX:NOA.TO/NYSE:NOA) today announced results for the third quarter ended September 30, 2024. Unless otherwise indicated, financial figures are expressed in Canadian dollars and compared to the prior period ended September 30, 2023.
Third Quarter 2024 Highlights:
•Combined revenue of $367.2 million compared favorably to $274.8 million in the same period last year, is a third quarter record, and reflected the best operational quarter to date from the Australian fleet of the MacKellar Group which was acquired on October 1, 2023.
•Reported revenue of $286.9 million, compared to $196.9 million in the same period last year, was primarily driven by strong equipment utilization of 84% in Australia but was also supported by the Canadian heavy equipment fleet which posted an increase from 2024 Q2.
•Our net share of revenue from equity consolidated joint ventures was $80.3 million in 2024 Q3 and compared to $77.9 million in the same period last year as the increases at the Fargo project in the current quarter were offset by gold mine project scopes in Northern Ontario completed in the prior quarter.
•Adjusted EBITDA of $106.4 million and margin of 29.0% compared favorably to the prior period operating metrics of $59.4 million and 21.6%, respectively, as revenue increases resulted in higher gross EBITDA with margin improvements driven by effective operations in Australia and Canada.
•Combined gross profit of $80.4 million and margin of 21.9% compares favorably to the 13.8% posted in the same period last year as both diversification efforts and effective operations during steady and consistent months contributed to improved margins in the quarter.
•Cash flows generated from operating activities of $48.2 million was higher than the $37.5 million generated in the prior period as higher cash generation from the strong EBITDA was offset by the temporary impact of changes to working capital in the quarter.
•Free cash flow generated in the quarter was $10.8 million. Free cash flow prior to working capital changes and increases in capital work in progress was over $55 million resulting from strong revenues and margins offset by our routine capital maintenance programs.
•Net debt was $882.5 million at September 30, 2024, an increase of $159.1 million from December 31, 2023, as year-to-date free cash flow usage and growth asset purchases required debt financing. The cash-related interest rate was 6.5% driven by Bank of Canada posted rates and corresponding equipment financing rates.
•On October 29, 2024, the Board of Directors declared a regular quarterly dividend of twelve cents which represents a 20% increase from the previous rate of ten cents per quarter.
•Additional highlights include: i) in August, signed a $375 million five-year contract for fully maintained equipment fleet in Queensland; ii) in September, surpassed the 50% completion mark at the Fargo-Moorhead flood diversion project, iii) in October, completed delivery to site of twenty-five haul trucks from Canada to Australia; iv) commenced go-live activities for the Company's ERP system in Australia phased integration ongoing through early November and iv) extended the credit facility agreement through to October 2027.
Joe Lambert, President and CEO, stated, "I would like to thank our operations team for their safe and efficient performance this quarter. The quarterly records set in Australia demonstrate both growth and operational excellence. The recent five-year contract award and the 25 trucks delivered from Fort McMurray have pushed this region to higher than 50% of our overall business and are further indicators of what will be an exciting 2025. In the oil sands region, we are in discussions with producers and expect to secure meaningful contracts in the near term, reaffirming strong client relationships and supporting our targets for next year."
