North American Construction Group Ltd

$225 million in 2024 backlog. On slide five, we show fleet utilization by region. Australian utilization remains strong with Q1 ending on a March high note after a few high rainfall impacted summer months. In Canada, our utilization suffered from mobilization of fleets between oil sands sites in February and lower volumes of winter reclamation work. We remain on trend and confident in our ability to hit our Canadian target range of over 75% by the end of this year, and we'll also be looking to similarly increase our Australian fleet to over 85% during this same period. I'm sure some may believe our Canadian utilization targets are a stretch after coming off that February low. However, if you consider the units we expect to transfer and some sales of smaller assets, combined with improving mechanical availability and no further anticipated fleet mobilizations, Our math still suggests we are capable of exceeding our target before year-end. With that, I'll hand over to Jason for the Q1 financials.

Thanks, Joe. Good morning, everyone. Getting right into it, starting on slide seven, the headline EBITDA number of $93 million and a correlated 27% margin were driven by a successful second quarter from Australia since the change of control October 1, 2023. Our margin in particular, along with the combined gross profit margin of 18%, illustrates a strong operational quarter. All business units contributed to this margin, with the exception of NUNA, which posted EBITDA margin of less than 10% in the quarter when factoring out the one-time costs that were incurred as part of the restructuring during the quarter. The EBITDA margin illustrates project execution risk in the joint venture and is a metric indicative of why a change was needed. Restructuring efforts were completed during the quarter and the projects in Northern BC and the Northwest Territories were finalized. Restructuring expenses incurred and added back for adjusted earnings purposes relate to severance costs and one-time expenses required to complete legacy projects. Moving to slide eight and our combined revenue and gross profit. As we will have for two more quarters, McKellar provided a step change in the quarter over quarter variance. On a total basis, we were up $53 million quarter over quarter. McKellar and DGI, which we combine as Australia in our results, were up $128 million, almost identical to the Q4 variance, which could have been higher if the rainfall in January and February had been less severe. This rainfall impact can be seen in Australia's equipment utilization, which got back to 80% in March after being in the mid-70s for the first two months of the year. This positive variance was offset by the lower equipment utilization in the oil sands region. Our share of revenue generated in the quarter by joint ventures was a net $29 million lower than Q1 2023. The Fargo-Moorhead project had a steady operational quarter, was up $10 million, and achieved project metrics and milestones required of the project schedule. More than offsetting this positive, though, was the variance impact of the completion of the construction project at the Goldmine in Northern Ontario in Q3 2023, which led to lower quarter-over-quarter revenues within the NUNA group of companies. Combined gross profit margin of 18%, despite another challenging quarter posted by NUNA, reflects the strength of a diversified business. Gross profit margins benefited both from the operations in Australia, which were higher than 20% in the quarter and is normal course, and from ML Northern, whose fleet lowers our internal costs as well as generates strong margins from services provided to external customers. Moving to slide nine, record Q1 adjusted EBITDA was consistent with and reflective of the revenue commentary. The 27% margin we achieved reflects an effective operating quarter and with the positive 2023 trend from the Q4 and Q3 margins of 25% and 22% respectively is indicative of where we see our business trending and operating at. Included in EBITDA, General administrative expenses were $11.1 million in the quarter, equivalent to 3.8% of revenue, which remained under the 4% threshold we've set for ourselves. Going from EBITDA to EBIT, we expensed depreciation equivalent to 14% of combined revenue, which reflected the depreciation rate of our entire business, including the equipment fleet at the Fargo-Moorhead project. When looking at just the wholly owned entities and our heavy equipment in Canada and Australia, the depreciation percentage for the quarter was 14.8% of revenue and reflected the addition of the Australian fleet as well as first quarter operations in the oil sands, which require higher idle time due to the cold weather. Adjusted earnings per share for the quarter of 78 cents was 18 cents down from Q1 2023 as the impacts of higher interest are factored in. The average interest rate for Q1 was over 9% in the quarter, the highest rate we've paid in a long time and remains a compelling indicator for us as we look to pay down debt in the back half of 2024. Moving to slide 10, net cash provided by operations prior to working capital was $74 million and generated by the business reflecting EBITDA performance net of cash interest paid. Free cash flow usage of $36 million was driven by the $62 million draw on working capital accounts and $60 million spent on our front-loaded sustaining capital maintenance and replacement programs. Moving to slide 11, our PPE of $1.2 billion is up $470 million from the pre-McKeller September 30, 2023 balance. on the $430 million worth of assets we purchased in 2023 and $20 million of growth assets purchased this quarter in Queensland and Western Australia. Net debt levels ended the quarter at $781 million, an increase of $58 million in the quarter due to the $36 million of free cash flow usage as well as the investment in growth assets. Net debt And senior secure debt leverage ended at 2.0 times and 1.6 times, respectively, and are considered reasonable levels six months after a transformative, fully debt-funded acquisition. With that, I'll pass the call back to Joe.

