• EBITDA: $106 million with a 29% margin.
• Gross Profit Margin: 22% combined margin.
• Revenue Increase: Wholly owned businesses up $90 million quarter over quarter.
• Australian Operations: $134 million revenue with 84% equipment utilization.
• Adjusted Earnings Per Share: $1.17, impacted by higher acquisition-related interest.
• Net Cash Provided by Operations: $80 million.
• Free Cash Flow: $11 million.
• Net Debt: $883 million, with $470 million denominated in AUD.
• Net Debt Leverage: 2.3 times; Senior Secured Debt Leverage: 1.8 times.
• Dividend Increase: 20% announced alongside a normal course issuer bid.

• Warning! GuruFocus has detected 3 Warning Signs with NOA.

Release Date: October 31, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• North American Construction Group Ltd (NYSE:NOA) achieved a record quarter for nearly every financial metric, showcasing strong operational performance.
• The company reported a trailing 12-month total recordable rate of 0.39, improving upon previous results and remaining below the industry target frequency of 0.5.
• The Australian business continues to outperform, with a record quarterly fleet utilization of 84%, just shy of the 85% target.
• NOA finalized a parts and component supply agreement with Finning, expected to improve fleet reliability and lower costs.
• The company announced a 20% dividend increase alongside a normal course issuer bid, demonstrating a commitment to shareholder returns.

Negative Points

• The Canadian fleet utilization improved but remains below target, with expectations to reach the 60s by year-end and 75% by the end of next year.
• The oil sands business experienced lower equipment utilization quarter over quarter, impacting revenue.
• Net debt levels increased to $883 million, partly due to growth assets purchased and changes in the Australian exchange rate.
• The company faces challenges in achieving Canadian utilization targets, which have been pushed off to the end of next year.
• Free cash flow generation has been impacted by working capital changes, with expectations for improvement in 2025.

Q & A Highlights

Q: Can you elaborate on the smaller opportunities in the oil sands and the impact on Canadian utilization targets? A: Joe Lambert, President & CEO, explained that while there is a 25% increase in reclamation works this winter, it is a small portion of the overall oil sands business. The company is cautious about projecting 2025 until contracts are signed, expecting it to be similar to 2024.

Q: What are the diversified bid opportunities in the pipeline, and how do you plan to replace large projects like Fargo Moorhead? A: Joe Lambert highlighted opportunities in Australia and Canada across various commodities like magnetite, iron ore, copper, and zinc. The company is also eyeing infrastructure projects, particularly in the U.S., with partners from Fargo.

Q: What drove the sequential recovery in JV revenue? A: Joe Lambert attributed the recovery to increased activity and milestone achievements at the Fargo Moorhead project, which triggered payments based on milestones rather than hourly work.

Q: What are your expectations for the oil sands business in 2025? A: Joe Lambert expects the oil sands business to remain steady, similar to 2024. While there is potential upside from increased civil construction activity, the company is cautious about projecting significant changes until contracts are finalized.

Q: Can you provide an update on the turnaround at Nuna and your current thoughts on it? A: Joe Lambert stated that the turnaround at Nuna is complete, with the focus now on winter work programs and winning work for next year. The operations team is confident in maintaining safety and effectiveness, aiming to grow the business back to profitability.

Q: How does the parts and components supply agreement with Finning differ from before? A: Joe Lambert explained that the company has taken over some partnerships in-house and swapped others to Finning, expecting better component life and lower costs. The partnership aims to enhance equipment rebuilds and maintenance efficiency.

Q: What are the expectations for free cash flow conversion and leverage targets? A: Jason Veenstra, CFO, expects a 30-35% free cash flow conversion ratio, with Australia potentially exceeding 40%. The company aims to reduce leverage, targeting a long-term baseline of around one times EBITDA, while also considering share buybacks.

Q: Can you comment on the expected EBITDA contribution from the trucks moved to Australia? A: Joe Lambert estimated an EBITDA contribution of $10 to $20 million from the 25 trucks moved to Australia, which are expected to be fully utilized by the end of the year.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.