Consolidated Financial Highlights
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
(dollars in thousands, except per share amounts) | | 2024 | | 2023(iv) | | 2024 | | 2023(iv) |
Revenue | | $ | 286,857 | | | $ | 196,881 | | | $ | 860,197 | | | $ | 636,398 | |
Total combined revenue(i) | | 367,155 | | | 274,757 | | | 1,042,591 | | | 875,666 | |
| | | | | | | | |
Gross profit | | 65,098 | | | 26,518 | | | 168,057 | | | 89,213 | |
Gross profit margin(i) | | 22.7 | % | | 13.5 | % | | 19.5 | % | | 14.0 | % |
| | | | | | | | |
Combined gross profit(i) | | 80,415 | | | 38,004 | | | 205,229 | | | 130,181 | |
Combined gross profit margin(i)(ii) | | 21.9 | % | | 13.8 | % | | 19.7 | % | | 14.9 | % |
| | | | | | | | |
Operating income | | 53,805 | | | 14,344 | | | 130,786 | | | 50,386 | |
| | | | | | | | |
Adjusted EBITDA(i)(iii) | | 106,384 | | | 59,371 | | | 286,516 | | | 195,827 | |
Adjusted EBITDA margin(i)(iii) | | 29.0 | % | | 21.6 | % | | 27.5 | % | | 22.4 | % |
| | | | | | | | |
Net income | | 13,901 | | | 11,387 | | | 39,277 | | | 45,495 | |
Adjusted net earnings(i) | | 31,253 | | | 14,295 | | | 72,961 | | | 52,060 | |
| | | | | | | | |
Cash provided by operating activities | | 48,184 | | | 37,512 | | | 119,063 | | | 109,521 | |
Cash provided by operating activities prior to change in working capital(i) | | 79,838 | | | 41,666 | | | 222,641 | | | 134,646 | |
| | | | | | | | |
Free cash flow(i) | | 10,785 | | | 8,940 | | | (32,518) | | | (21,817) | |
| | | | | | | | |
Purchase of PPE | | 61,812 | | | 39,295 | | | 203,772 | | | 114,210 | |
Sustaining capital additions(i) | | 21,127 | | | 42,290 | | | 118,317 | | | 127,792 | |
Growth capital additions(i) | | 21,437 | | | 1,727 | | | 60,987 | | | 4,475 | |
| | | | | | | | |
Basic net income per share | | $ | 0.52 | | | $ | 0.43 | | | $ | 1.47 | | | $ | 1.72 | |
Adjusted EPS(i) | | $ | 1.17 | | | $ | 0.54 | | | $ | 2.73 | | | $ | 1.96 | |
(i)See "Non-GAAP Financial Measures".
(ii)Combined gross profit margin is calculated using combined gross profit over total combined revenue.
(iii)Adjusted EBITDA margin is calculated using adjusted EBITDA over total combined revenue.
(iv)The prior year amounts are adjusted to reflect a change in accounting policy. See "Change in significant accounting policy - Basis of presentation".
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
(dollars in thousands) | | 2024 | | 2023 | | 2024 | | 2023 |
Consolidated Statements of Cash Flows | | | | | | | | |
Cash provided by operating activities | | $ | 48,184 | | | $ | 37,512 | | | $ | 119,063 | | | $ | 109,521 | |
Cash used in investing activities | | (60,221) | | | (26,970) | | | (198,919) | | | (107,123) | |
Effect of exchange rate on changes in cash | | 1,385 | | | (1,100) | | | 508 | | | (1,462) | |
Add back of growth and non-cash items included in the above figures: | | | | | | | | |
Growth capital additions(i)(ii) | | 21,437 | | | 1,727 | | | 60,987 | | | 4,475 | |
Capital additions financed by leases(i) | | — | | | (2,229) | | | (14,157) | | | (27,228) | |
Free cash flow(i) | | $ | 10,785 | | | $ | 8,940 | | | $ | (32,518) | | | $ | (21,817) | |
(i)See "Non-GAAP Financial Measures".
(ii)Included above in Cash used in investing activities.
Declaration of Quarterly Dividend
On October 29, 2024, the NACG Board of Directors declared a regular quarterly dividend (the "Dividend") of twelve Canadian cents ($0.12) per common share, payable to common shareholders of record at the close of business on November 27, 2024. The Dividend will be paid on January 3, 2025, and is an eligible dividend for Canadian income tax purposes.
Financial Results for the Three Months Ended September 30, 2024
Revenue for 2024 Q3 of $286.9 million represented an increase of approximately $90.0 million (or 46%) from 2023 Q3. The increase is primarily due to the inclusion of results from the MacKellar Group ("MacKellar") following our acquisition on October 1, 2023.
The Heavy Equipment - Australia segment showed strong performance, driven by MacKellar’s Q3 results generated from stable operating conditions during the quarter. Equipment utilization of the MacKellar fleet for the quarter of
84% was similar to 2024 Q2 but generated higher revenue as growth assets commissioned late in the second quarter in Western Australia and Queensland provided full quarter contributions. The month of July was particularly strong with utilization being above the target of 85% while August and September averaged 82%. DGI Trading Pty Ltd. ("DGI") posted lower revenue in the quarter due to timing of large component sales but continues to benefit from international demand for low-cost used components and major parts required by heavy equipment fleets in the mining industry.
