North American Construction Group Ltd

Good morning, ladies and gentlemen. Welcome to the North American Construction Group earnings call for the fourth quarter and year-ended December 31, 2021. At this time, all participants are in a listen-only mode. Following management's prepared remarks, there will be an opportunity for analysts, shareholders, and bondholders to ask questions. The media may monitor this call in listen-only mode. They are free to quote any member of management but they are asked not to quote remarks from any other participant without that participant's permission. The company wishes to confirm that today's comments contain forward-looking information and that actual results could differ materially from a conclusion, forecast, or projection contained in that forward-looking information. Certain material factors or assumptions were applied in drawing conclusions or in making forecasts or projections that are reflected in the forward-looking information. Additional information about those material factors is contained in the company's most recent management discussion and analysis, which is available on CDER and EDGAR, as well as the company's website at nacg.ca. I will now turn the conference over to Joe Lambert, President and CEO.

Thanks, Rebecca. Good morning, everyone, and thanks for joining our call today. I'm going to start with our 2021 accomplishments. and operational performance before handing it over to Jason for the financial overview. And then I will conclude with the operational priorities and outlook for 2022 before taking your questions. I'd like to start my prepared comments with the tragedy that occurred a little over a month ago on January 6th. As I mentioned in my letter to shareholders, this fatal collision is an event that we do everything in our power to avoid. Our two absolute priorities right now are to one, support the family with anything we can, and two, determine the root cause of this incident, because more than anything else, we want to make sure this never happens again. We hold the utmost respect for the process that is currently underway and are still actively investigating this event. It's difficult to transition from an event like this, but the remaining slides reflect a long list of annual achievements and records. The calendar year of 2021 was one of the most satisfying of my career, and I am tremendously proud of the NACG team. We are in no way maxed out or done, but I will keep that for the 2022 discussion and hand over to Jason for the financial summary.

