North American Construction Group(US:NOA)2020-11-01 07:30Financial Data and Key Metrics Changes - Revenue for Q3 2020 was $94 million, a 43% year-over-year decline due to COVID-19 impacts and adverse weather conditions [21][7] - Sequentially, revenue increased by 33% from Q2 2020, indicating a gradual recovery [7][23] - Adjusted EBITDA was $37.1 million, nearly equal to Q2 2019 levels despite lower revenue [30] - Free cash flow was temporarily negative due to working capital changes, but cash provided by operations was $26.3 million [34][36] Business Line Data and Key Metrics Changes - The Nuna Group of Companies performed well, matching their Q3 2019 record, but their revenue does not directly impact the company's reported revenue [24] - Gross profit margin for the quarter was 16.3%, affected by wet operating conditions and increased mobilization costs [25][26] - Direct general and administrative expenses were $3.6 million, consistent with Q2 2020, reflecting improved revenue percentage [28] Market Data and Key Metrics Changes - The company faced significant operational challenges due to site access restrictions and wet weather, impacting productivity [5][21] - The oil sands market showed resilience, with expectations for increased productive operating hours as access restrictions ease [23] Company Strategy and Development Direction - The company is focusing on diversification, aiming to lower capital intensity and improve utilization of underutilized fleet [16][17] - Strategic milestones achieved include the Nuna acquisition and new contracts in U.S. mine management, which are expected to yield long-term benefits [18][19] - The company anticipates a robust pipeline of opportunities, particularly in infrastructure projects and resource mining [43][61] Management's Comments on Operating Environment and Future Outlook - Management expressed hope for a return to pre-pandemic activity levels by late fall 2020, but acknowledged potential delays due to COVID-19 [51] - The outlook for 2021 includes expectations for EBITDA and free cash flow to be 15% and 40% higher than 2020, respectively [42][44] - The company plans to prioritize debt reduction and share buybacks in 2021 capital allocation [45] Other Important Information - The company will issue its inaugural ESG report in Q1 2021, highlighting its commitments and accomplishments in environmental, social, and governance areas [11] - The Canada Emergency Wage Subsidy program significantly aided in retaining workforce levels during the pandemic [32][33] Q&A Session Summary Question: When do you anticipate activity levels in the oil sands will return to pre-pandemic levels? - Management is hopeful for a return in Q4 2020, but acknowledges potential delays into 2021 due to recent COVID-19 case increases [51] Question: Should revenue be expected to grow in excess of 15% next year? - Management indicated that revenue growth is expected to correlate with EBITDA growth, with no differing margins anticipated year-over-year [52][53] Question: Is the new joint venture with Nuna a special purpose relationship? - The joint venture is designed to leverage both companies' strengths for bidding on projects, enhancing their competitive position [58][60] Question: What is the impact of weather on revenue loss? - The estimated impact of weather and COVID-19 on revenue loss is between $30 million to $40 million [72] Question: Are pricing concessions plateauing? - Management believes pricing concessions have plateaued and expects normal market escalators to improve pricing over time [84] Question: Will the gold mining project require additional capital? - The project will utilize underutilized smaller equipment, requiring modest capital and not detracting from oil sands operations [63][79] Question: How does the new joint venture differ from the previous arrangement with Nuna? - The new joint venture is a 50-50 partnership, allowing for combined bidding and resource sharing, differing from the previous 49-51 ownership structure [96][97]