Mr. Joseph Lambert reports

NORTH AMERICAN CONSTRUCTION GROUP LTD. ANNOUNCES RECORD RESULTS FOR THE SECOND QUARTER ENDED JUNE 30, 2023

North American Construction Group Ltd. today released its results for the second quarter ended June 30, 2023. Unless otherwise indicated, financial figures are expressed in Canadian dollars, and comparisons are with the prior period ended June 30, 2022.

Second quarter 2023 highlights:

• Equipment utilization of 61 per cent benefited from the strong momentum heading into the quarter, a quick spring breakup in April, and continued steady demand for heavy equipment but was impacted in June by unusually wet weather as well as a required fleet remobilization in the oil sands region.
• Reported revenue of $193.6-million, compared with $168.0-million in the same period last year, was generated primarily by the equipment fleet in the oil sands region. When comparing with Q2 2022, the revenue increase included full quarter impacts of updated equipment rates and the acquisition of ML Northern Services Ltd.
• Combined revenue of $277.0-million, compared with $228.0-million in the same period last year, reflected both the demand for the company's heavy equipment fleet as well as another strong quarter from the increasing capacities of its indigenous joint ventures.
• The company's net share of revenue from equity consolidated joint ventures of $158.5-million compared favourably with $125.8-million in the same period last year. Quarterly revenue was primarily generated by the company's indigenous joint ventures but activity, scope and run rates within the Fargo-Moorhead project continue to increase.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $51.8-million and margin of 18.7 per cent compared favourably with the prior period metrics of $41.6-million and 18.3 per cent, respectively, and set a new Q2 record for the company as revenue increases drove higher gross EBITDA while margin improvements were mostly offset during the month of June from difficult working conditions and fleet remobilization.
• Cash flows generated from operating activities of $40.2-million, compared with $35.5-million in the same period last year, as the higher earnings generated were largely offset by the timing of lower cash dividends received from joint ventures and the settlement of deferred share units that occurred during the quarter.
• Free cash flow used in the quarter was $4.3-million as adjusted EBITDA was primarily used for sustaining capital maintenance and cash interest. Timing of cash distributions from the company's joint ventures impact quarterly free cash flow but are expected to be realized prior to year-end.
• Net debt was $394.3-million at June 30, 2023, an increase of $10.2-million from March 31, 2023, as timing impacts of free cash flow, growth spending and dividends required debt financing during the quarter.
• The equipment rebuilding program continued its momentum with the sale and commissioning of another ultraclass unit bringing the total Mikisew joint venture haul truck fleet to 16.

"The second quarter is always the most difficult to navigate from an operating perspective, but despite the rainy weather and fleet remobilization, the business posted historical high Q2 results in almost every fundamental metric we measure. These results further increase my confidence in the NACG team and our business continuing to meet or exceed expectations while advancing our overall corporate strategy. The Fargo-Moorhead project is hitting its stride and, as we surpass the 10-per-cent completion mark, this project will become a meaningful contributor for several years. The business remains focused on executing and I am excited about the second half of the year," said Joseph Lambert, president and chief executive officer.

On July 25, 2023, the NACG board of directors declared a regular quarterly dividend of 10 Canadian cents per common share, payable to common shareholders of record at the close of business on Aug. 31, 2023. The dividend will be paid on Oct. 6, 2023, and is an eligible dividend for Canadian income tax purposes.

Financial results for the three months ended June 30, 2023

Revenue of $193.6-million represented a $25.5-million (or 15-per-cent) increase from Q2 2022. Revenue across all major sites in the oil sands region has continued to see year-over-year revenue growth with the company's heavy equipment fleet at Fort Hills driving the largest increase as the site continues to ramp up. Equipment utilization of 61 per cent benefited from the strong momentum heading into the quarter, a quick spring breakup in April and continued steady demand for heavy equipment but was significantly impacted in June by unusually wet weather as well as a required fleet remobilization in the oil sands region. Maintenance headcount levels have remained consistent which continues to lower equipment repair backlog and increased mechanical availability. The purchase of ML Northern Services Ltd.'s fuel and lube fleet, which occurred on Oct. 1, 2022, and DGI Trading had modest impacts on revenue increases with services and sales provided to external customers. Lastly, another ultraclass haul truck was sold to and commissioned by the Mikisew North American LP (MNALP), bringing its haul truck fleet to 16.

Combined revenue of $277.0-million represented a $49.0-million (or 21-per-cent) increase from Q2 2022. The company's share of revenue generated in Q2 2023 by joint ventures and affiliates was $83.4-million, compared with $59.9-million in Q2 2022 (an increase of 39 per cent). Consistent with the prior year, top-line performance was driven by the Nuna Group of Companies, as they continued their project execution at the gold mine in Northern Ontario. The other drivers of the revenue increases were the joint ventures dedicated to the Fargo-Moorhead flood diversion project, which posted solid top-line revenue as the project ramps up, and the aforementioned expanding revenue capacity from rebuilt ultraclass and 240-ton haul trucks directly owned by MNALP.

