North American Construction Group Ltd

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 in CEDR and EDGAR, as well as on the company's website at nacg.ca. I will now turn the conference over to Joe Lambert, President and CEO. Please proceed.

Thanks, Alan. Good morning, everyone, and thanks for joining our call today. I'm going to start with our Q3 2023 operational performance before handing it over to Jason for the financial overview. And then I'll conclude with the operational priorities, bid pipeline, outlook for 2023, and our first look at 2024 before taking your questions. On slide three, our Q3 trailing 12-month total recordable rate of 0.30% is less than half of what it was at this time last year and remains below our industry-leading target frequency of 0.5. We will continue to focus our efforts on further advancing our training programs, communicating and promoting safe behaviors, fall health campaign on flu shots and audiometric testing, and our winter hazard awareness programs as we enter our busy winter season and continue to add to our workforce. On slide four, We highlight some of the major achievements of Q3. I'll discuss McKellar later, but wanted to highlight the ramp up of our Fargo-Moorhead flood diversion project, which had its most active earthwork summer that will be followed by its busiest winter as this major infrastructure project progresses into the core of its multi-year construction schedule. Our telematics program is exceeding expectations, and we continue to expand our capabilities and support to the operations and maintenance teams. Our Miccosu joint venture is progressing nicely and continues to add low-cost second-life rebuilds to its fleet of heavy haul trucks. We see strong long-term demand for the Miccosu fleet and are actively looking for additional core assets to rebuild and continue to grow the joint venture assets. In northern Ontario, we successfully completed our gold mine construction project joint venture with NUNA and have several active bids in the Ontario and Quebec regions. We also completed a major overburden fleet relocation in oil sands to support changes in customer demand and mine plans during the quarter. We believe the current fleet allocations will fit well with future overburden demand and contract awards such that no meaningful fleet moves will be required over the winter. Moving on to slide five, you can see that the aforementioned Q3 fleet mobilizations negatively impacted our fleet utilizations. And although a better than average Q3, it was below expectations. However, we remain on trend and confident in our ability to hit our target range of 75% to 85% by the end of next year. Moving on to slide six, we highlight some of the key attributes of the McKellar transaction. First and foremost, we have cultural alignment, share core values, and maintain a focus on operational excellence, especially in the area of heavy equipment maintenance. We believe these common characteristics in a well-planned transition, which is already underway, will make for a smooth integration into the overall business over the coming year. Financial highlights include a purchase price below book value of assets and a favorable purchasing structure. Additionally, our strong underlying business has allowed us to finance acquisition with debt rather than equity, resulting in exceptional accretion. The vendor provided financing and earnouts, aligned management teams, and mutually incentivized performance. Although fully debt financed, leverage is expected to be less than 1.4 times by the end of 2024, which is about where we were immediately prior to the transaction closing. Last but certainly not least, McKellar adds $2 billion in incremental backlog, providing predictability and sustainability for the business that allows for longer-term investments for future efficiency and growth. Measured on all metrics, this deal was a rare opportunity, and we're eager to execute the transition plan and set up McKellar for long-term sustainable success. Slide 7 lists both our currently wholly owned operating entities as well as our strategic partnerships. These acquisitions and partnerships have all been formed over the last five years and are the main drivers of our success in growth, diversification, profitability, and lowering our costs. These acquisitions and partnerships have made us stronger and more stable and have meaningfully changed our business for the better. I think one of our major shareholders said it best while touring our Atchison facilities when he stated, this is not your father's NOA. With that, I'll hand it over to Jason for the Q3 financials.