The Heavy Equipment - Canada segment posted a decline in revenue compared to the prior year as equipment utilization was 51% for the quarter in comparison to 56% in 2023 Q3. Quarter over quarter, the decrease in revenue represented a 23% decrease and was primarily driven by changes in work scopes at the Fort Hills and Syncrude mines offset by increases in operating hours at the Millennium mine. Additionally, the prior year's quarter benefited from higher utilization rates from NACG assets being operated at the gold mine in northern Ontario, a project that concluded in 2023 Q3. When comparing to 2024 Q2, top-line revenue achieved in the quarter was 8% higher on consistent operating conditions from July to September as well as increased work scopes at the Millennium mine.
Combined revenue of $367.2 million represented a $92.4 million (or 34%) increase from 2023 Q3. Our share of revenue generated in 2024 Q3 by joint ventures and affiliates was $80.3 million, compared to $77.9 million in 2023 Q3. The Fargo-Moorhead flood diversion project, which completed another strong operational quarter, posted a 32% increase from scopes completed in the prior quarter and surpassed the 50% completion mark during the quarter. Mostly offsetting this variance was the completion of the gold mine project in northern Ontario which occurred in 2023 Q3.
Combined gross profit and margin of $80.4 million and 21.9% compares favorably to the $38.0 million and 13.8% posted in the prior quarter and was the compilation of strong operations across all business lines. In particular, consistent weather conditions in Australia resulted in productive operations and a 24.6% gross margin over the three months. In Canada, heavy equipment operations posted a 19.4% margin as operations stabilized from the first half of the year. The joint ventures posted a 19.1% margin, up from 14.7% in the prior quarter, as Nuna returned to profitable operations. The increases in margin were offset slightly within the Fargo joint ventures as additional costs were recognized in the quarter primarily related to project cost escalation.
Adjusted EBITDA and the associated margin of $106.4 million and 29.0% exceeded our 2023 Q3 results of $59.4 million and 21.6%, respectively. As mentioned above and despite lower revenue in the oil sands region, effective and efficient operation of the heavy equipment fleets in Australia and Canada generated a strong EBITDA margin. EBITDA margin for this quarter was more consistent with the first quarter and is reflective of the underlying consistent business of our heavy equipment fleets.
Depreciation of our Canadian and Australian heavy equipment fleets was 13.4% of revenue in the quarter. Depreciation as a percentage of revenue was 16.4% for the Heavy Equipment - Canada fleet which is higher than our historical average as increased customer demand for heavy equipment rentals has changed the revenue profile. The Heavy Equipment - Australia fleet, which averaged approximately 11.7% of revenue reflected both productive operations in the quarter as well as the depreciation of fair market values allocated upon purchase. On a combined basis, depreciation averaged 12.1% of combined revenue in the quarter as the lower capital intensity in Fargo and Nuna joint ventures modestly reduced the ratio.
General and administrative expenses (excluding stock-based compensation) were $9.6 million, or 3.4% of revenue, compared to $6.9 million, or 3.5% of revenue in 2023 Q3. The increase in expenses reflects the acquisition of the MacKellar Group. Cash related interest expense for the quarter was $14.2 million at an average cost of debt of 6.5%, compared to $7.8 million at an average cost of debt of 7.1% in 2023 Q3, as rates posted by the Bank of Canada directly impact our Credit Facility and have a delayed impact on the rates for secured equipment-backed financing. Total interest expense was $15.0 million in the quarter, compared to $8.1 million in 2023 Q3 based on the debt financing incurred upon acquisition of the MacKellar Group on October 1, 2023.
Adjusted earnings per share ("EPS") of $1.17 on adjusted net earnings of $31.3 million was up 117% from the prior year figure of $0.54, consistent with the adjusted EBIT performance which was up 144% quarter over quarter. As mentioned above, the step-changes in interest from the MacKellar acquisition offset EBIT performance with the effective income tax rates being comparable for both quarters. Weighted-average common shares for the third quarters of 2024 and 2023 were relatively stable at 26,823,124 and 26,700,303, respectively, net of shares classified as treasury shares.
For the quarter, free cash flow generation was $10.8 million, driven primarily by adjusted EBITDA of $106.4 million. After accounting for sustaining capital additions of $21.1 million, cash interest expense of $14.2 million, and cash taxes paid of $9.3 million, the positive cash flow generation reached $61.8 million. However, changes in working capital and increases in capital work in progress deferred approximately $45 million of cash flow to future quarters,
and the accumulation of distributable profits in our joint ventures negatively impacted cash flow by $10 million. Sustaining capital expenditures were focused on routine maintenance of heavy equipment fleets in Australia and Canada, with Canadian expenditures being lower than previous periods due to reduced operating hours and a disciplined approach in preparation for winter work scopes.