Thanks, Jason. Looking at slide 13, this slide summarizes our priorities for the year. This slide isn't changed, so I'll just hit the high point. The McKellar integration continues to progress smoothly, and as I mentioned in my letter to shareholders, we are thrilled with the Australian market in general and see great opportunities for growth and continued efficiency improvements with our stronger systems and processes in place. Under the second point, we highlight our ongoing efforts to win strategic projects for our business. As we look to sustain and grow our infrastructure business, we will need to win infrastructure work, and with a strong fit potential U.S. infrastructure In the bid pipeline, we have initiated a partnership with a known international construction company and set this year's priority to qualify on one major infrastructure project. The second part of this priority is to win a meaningful project that uses our smaller mining assets that are currently underutilized in our oil sands business. We have several active tenders that would utilize these smaller assets, and we expect to win one of these projects this year. Item 3 prioritizes continued expansion of our operational and maintenance expertise. We will prioritize new technologies such as our telematic system and continue to in-house and vertically integrate our maintenance services and supply, including near-term focus on identifying and sharing best practices between our Canadian and Australian businesses. We believe this prioritization and focus will continue to lower costs and improve equipment utilization, resulting in increased competitiveness and likelihood of winning the tenders mentioned in the previous item too. The final area prioritizes returning NUNA back to operational excellence and setting it up for growth and consistent performance. This work commenced earlier this year, and I am confident in the changes made that NUNA will be back on its feet in time for their big summer projects and growing up a much stronger and stable foundation before the end of the year. Moving on to slide 14, Our bid pipeline has grown significantly with over $500 million in additional projects under tender. While we anticipate strong demand in oil sands to continue for many years, the diversified opportunities in Australia and the strong demand for heavy equipment also present avenues for further diversification and improved return on assets. There's a handful of these bids that are integral to our business. Two projects in oil sands consisting of One consisting of typical summer civil works that should be awarded imminently and a big stream diversion project, which we expect to submit in Q2 with award in late Q3, are important projects for improving near-term utilization on our smaller mining assets. Longer-term opportunities to fully utilize these smaller mining assets have been tenured in multi-year projects in a Quebec iron ore mine and a South Australian magnetite mine. Our larger mining assets, which remain in high demand and utilization, but are in general uncommitted beyond 2024, have been tendered into opportunities for five-year commitments in New South Wales and Queensland coal operations. We are excited about these opportunities and a couple of wins would provide meaningful insight and stability into our projections for 2024 and beyond. On slide 15, Our backlog stands at $3 billion. This includes the recent award of a major metallurgical coal mine in Queensland and the regional oil sands contract, balanced by our typical quarterly drawdown from executed work. This backlog enhances our confidence and predictability, particularly in our Australian operations. Slide 16 reiterates our outlook for 2024 and is unchanged from our last presentation in March. Lastly, slide 17 focuses on capital allocation. With continued high interest rate, we expect to use our projected free cash flow of $160 to $185 million for deleveraging while maintaining an open mind for more favorable risk return opportunities that may arise. We continually analyze all options to ensure that our capital allocation decisions are both opportunistic and aligned with our long-term strategic goals.