Mr. Joe Lambert reports

NORTH AMERICAN CONSTRUCTION GROUP LTD. ANNOUNCES RESULTS FOR THE FIRST QUARTER ENDED MARCH 31, 2024

North American Construction Group Ltd. today released its results for the first quarter ended March 31, 2024. Unless otherwise indicated, financial figures are expressed in Canadian dollars and comparisons are with the prior period ended March 31, 2023.

First quarter 2024 highlights:

• Combined revenue of $345.7-million compared favourably with $322.3-million in the same period last year, is a first quarter record and reflected a second consecutive strong operational quarter from the Australian fleet of the MacKellar Group which was acquired on Oct. 1, 2023.
• Reported revenue of $297.0-million, compared with $244.3-million in the same period last year, was primarily generated by strong equipment utilization in Australia but was offset by lower equipment operating hours in the oil sands region due to remobilizing and repositioning of the heavy equipment fleet.
• The company's net share of revenue from equity consolidated joint ventures was $48.7-million in Q1 2024 and compared with $78.0-million in the same period last year as the prior period included significant project scopes related to the gold mine in Northern Ontario which was completed in Q3 2023.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $93.3-million and margin of 27.0 per cent compared favourably with the prior period operating metrics of $84.6-million and 26.3 per cent, respectively, as revenue increases drove higher gross EBITDA with margin improvements driven by operating performances in Australia.
• Combined gross profit of $62.2-million and margin of 18.0 per cent compared favourably with the $55.9-million and 17.3 per cent metrics posted in the same period last year. The margin increases reflect strategic diversification efforts as all growth segments contributed to posting a higher overall combined margin in the quarter.
• Cash flows generated from operating activities of $11.9-million was lower than the $31.8-million posted in the prior period as higher cash generation from the strong EBITDA was more than offset by the temporary impact of changes to working capital in the quarter.
• Free cash flow used in the quarter was $36.4-million. Free cash flow prior to working capital changes and joint venture cash management was over $20-million, resulting from strong revenues and margins offset by the company's front-loaded annual capital maintenance program.
• Net debt was $781.4-million at March 31, 2024, an increase of $58.0-million from Dec. 31, 2023, as free cash flow usage required debt financing. The cash-related interest rate during the quarter on the company's debt was 9.1 per cent due to Bank of Canada posted rates and the correlated impact on equipment financing rates.
• Additional highlights during the quarter: i) contractual backlog increased $294-million to over $3.0-billion for the first time in company history; ii) based on contractual volumes in Australia, transport of approximately 20 haul trucks commenced with commissioning expected in late Q3; ii) steady progress on the ERP (enterprise resource planning) implementation in Australia with a targeted go-live of Sept. 1; and iii) the telematics project implemented operational tracking, which supplements maintenance monitoring and began work on installations in Australia.

"Our first quarter performance was in line with our EBITDA guidance, slightly exceeding 20 per cent of our annual estimate. Our operations teams continue working diligently to optimize the utilization of and returns on our heavy equipment assets through an increased bid pipeline overall and, more specifically, some fantastic Australian opportunities with long-term commitments and blue-chip customers," said Joe Lambert, president and chief executive officer.

"This year's quarterly results will vary significantly from historical averages with a ramp up from now to Q3 peak EBITDA and an expected approximate 45/55 split between first and second half of the year, but we remain confident and committed in delivering into our guidance range and setting ourselves up for improving utilization and return on our assets for many years to come."

Declaration of quarterly dividend

On April 30, 2024, the North American Construction board of directors declared a regular quarterly dividend of 10 cents per common share, payable to common shareholders of record at the close of business on May 31, 2024. The dividend will be paid on July 5, 2024, and is an eligible dividend for Canadian income tax purposes.

2024 sustainability report

On May 1, 2024, the company has released its 2024 sustainability report. This annual report provides the company's structured framework for environmental, social and governance initiatives moving forward. This report allows stakeholders to measure progress in a variety of business areas with increasing rigor and metrics. The 2024 sustainability report is available for download on the company's website.

Results for the three months ended March 31, 2024

Revenue of $297.0-million represented a $52.7-million (or 22-per-cent) increase from Q1 2023 as a result of the acquisition of the MacKellar Group. Following the Oct. 1, 2023, acquisition, MacKellar completed its second full quarter of revenue since the change in control and posted another strong quarter with top-line results in the first quarter of 2024 similar to that of the fourth quarter of 2023. Significant rainfall carried into January and early February and impacted MacKellar's top-line but, in general and like Q4 2023, the revenue achieved was consistent with acquisition expectations. The most significant mine sites for the MacKellar fleet remain the Carmichael and Middlemount mines, located in the Queensland region, which both provided strong contributions in the quarter.

Equipment utilization in the oil sands region, within the heavy equipment -- Canada segment, of 53 per cent drove a 30-per-cent quarter-over-quarter reduction in equipment related revenue from that region's heavy equipment fleet. Fleet remobilization and repositioning, primarily from the Fort Hills mine to the Millennium mine, in February and early March reduced productive operating hours and associated revenues. Offsetting these decreases, revenues generated in the quarter by DGI Trading Pty. Ltd. (DGI), within the heavy equipment -- Australia segment, were higher than Q1 2023 reflecting strong international demand for used components and major parts required by heavy equipment fleets.