2024 Strategic Focus Areas
•Safety - now on an international basis, maintain our uncompromising commitment to health and safety while elevating the standard of excellence in the field;
•Execution - enhance equipment availability in Canada and Australia through in-house fleet maintenance, reliability programs, technical improvements, and management systems;
•Operational excellence - with a specific focus on Nuna Group of Companies, put into action practical and experienced-based protocols to ensure predictable high-quality project execution;
•Integration - implement ERP and best practices at MacKellar, including identification of opportunities to better utilize our capital and equipment in Australia;
•Diversification - pursue diversification of customers and resources through strategic partnerships, industry expertise and investment in Indigenous joint ventures; and
•Sustainability - further develop and deliver into our environmental, social, and governance targets as disclosed and committed to in our annual reporting.
Liquidity
Our current liquidity positions us well moving forward to fund organic growth and the required correlated working capital investments. Including equipment financing availability and factoring in the amended Credit Facility agreement, total available capital liquidity of $173.1 million includes total liquidity of $135.7 million and $20.0 million of unused finance lease borrowing availability as at September 30, 2024. Liquidity is primarily provided by the terms of our $485.7 million credit facility which allows for funds availability based on a trailing twelve-month EBITDA as defined in the agreement.
| | | | | | | | | | | | | | |
| | September 30, 2024 | | December 31, 2023 |
Cash | | $ | 77,670 | | | $ | 88,614 | |
Credit Facility borrowing limit | | 485,700 | | | 478,022 | |
Credit Facility drawn | | (395,700) | | | (317,488) | |
Letters of credit outstanding | | (32,011) | | | (31,272) | |
Cash liquidity(i) | | $ | 135,659 | | | $ | 217,876 | |
Finance lease borrowing limit | | 350,000 | | | 350,000 | |
Other debt borrowing limit | | 20,000 | | | 20,000 | |
Equipment financing drawn | | (267,544) | | | (220,466) | |
Guarantees provided to joint ventures | | (65,008) | | | (74,831) | |
Total capital liquidity(i) | | $ | 173,107 | | | $ | 292,579 | |
(i)See "Non-GAAP Financial Measures".
NACG’s Outlook for 2024
The following table provides projected key measures for 2024. These measures are predicated on contracts currently in place, including expected renewals, and the heavy equipment fleet that we own and operate.
| | | | | | | | |
Key measures | | 2024 |
Combined revenue(i) | | $1.4 - $1.5B |
Adjusted EBITDA(i) | | $395 - $415M |
Sustaining capital(i) | | $150 - $170M |
Adjusted EPS(i) | | $3.95 - $4.15 |
Free cash flow(i) | | $100 - $120M |
| | |
Capital allocation | | |
Growth spending(i) | | $85 - $95M |
Net debt leverage(i) | | Targeting 2.1x |
(i)See "Non-GAAP Financial Measures".
Conference Call and Webcast
Management will hold a conference call and webcast to discuss our financial results for the quarter ended September 30, 2024, tomorrow, Thursday, October 31, 2024, at 7:00 am Mountain Time (9:00 am Eastern Time).
The call can be accessed by dialing:
Toll free: 1-800-717-1738
Conference ID: 86919
A replay will be available through November 29, 2024, by dialing:
Toll Free: 1-888-660-6264
Conference ID: 86919
Playback Passcode: 86919
The 2024 Q3 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/scripts/Server.nxp?LASCmd=AI:4;F:QS!10100&ShowUUID=71BDBAD7-6AC1-4CF9-9CFF-5BBCBBDEF924
A replay will be available until November 29, 2024, 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, 2024, for further detail on the matters discussed in this release. In addition to the MD&A, please reference the dedicated 2024 Q3 Results Presentation for more information on our results and projections which can be found on our website under Investors - Presentations.