Adjusted EBITDA of $51.8-million represented an increase of $10.2-million (or 24 per cent) from the Q2 2022 result of $41.6-million, consistent with increases in combined revenue. The adjusted EBITDA margin of 18.7 per cent reflected normal impacts typically incurred in the second quarter during the transition from winter to spring at the mine sites, particularly in Fort McMurray. In addition, the difficult wet conditions in June had a significant impact on margin as low equipment utilization of less than 50 per cent in the month resulted in fixed costs both at the operational sites and corporate facilities becoming a factor in impacting the overall EBITDA margins.

Depreciation of the company's equipment fleet was 12.6 per cent of revenue in the quarter, compared with 15.7 per cent in Q2 2022, benefiting from efficient and productive use of the equipment fleet. The company's internal maintenance programs continue to produce low-cost and longer-life components which is impacting depreciation rates. In addition to these factors, the company's lower capital intensive services continue to have noticeable impacts on the depreciation percentage when comparing with previous benchmarks.

General and administrative expenses (excluding stock-based compensation) were $7.2-million, or 3.7 per cent of revenue, compared with $6.9-million, or 4.1 per cent of revenue in Q2 2022. Consistent costs were incurred as increases from ML Northern and cost items impacted by inflation were mostly offset by cost discipline in discretionary areas and incremental G&A (general and administrative) recoveries from the company's joint ventures.

Cash-related interest expense for the quarter was $7.2-million at an average cost of debt of 6.9 per cent, compared with 5.2 per cent in Q2 2022, as rate increases posted by the Bank of Canada directly impact the company's credit facility and have a delayed impact on the rates for secured equipment-backed financing. Total interest expense was $7.5-million in the quarter, compared with $5.6-million in Q2 2022.

Adjusted EPS (earnings per share) of 47 cents on adjusted net earnings of $12.5-million is up 176 per cent from the prior year figure of 17 cents and is consistent with adjusted EBIT performance as tax and interest tracked fairly consistently with the prior year. Weighted-average common shares levels for the second quarters of 2023 and 2022 reflected a decrease at 26,409,357 and 27,968,510, respectively, net of shares classified as treasury shares, due to the share purchases and cancellations which occurred in the third quarter of 2022.

Free cash flow was a use of cash of $4.3-million and was primarily the result of adjusted EBITDA of $51.8-million, as detailed herein, offset by sustaining capital additions ($38.3-million) and cash interest paid ($8.4-million). Free cash flow was also impacted by the cash settlement of certain deferred share units ($7.3-million). As stated in the previous disclosures regarding the company's annual capital spending, the company's program is front-loaded in the year and the first half spending is considered typical and consistent with the annual sustaining capital range provided.

Business updates

2023 strategic focus areas

• Safety -- focus on people and relationships as the company maintains an uncompromising commitment to health and safety while elevating the standard of excellence in the field;
• Sustainability -- commitment to the continued development of sustainability targets and consistent measurement of progress to those targets;
• Execution -- enhance the company's record of operational excellence with respect to fleet maintenance, availability and utilization through leverage of its reliability programs, technical improvements and management systems;
• Diversification -- continue to pursue further diversification of customers, resources and geography through strategic partnerships, industry expertise and/or investment in indigenous joint ventures.

Liquidity

The company's current liquidity positions it well moving forward to finance 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 $159.4-million includes total liquidity of $120.4-million and $27.3-million of unused finance lease borrowing availability as at June 30, 2023. Liquidity is primarily provided by the terms of the company's $300.0-million credit facility which allows for funds availability based on a trailing-12-month EBITDA as defined in the agreement and is now scheduled to expire in October, 2025.

For information regarding management's outlook for 2023, please refer to the press release issued subsequent to the release of the Q2 2023 report.

Conference call and webcast

Management will hold a conference call and webcast to discuss our financial results for the quarter ended June 30, 2023, tomorrow, Thursday, July 27, 2023, at 6 a.m. Mountain Time (8 a.m. Eastern Time).

The call can be accessed by dialling:

Toll free:  1-888-886-7786

Conference ID:  47287641

A replay will be available through Sept. 1, 2023, by dialling:

Toll-free:  1-877-674-7070

Conference ID:  47287641

Playback passcode:  287641

The Q2 2023 earnings presentation for the webcast will be available for download on the company's website.

The live presentation and webcast can be accessed on-line.

A replay will be available until Sept. 1, 2023, using the link provided.

About North American Construction Group Ltd.

North American Construction Group is a premier provider of heavy civil construction and mining services in Canada, the United States and Australia. For 70 years, NACG has provided services to the mining, resource and infrastructure construction markets.

We seek Safe Harbor.