Thanks, Joe. The financial review starts on slide 13, and that's where I'll begin. As we started last quarter, we will continue to draw our readers' attention to total combined revenue. For those of you that have followed us over the past few years, you'll know that the impact of our joint ventures has grown from zero in 2018, only three short years ago, to what we see today, where in 2021, approximately 30% of our combined gross profit came from our various joint ventures. This is the primary driver of our ability to post 50% of our EBIT from outside the oil sands region. So with that said, total combined revenue for the quarter of $235 million was $65 million, or 38%, ahead of Q4 2020, which of course is a difficult year to compare against for the pandemic reasons we are all aware of. The $235 million is yet another quarterly record for us as it soundly beat out last quarter's record of $209 million. That said, revenue came in generally as we expected as the quarter enjoyed fairly consistent operating conditions. Revenue achieved in the quarter was not driven by one specific factor but by the broad listing of mine sites and business lines which all continue to trend in the right direction. The Millennium, Curl, and Syncrude mines have maintained their demand recovery trends, and we continue to witness firsthand the long-term resiliency of the oil sands region. The mobilized fleet at the Fort Hills mine had another full quarter of operations, and we remain very excited to be back on that site. The 65% operating utilization achieved in Q4 is the key performance indicator of our performance on site. Revenue from our joint ventures of $54 million was an obvious record beating out last quarter Q3 2021 by 26% and was not driven by and was driven not only by the continued volumes at the gold mine contract in Northern Ontario but also the increased prominence of our Miccosu joint venture as well as some initial progress made on the Fargo-Moorhead flood diversion project. Combined gross profit margin of 13.7% was influenced by a wide range of factors, but was most notably impacted by the equipment maintenance required at the Millennium Mine. Workforce availability continues to play a noticeable day-to-day factor in our site efficiency. As available for work, heavy duty mechanics and operators remain in short supply. Other unique factors specific to this Q4 included supply chain disruptions and delays and specific inflationary pressures on certain cost items. Our business is resilient but not 100% immune to cost pressures and excluding the normal risks related to operating heavy equipment, we've estimated that gross profit was negatively impacted by 2 to 3 million in the quarter under the broad umbrella of COVID-19 supply chain and inflation factors. We continue to be encouraged by the margins achieved as they are trending in the right direction despite the cost and efficiency pressures that we and our customers face on a daily basis. Moving to slide 14, adjusted EBITDA of $56 million was up 24% for Q4 on the revenue factors just mentioned. The margin of 24% reflecting total combined revenue is a strong achievement across many business lines, and again, indicative of where we see ourselves trending, but with improvements still possible. Included in EBITDA is direct general administrative expenses, which were a net $3.7 million in the quarter, equivalent to 2% of revenue. As always, G&A spending remained disciplined in the quarter, but notably benefited from a specific reimbursement of prior period costs in relation to the Fargo-Moorhead project. This cost reimbursement flowed through our G&A as this is where the costs have been incurred in the past. Our low G&A rate, targeted at 4% of revenue, continues to be achieved through cost discipline and strict attention paid to discretionary and non-essential spending, regardless of the revenue levels we achieve. And just for clarity, for those that are looking closely, future earnings from the two Fargo-Moorhead joint ventures will flow through equity earnings consistent with all of our other joint ventures. Going from EBITDA to EBIT, we expense depreciation equivalent to 13.3% of revenue, which reflected the depreciation rate of our entire business. When looking at just the wholly owned entities and our heavy equipment fleet, which many of you are used to hearing us talk about, the depreciation percentage for the quarter was 16% of revenue and reflected an effective and very active use of our fleet this quarter. Both of these measures compare very favorably to the Q4 2020 equivalents of 16.3% and 19.3%, as we both diversify our business into less capital-intensive areas, and we were able to operate at a much more effective level this quarter when comparing to 2020. Adjusted earnings per share for the quarter of 54 cents was driven by $25.1 million from adjusted EBIT net of interest and taxes. Overall interest ticked up slightly to a 4.7% rate and a $4.9 million cash expense this quarter. These slight increases from Q3 reflect the changes in our debt composition, the timing of our Q4 pay down, as well as some one-time interest expenses we incurred in the quarter. We continue to benefit from both posted bank rates as well as very competitive rates in equipment financing, and we fully expect our rates to remain stable in 2022. Moving to slide 15, I'll summarize our cash flow. Net cash provided by operations of $66 million was produced by the business. And given the neutral working capital result in the quarter, the difference between this figure and EBITDA is the cash provided by our joint ventures, which declared dividends in late Q4 and more than offset cash interest paid in the quarter. Sustaining capital of $21 million was dedicated to maintenance of the existing fleet as we make our way through another very busy winter season. We ended the year spending $102 million of sustaining capital, which was within the upper end of our range of $105 million. Joe will touch on our guidance later, but I'd like to briefly mention that for 2022, our stated sustaining capital range is between $110 and $120 million, which accommodates for our increased fleet size. The reason for quickly reiterating this is because our press release had a table with a range that was much too wide, and we wanted to clarify and confirm for our stakeholders that there is no change to the $110 to $120 million range that was disclosed back in October. Moving to slide 16, We provided a quick snapshot of how we allocated capital in 2021. The free cash flow generated in Q4 in particular allowed for the pay down of senior debt and resulted in a fairly even split for the year amongst the three categories of growth spending, debt reduction, and direct shareholder activity, for which we include the NCIB activity, dividends, and the trust purchases. Moving to our balance sheet on slide 17, liquidity of approximately $200 million reflects our strong position as we benefit from the strong free cash flow generation in the year as well as the issuance of $75 million of convertible debentures earlier this year. On a trailing 12-month basis, our senior leverage ratio, as calculated by our credit facility, is now at 1.5 times. Net debt levels dropped $40 million in the quarter as we focused the $48 million of free cash flow on debt reduction. And lastly, for my part, on slide 18, we show our actual results against our stated targets, which we initially made back in October 2020, almost a year and a half ago. As you can see, we are happy to report that are strong operational performance allowed for the achievement of all of these financial metrics. This slide provides a nice segue for me to turn the call back to Joel to discuss our outlook for 2022.