Thanks, Joe, and good morning, everyone. To start, I will provide brief context regarding the McKellar transaction, which closed effective October 1st. As disclosed in the Q3 report, a final purchase price for the McKellar Group will be based on audited financial statements as at September 30th, 2023. And as such, we continue to disclose the estimated full consideration of $395 million. We look forward to providing full purchase price allocation details in the year-end financials and are encouraged to see strong operating results leading up to and continuing through the close date. Similar to the other equipment related transactions we've completed over the past few years, there was zero interruption to McKellar's operations upon close, and we anticipate a strong fourth quarter from their fleet. The senior secured equipment debt assumed at close, along with the upsized credit facility, both transacted at levels disclosed in the July announcement, which gives us overall confidence in the estimate provided. Integrating and reporting on this transformative step change is front and center for a variety of our corporate groups and remains on track for full inclusion in our year-end reporting. Our teams have been in constant dialogue with their Australian counterparts with weekly and monthly routines taking shape. Moving to the historical financials and some brief commentary. On slide five, you'll see effective performance in the oil sands and progress on the Fargo-Moorhead project drove adjusted EBITDA of $59 million, which essentially matches the record-setting Q3 we achieved last year. Return on invested capital of 14.7% remained stable at the company goal we had set for ourselves of 15% as trailing 12 EBIT of $137 million was generated by the invested capital, which now sits at $735 million, just prior to the McKellar acquisition, which will add, as mentioned, $395 million to invested capital. On a total combined basis on slide 10, revenue was slightly up from Q3 2022. Reported revenue increased from ML Northern acquired on October 1, 2022, providing another full quarter of operations and a strong quarter from DGI trading. These increases were offset by lower equipment utilization achieved in the quarter as we moved equipment into Fort Hills, as mentioned by Joe. Our share of revenue generated in Q3 by joint ventures was $78 million, which was the same as Q3 2022. The Fargo-Moorhead project had an excellent operational quarter and achieved the progress metrics and project milestones they were targeting. In addition, we had positive contributions from the continued growth of top-line revenue from rebuilt ultra-class haul trucks and excavators directly owned by our joint venture with the MICSU. Offsetting these positives, the NUNA group of companies did not have the typical busy Q3 they are accustomed to. Permitting delays and the impacts of wildfires in northern Canada, and particularly the evacuation of Yellowknife, had significant impacts on NUNA's ability to carry out their assigned scopes. Combined gross profit margin of 13.9% was a quarterly improvement from the 13.1% we posted last quarter, despite the challenges experienced by NUNA, and again reflects the strength of a diversified business. Margins benefited from the ML Northern acquisition from both lower internal costs as well as strong margins from services provided to external customers. Moving to slide 11, adjusted EBITDA was consistent and reflective of the revenue commentary. Included in EBITDA is direct, general, and administrative expenses, which were $6.9 million in the quarter, equivalent to 3.5% of revenue, and remained under the 4% threshold we set for ourselves. Going from EBITDA to EBIT We expensed depreciation equivalent to 12.8% of combined revenue, which reflected the depreciation rate of our entire business, including the very active equipment fleet at the Fargo Moorhead project. When looking at just the wholly owned entities and our heavy equipment, the depreciation percentage for the quarter was 14.7% of revenue and reflected the challenging utilization quarter. Adjusted earnings per share for the quarter of $0.54 was $0.11 down from Q3 2022 as the impacts of higher depreciation and interest rates are factored in with EPS. The average interest rate for Q3 was 7.1% as we're up from the Q3 2022 effective rate of 5.8% from well-known interest rate increases. Excluding the upcoming impact of the McKellar acquisition on Q4 results, the gross interest expense of $8.1 million is expected to be the high watermark as free cash flow is generated in Q4, allowing for the pay down of debt with the expectation of stable rates moving forward. Moving to slide 12, I'll summarize our cash flow. Net cash provided by operations of $42 million was generated by the business. reflecting EBITDA performance net of cash interest paid. Free cash flow was $10 million as sustaining maintenance capital of $42 million was invested in the fleet. Moving to the final financial slide 13, net debt levels remain stable at $395 million in the quarter as the $10 million of free cash flow was used for growth asset purchases, dividend payments, and trust purchases. the correlated net debt and senior debt leverage remains steady at 1.4 times and 1.3 times, respectively. And with that, I'll pass the call back to Joe.