Change in significant accounting policy - Basis of presentation
During the first quarter of 2024, we changed our accounting policy for the elimination of our proportionate share of profit from downstream sales to affiliates and joint ventures to record through equity earnings in affiliates and joint ventures on the Consolidated Statements of Operations and Comprehensive Income. Prior to this change, we eliminated our proportionate share of profit on downstream sales to affiliates and joint ventures through revenue and cost of sales. The change in accounting policy simplifies the presentation for downstream profit eliminations and has no cumulative impact on retained earnings. We have accounted for the change retrospectively in accordance with the requirements of US GAAP Accounting Standards Codification ("ASC") 250 by restating the comparative period. For details of retrospective changes, refer to note 16 in the Financial Statements.
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 and include all information provided under the above heading "NACG's Outlook".
The material factors or assumptions used to develop the above forward-looking statements 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, 2024. 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.sedarplus.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 "adjusted EBIT", "adjusted EBITDA", "adjusted EBITDA margin", "adjusted EPS", "adjusted net earnings", "capital additions", "capital work in progress", "cash provided by operating activities prior to change in working capital", "combined gross profit", "combined gross profit margin", "equity investment EBIT", "free cash flow", "general and administrative expenses (excluding stock-based compensation)", "gross profit margin", "growth capital", "margin", "net debt", "sustaining capital", "total capital liquidity", "total combined revenue", and "total debt". 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.
Reconciliation of total reported revenue to total combined revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
(dollars in thousands) | | 2024 | | 2023(ii) | | 2024 | | 2023(ii) |
Revenue from wholly-owned entities per financial statements | | $ | 286,857 | | | $ | 196,881 | | | $ | 860,197 | | | $ | 636,398 | |
Share of revenue from investments in affiliates and joint ventures | | 144,574 | | | 168,667 | | | 382,789 | | | 516,637 | |
Elimination of joint venture subcontract revenue | | (64,276) | | | (90,791) | | | (200,395) | | | (277,369) | |
Total combined revenue(i) | | $ | 367,155 | | | $ | 274,757 | | | $ | 1,042,591 | | | $ | 875,666 | |
(i)See "Non-GAAP Financial Measures".
(ii)The prior year amounts are adjusted to reflect a change in accounting policy. See "Change in significant accounting policy - Basis of presentation".
Reconciliation of reported gross profit to combined gross profit
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
(dollars in thousands) | | 2024 | | 2023(ii) | | 2024 | | 2023(ii) |
Gross profit from wholly-owned entities per financial statements | | $ | 65,098 | | | $ | 26,518 | | | $ | 168,057 | | | $ | 89,213 | |
Share of gross profit from investments in affiliates and joint ventures | | 15,317 | | | 11,486 | | | 37,172 | | | 40,968 | |
Combined gross profit(i) | | $ | 80,415 | | | $ | 38,004 | | | $ | 205,229 | | | $ | 130,181 | |
(i)See "Non-GAAP Financial Measures".
(ii)The prior year amounts are adjusted to reflect a change in accounting policy. See "Change in significant accounting policy - Basis of presentation".
Reconciliation of net income to adjusted net earnings, adjusted EBIT, and adjusted EBITDA
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
(dollars in thousands) | | 2024 | | 2023 | | 2024 | | 2023 |