Combined revenue of $345.7-million represented a $23.4-million (or 7-per-cent) increase from Q1 2023. The company's share of revenue generated in the quarter by joint ventures and affiliates was $48.7-million, compared with $78.0-million in Q1 2023 (a decrease of 38 per cent) as the completion of the gold mine project in Northern Ontario was only partially offset by increases within the Fargo joint venture. The Fargo project progressed on schedule during the quarter with modest top-line revenue reflecting the expected impact of winter conditions on civil earth-moving scopes.

Adjusted EBITDA of $93.3-million was an increase of $8.6-million, or 10 per cent, from the Q1 2023 result of $84.6-million, slightly better than the aforementioned combined revenue increase of 7 per cent due to quarter-over-quarter margin improvements. Adjusted EBITDA margin of 27 per cent was higher than Q1 2023 primarily due to margins posted by the MacKellar fleets which again exceeded 30 per cent in the quarter. Continued rainfall in Queensland, Australia, into January and February impacted margins in those months due to reduced operating hours but steady, effective operations in March provided for a strong overall quarter.

Margins in the heavy equipment -- Canada segment were notably impacted by fixed and indirect costs incurred during remobilization efforts but benefited from a strong March as equipment was commissioned and usage stabilized. For the installed and mobilized heavy equipment fleet, favourable operating and haul road conditions, typical for the winter season, allowed for effective operation at the Millennium, Kearl and Fort Hills mines under primarily time and material and rental-based contract structures.

Restructuring efforts within the Nuna Group of companies were fully completed during the quarter. Newly installed leadership has brought an operational focus and redirected resources as required. The projects in Northern British Columbia and the Northwest Territories were finalized and debrief sessions held with operational personnel to ensure lessons learned. Adjusted EBITDA margin of less than 10 per cent illustrates project execution challenges with one-time charges removed to reflect operational performance in the quarter. Restructuring expenses incurred in the quarter relate primarily to severance costs and one-time expenses required to complete legacy projects.

Depreciation of the company's equipment fleet was 14.8 per cent of revenue in the quarter, compared with 14.9 per cent in Q1 2023. The heavy equipment -- Canada fleet averaged approximately 19.5 per cent of revenue due to remobilization efforts. This is offset by depreciation on the heavy equipment -- Australia fleet, which averaged approximately 9.8 per cent of revenue, largely driven by MacKellar depreciation of 10.5 per cent of revenue in the quarter reflecting both productive operations in the quarter as well as the depreciation of fair market values allocated upon purchase. On a combined basis, depreciation averaged 13.9 per cent of combined revenue in the quarter as the lower capital intensity in Fargo and Nuna joint ventures modestly reduced the ratio based on the MacKellar fleet's increasing prominence.

General and administrative expenses (excluding stock-based compensation) were $11.1-million, or 3.8 per cent of revenue compared with $8.2-million, or 3.4 per cent of revenue in Q1 2023. The acquisition of MacKellar did not impact the run rate expectation of administrative expenses being less than 4 per cent of revenue.

Cash-related interest expense incurred on our debt for the quarter was $13.5-million at an average cost of debt of 9.1 per cent, compared with 6.7 per cent in Q1 2023, 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.

Adjusted earnings per share (EPS) of 78 cents and adjusted net earnings of $20.9-million were down 19 per cent and 17 per cent from the prior-year figures of 96 cents and $25.3-million, respectively. The $4.4-million decrease in adjusted net earnings is due to the higher EBITDA and lower incomes taxes being more than offset by the higher interest and depreciation expenses associated with the debt assumed and fleet acquired upon acquisition of MacKellar.

Weighted average common shares outstanding for the first quarters of 2024 and 2023 are comparable at 26,733,473 and 26,415,004, respectively, and were not a factor in the earnings per share variance.

Free cash flow was a use of cash of $36.4-million in the quarter primarily due to the consumption of $62.0-million by the company's working capital accounts. This working capital draw on cash is higher than Q1 2023 primarily due to the increased size of its business. Adjusted EBITDA generated $93.3-million and when factoring in sustaining capital additions ($59.9-million) and cash interest paid ($12.4-million), positive cash of $21.0-million was generated by the overall business in the quarter.

Business updates

2024 strategic focus areas

• Safety -- now on an international basis, maintain the company's 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 the company's capital and equipment in Australia;
• Diversification -- pursue diversification of customers and resources through strategic partnerships, industry expertise and investment in indigenous joint ventures;
• Sustainability -- further develop and deliver into the company's environmental, social and governance targets as disclosed and committed to in its annual reporting.

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 $236.3-million includes total liquidity of $158.1-million and $62.1-million of unused finance lease borrowing availability as at March 31, 2024. Liquidity is primarily provided by the terms of the company's $474.3-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.

The attached 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 it owns and operates.

Conference call and webcast

Management will hold a conference call and webcast to discuss our financial results for the quarter ended March 31, 2024, tomorrow, Thursday, May 2, 2024, at 7 a.m. Mountain Time (9 a.m. Eastern Time).

The call can be accessed by dialling:

Toll-free:   1-800-717-1738

Conference ID:  92465

A replay will be available through June 3, 2024, by dialling:

Toll-free:  1-888-660-6264

Conference ID:  92465

Playback pass code:  92465

The Q1 2024 earnings presentation for the webcast will be available for download on the company's website.

A replay will be available until June 3, 2024.

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, North American Construction Group has provided services to the mining, resource and infrastructure construction markets.

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