North American Construction Group(NOA) - 2023 Q3 - Quarterly Report

Letter to Shareholders The CEO's letter reviews mixed Q3 results, highlighting safety, Nuna challenges, and the MacKellar acquisition, forecasting strong 2024 growth - Third quarter results were mixed, with excellent safety performance (64% reduction in incident rate YoY) but operational challenges for the Nuna Group of Companies due to project permitting delays and the effects of wildfires in Yellowknife, NWT[7] - The acquisition of the MacKellar Group in Australia, effective October 1, is a major milestone, with strong performance leading to increased expectations for 2024 due to high demand for heavy equipment[9] - The company is targeting a full-year earnings potential of $4.50 per share and a 2024 free cash flow range of $160 to $185 million, representing a potential over 50% increase from the record-setting 2023[9] Management's Discussion and Analysis This section analyzes the company's Q3 and YTD 2023 financial condition, operations, MacKellar acquisition, financial highlights, liquidity, accounting, and outlook Overall Performance Q3 2023 performance showed modest revenue growth and stable Adjusted EBITDA, but net income and adjusted EPS declined due to project delays Q3 2023 Financial Highlights vs. Q3 2022 | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Revenue | $194.7M | $191.4M | +$3.4M | | Total combined revenue | $272.6M | $269.6M | +$3.0M | | Gross profit | $26.3M | $24.6M | +$1.7M | | Adjusted EBITDA | $59.4M | $60.1M | -$0.7M | | Adjusted EBITDA margin | 21.8% | 22.3% | -0.5% | | Net income | $11.4M | $20.2M | -$8.8M | | Adjusted net earnings | $14.3M | $17.6M | -$3.3M | | Adjusted EPS | $0.54 | $0.65 | -$0.11 | | Free cash flow | $10.0M | $3.4M | +$6.6M | - Equipment utilization was 56%, negatively impacted by the relocation of heavy equipment to the Fort Hills mine and wet weather, partially offset by contributions from the ML Northern fuel and lube fleet acquisition[15] - Combined revenue was affected by project permitting delays and wildfire-related disruptions impacting the Nuna Group of Companies, offset by the Fargo-Moorhead flood diversion project's largest operational quarter to date[16] Significant Business Events The company completed the MacKellar Group acquisition for $395 million, expanding its credit facility to $470 million lending capacity and $820 million total borrowing limit - Closed the acquisition of MacKellar Group in Australia, effective October 1, 2023, for a total expected consideration of $395 million[24] - Entered into an amended and restated senior revolving credit facility, increasing total lending capacity to $470 million (comprising a $280M CAD tranche and a $220M AUD tranche)[26] - The new Credit Facility permits an additional $350 million in secured equipment financing, bringing the total borrowing limit to $820 million[26] Financial Highlights This section details Q3 and YTD 2023 financial performance, including GAAP to non-GAAP reconciliations, revenue, gross profit, operating income, and decreased equity earnings from joint ventures Liquidity and Capital Resources As of September 30, 2023, the company maintained $108.4 million in liquidity, with net debt increasing to $395.3 million, detailing capital additions, cash flow, and credit facility amendments Accounting Estimates, Pronouncements, and Measures This section details the accounting framework, recent presentation changes like combining project costs into 'cost of sales', and defines non-GAAP financial measures - The company updated its presentation to combine project and equipment costs into 'cost of sales' in the income statement and to include finance lease obligations within 'long-term debt' on the balance sheet, with comparative periods restated[96][97] - A new accounting standard update (ASU 2023-05) regarding joint venture formations will be effective January 1, 2025, and the company is currently assessing its impact[98] - The report defines numerous non-GAAP financial measures used for performance analysis, including Adjusted EBIT, Adjusted EBITDA, Adjusted EPS, Free Cash Flow, Combined Revenue, and Net Debt[99][100][101][112][117][114] Outlook The company provides a robust 2023 and 2024 financial outlook, projecting significant growth in combined revenue, Adjusted EBITDA, and free cash flow, with deleveraging targets 2023 & 2024 Financial Outlook | Key measures | 2023 | 2024 | | :--- | :--- | :--- | | Combined revenue | $1.2 - $1.3B | $1.5 - $1.7B | | Adjusted EBITDA | $295 - $310M | $430 - $470M | | Adjusted EPS | $2.80 - $3.00 | $4.25 - $4.75 | | Free cash flow | $90 - $110M | $160 - $185M | | Net debt leverage | Less than 1.8x | Less than 1.4x | - The 2023 free cash flow projection was updated to a range of $90 to $110 million to reflect the MacKellar acquisition and the timing of cash receipts from joint ventures[129] Interim Consolidated Financial Statements This section presents the unaudited interim consolidated financial statements for Q3 and YTD 2023, including Balance Sheets, Operations, Equity, and Cash Flows, with accompanying notes Interim Consolidated Balance Sheets As of September 30, 2023, total assets increased to $1.009 billion, driven by PPE, with stable liabilities and shareholders' equity growing to $339.6 million Consolidated Balance Sheet Summary (in thousands) | Account | Sept 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $197,662 | $230,359 | | Property, plant and equipment, net | $695,176 | $645,810 | | Total Assets | $1,009,065 | $979,513 | | Total Current Liabilities | $158,383 | $192,303 | | Long-term debt | $392,648 | $378,452 | | Total Liabilities | $669,429 | $673,594 | | Total Shareholders' Equity | $339,636 | $305,919 | | Total Liabilities & Equity | $1,009,065 | $979,513 | Interim Consolidated Statements of Operations and Comprehensive Income Q3 2023 revenue was $194.7 million with net income of $11.4 million ($0.43 basic EPS), a decrease from Q3 2022, while YTD net income increased to $45.5 million Statement of Operations Summary (in thousands, except per share) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $194,744 | $191,383 | $630,922 | $536,122 | | Gross Profit | $26,312 | $24,567 | $88,762 | $58,958 | | Operating Income | $14,138 | $17,649 | $49,935 | $39,592 | | Net Income | $11,387 | $20,220 | $45,495 | $41,291 | | Basic EPS | $0.43 | $0.75 | $1.72 | $1.49 | | Diluted EPS | $0.39 | $0.65 | $1.51 | $1.33 | Interim Consolidated Statements of Cash Flows In Q3 2023, operating activities generated $37.5 million cash, investing used $27.0 million, and financing generated $9.3 million, resulting in a $19.8 million net cash increase, while YTD cash decreased by $27.2 million Cash Flow Summary (in thousands) | Activity | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Cash from Operating | $37,512 | $31,432 | $109,521 | $91,102 | | Net Cash used in Investing | ($26,970) | ($28,042) | ($107,123) | ($79,945) | | Net Cash from (used in) Financing | $9,250 | $7,698 | ($29,639) | ($4,969) | | Increase (Decrease) in Cash | $19,792 | $11,088 | ($27,241) | $6,188 | Notes to Interim Consolidated Financial Statements The notes provide essential context to the financial statements, detailing accounting policies, revenue, joint ventures, debt, share capital, and subsequent events, including the MacKellar acquisition