Net income | | $ | 13,901 | | | $ | 11,387 | | | $ | 39,277 | | | $ | 45,495 | |
Adjustments: | | | | | | | | |
Loss (gain) on disposal of property, plant and equipment | | 348 | | | (311) | | | 641 | | | 189 | |
Write-down on assets held for sale | | — | | | — | | | 4,181 | | | — | |
Stock-based compensation (benefit) expense | | 1,332 | | | 5,583 | | | 3,081 | | | 16,324 | |
Change in fair value of contingent obligation from adjustments to estimates | | 17,727 | | | — | | | 26,585 | | | — | |
Restructuring costs | | — | | | — | | | 4,517 | | | — | |
Acquisition costs | | — | | | 1,161 | | | — | | | 1,161 | |
Loss on equity investment customer bankruptcy claim settlement | | — | | | — | | | — | | | 759 | |
Loss (gain) on derivative financial instruments | | 572 | | | (2,618) | | | 845 | | | (6,979) | |
Net unrealized loss (gain) on derivative financial instruments included in equity earnings in affiliates and joint ventures | | 1,836 | | | 572 | | | 2,806 | | | (649) | |
Tax effect of the above items | | (4,463) | | | (1,479) | | | (8,972) | | | (4,240) | |
Adjusted net earnings(i) | | 31,253 | | | 14,295 | | | 72,961 | | | 52,060 | |
Adjustments: | | | | | | | | |
Tax effect of the above items | | 4,463 | | | 1,479 | | | 8,972 | | | 4,240 | |
Increase in fair value of contingent obligation from interest accretion expense | | 4,262 | | | — | | | 12,360 | | | — | |
Interest expense, net | | 15,003 | | | 8,119 | | | 44,939 | | | 22,941 | |
Income tax expense | | 6,768 | | | 1,733 | | | 16,325 | | | 11,892 | |
Equity earnings in affiliates and joint ventures(iii) | | (4,428) | | | (4,277) | | | (9,545) | | | (22,963) | |
Equity investment EBIT(i)(iii) | | 4,365 | | | 3,983 | | | 7,152 | | | 23,307 | |
Adjusted EBIT(i) | | 61,686 | | | 25,332 | | | 153,164 | | | 91,477 | |
Adjustments: | | | | | | | | |
Depreciation and amortization | | 38,662 | | | 28,884 | | | 122,844 | | | 90,239 | |
Write-down on assets held for sale | | — | | | — | | | (4,181) | | | — | |
Equity investment depreciation and amortization(i) | | 6,036 | | | 5,155 | | | 14,689 | | | 14,111 | |
Adjusted EBITDA(i) | | $ | 106,384 | | | $ | 59,371 | | | $ | 286,516 | | | $ | 195,827 | |
Adjusted EBITDA margin(i)(ii) | | 29.0 | % | | 21.6 | % | | 27.5 | % | | 22.4 | % |
(i)See "Non-GAAP Financial Measures".
(ii)Adjusted EBITDA margin is calculated using adjusted EBITDA over total combined revenue.
(iii)The prior year amounts are adjusted to reflect a change in presentation. See "Accounting Estimates, Pronouncements and Measures".Reconciliation of equity earnings in affiliates and joint ventures to equity investment EBIT
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
(dollars in thousands) | | 2024 | | 2023(ii) | | 2024 | | 2023(ii) |
Equity earnings in affiliates and joint ventures | | $ | 4,428 | | | $ | 4,277 | | | $ | 9,545 | | | $ | 22,963 | |
Adjustments: | | | | | | | | |
Interest (income) expense, net | | (618) | | | (742) | | | (1,337) | | | (915) | |
Income tax expense | | 738 | | | 448 | | | (698) | | | 1,294 | |
Loss (gain) on disposal of property, plant and equipment | | (183) | | | — | | | (358) | | | (35) | |
Equity investment EBIT(i) | | $ | 4,365 | | | $ | 3,983 | | | $ | 7,152 | | | $ | 23,307 | |
(i)See "Non-GAAP Financial Measures".
(ii)The prior year amounts are adjusted to reflect a change in accounting policy. See "Change in significant accounting policy - Basis of presentation".
About the Company
North American Construction Group Ltd. is a premier provider of heavy civil construction and mining services in Canada, the U.S. and Australia. For 70 years, NACG has provided services to the mining, resource and infrastructure construction markets.
For further information contact:
Jason Veenstra
Chief Financial Officer
North American Construction Group Ltd.
(780) 960-7171
IR@nacg.ca
www.nacg.ca
Interim Consolidated Balance Sheets
(Expressed in thousands of Canadian Dollars)
(Unaudited)
| | | | | | | | | | | | | | |
| | September 30, 2024 | | December 31, 2023 |
Assets | | | | |
Current assets | | | | |
Cash | | $ | 77,670 | | | $ | 88,614 | |
Accounts receivable | | 158,179 | | | 97,855 | |
Contract assets | | 16,128 | | | 35,027 | |
Inventories | | 77,150 | | | 64,962 | |
Prepaid expenses and deposits | | 8,477 | | | 7,402 | |
Assets held for sale | | 7,355 | | | 1,340 | |
| | 344,959 | | | 295,200 | |
Property, plant and equipment, net of accumulated depreciation of $474,655 (December 31, 2023 – $423,345) | | 1,235,447 | | | 1,142,946 | |
Operating lease right-of-use assets | | 13,404 | | | 12,782 | |
Investments in affiliates and joint ventures | | 85,192 | | | 81,435 | |
Other assets | | 5,082 | | | 7,144 | |
Intangible assets | | 10,052 | | | 6,971 | |
Total assets | | $ | 1,694,136 | | | $ | 1,546,478 | |
Liabilities and shareholders’ equity | | | | |
Current liabilities | | | | |
Accounts payable | | $ | 123,110 | | | $ | 146,190 | |
Accrued liabilities | | 47,724 | | | 72,225 | |
Contract liabilities | | 300 | | | 59 | |
Current portion of long-term debt | | 94,485 | | | 81,306 | |
Current portion of contingent obligations | | 37,601 | | | 22,501 | |
Current portion of operating lease liabilities | | 1,852 | | | 1,742 | |
| | 305,072 | | | 324,023 | |
Long-term debt | | 723,487 | | | 611,313 | |
Contingent obligations | | 101,752 | | | 93,356 | |
Operating lease liabilities | | 12,010 | | | 11,307 | |
Other long-term obligations | | 41,768 | | | 41,001 | |
Deferred tax liabilities | | 118,133 | | | 108,824 | |
| | 1,302,222 | | | 1,189,824 | |
Shareholders' equity | | | | |
Common shares (authorized – unlimited number of voting common shares; issued and outstanding – September 30, 2024 - 27,827,282 (December 31, 2023 – 27,827,282)) | | 229,455 | | | 229,455 | |
Treasury shares (September 30, 2024 - 996,435 (December 31, 2023 - 1,090,187)) | | (15,809) | | | (16,165) | |
Additional paid-in capital | | 22,524 | | | 20,739 | |
Retained earnings | | 154,398 | | | 123,032 | |
Accumulated other comprehensive income (loss) | | 1,346 | | | (407) | |
Shareholders' equity | | 391,914 | | | 356,654 | |
Total liabilities and shareholders’ equity | | $ | 1,694,136 | | | $ | 1,546,478 | |
Interim Consolidated Statements of Operations and
Comprehensive Income
(Expressed in thousands of Canadian Dollars, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2024 | | 2023(i) | | 2024 | | 2023(i) |
Revenue | | $ | 286,857 | | | $ | 196,881 | | | $ | 860,197 | | | $ | 636,398 | |
Cost of sales | | 183,405 | | | 141,771 | | | 570,222 | | | 457,856 | |
Depreciation | | 38,354 | | | 28,592 | | | 121,918 | | | 89,329 | |
Gross profit | | 65,098 | | | 26,518 | | | 168,057 | | | 89,213 | |
General and administrative expenses | | 10,945 | | | 12,485 | | | 36,630 | | | 38,638 | |
Loss (gain) on disposal of property, plant and equipment | | 348 | | | (311) | | | 641 | | | 189 | |
Operating income | | 53,805 | | | 14,344 | | | 130,786 | | | 50,386 | |
Equity earnings in affiliates and joint ventures | | (4,428) | | | (4,277) | | | (9,545) | | | (22,963) | |
Interest expense, net | | 15,003 | | | 8,119 | | | 44,939 | | | 22,941 | |
Change in fair value of contingent obligations | | 21,989 | | | — | | | 38,945 | | | — | |
Loss (gain) on derivative financial instruments | | 572 | | | (2,618) | | | 845 | | | (6,979) | |
Income before income taxes | | 20,669 | | | 13,120 | | | 55,602 | | | 57,387 | |
Current income tax expense | | 2,238 | | | 1,495 | | | 5,003 | | | 3,198 | |
Deferred income tax expense | | 4,530 | | | 238 | | | 11,322 | | | 8,694 | |
Net income | | $ | 13,901 | | | $ | 11,387 | | | $ | 39,277 | | | $ | 45,495 | |
Other comprehensive income | | | | | | | | |
Unrealized foreign currency translation (gain) loss | | (1,115) | | | 1,100 | | | (1,753) | | | 1,462 | |
Comprehensive income | | $ | 15,016 | | | $ | 10,287 | | | $ | 41,030 | | | $ | 44,033 | |
Per share information | | | | | | | | |
Basic net income per share | | $ | 0.52 | | | $ | 0.43 | | | $ | 1.47 | | | $ | 1.72 | |
Diluted net income per share | | $ | 0.47 | | | $ | 0.39 | | | $ | 1.32 | | | $ | 1.51 | |
(i)The prior year amounts are adjusted to reflect a change in accounting policy. See "Accounting Estimates, Pronouncements and Measures".