North American Construction Group Ltd

employees recognize. And on the following slide, you can see we were recently awarded the John T. Ryan National Safety Award, which was presented at this year's CIM in Vancouver. This is the second time we have won this award, and I'm tremendously proud of our workforce and their continued focus on keeping themselves and their coworkers safe. On slide five, we highlight some of the major achievements of our Q-tube. Our Australian business continues to deliver strong and consistent results, including McKellar's best monthly result in company history achieved in May and an impressive 10% growth in the quarter from the first quarter of 2024. Our overall integration is progressing smoothly with the ERP system plan to go live here in Q3. I visited our Australian operations a few weeks ago and I had a chance to see and talk to our employees and leadership teams across Australia, including our McKellar business in Queensland, our Western Plan Hire team in Western Australia, and our DGI team in New South Wales. I also got to meet with some of our key clients, and while our operations integration team's focus and efforts were impressive, the positive feedback from our clients was even more impressive and gives me confidence that we have the solid relationships and clear client-contractor alignment that is key to continued growth and profitability. On the JV business side, our Fargo-Moorhead flood diversion project is in the midst of its biggest summer construction season, and the overall project has hit 40% completion and remains on plan. After almost a year of poor performance, our NUNA partnership returned to profitability in Q2, and in particular returned to historical monthly margins in June that had not been achieved for almost three years. There is plenty of work still to be done, but we are pleased with the progress and plans the new leadership team at NUNA has made. Our telematic system achieved two milestones in the quarter, establishing initial mobile data infrastructure and testing in Australia and advancing the system functionality across equipment brands. On slide six, we show fleet utilization by region. Australian utilization remains strong with consistent high demand and mechanical availability already exceeding our end-of-year utilization target two of the last four months. In Canada, our utilization suffered in Q1 from fleet mobilization between oil sands sites and lower winter reclamation work, and Q2 brought extensive lost days due to wildfire protocols and abnormal rainfall. While our target of exceeding 85% utilization in Australia is on track, Our target range for Canada of over 75% is now planned for early 2025. Some of the improvements to come in Canada will be addition by subtraction. For example, we had 90 units in the 100-ton truck fleet, of which 50 have been parked for a while. These 50 trucks make up about 3% of our entire fleet, but constitute 40% of our parked assets. We reallocated 13 of these units to Australia and are actively bidding and expect to win work for about 25 in late Q4 or early Q1. That left 12 trucks. We contacted our main reseller, which is a well-known public company and the largest auction house for big equipment. And they actually had a buyer that was looking for 12 trucks and were able to make a deal within two weeks. There were other trucks on the market, and our reseller had loads of recent sales data to confirm our pricing was fair and correct. The units sent to Australia have arrived, and we expect them to start working in late Q3, early Q4, and when the other 25 parked units are engaged and newly want to work in Q4 or Q1, then we will have matched our 100-ton truck fleet to our expected demand, and nothing will be parked. With that, I'll hand the call over to Jason for the Q2 financials.

Thanks, Joe, and good morning, everyone. Starting with slide eight, the headline EBITDA numbers of $87 million and a 26% margin were driven by a third consecutive successful quarter from Australia since the change of control on October 1, 2023. Our overall margin of 26% correlates to the combined gross profit margin of over 18%, and illustrates strong operational performance. We included a comment on this slide about our oil sands business, which, although it did not post the top line revenue we had expected, did experience more consistency from Q1 to Q2 than we've historically had. This is due to the nature of the contracts in the oil sands, which are now less seasonal and focused on more steady time and material and rental arrangements. Moving to slide nine and our combined revenue and gross profit. As we will have for one more quarter, McKellar provided a step change in quarter over quarter variances. On a total combined basis, we were up $52 million quarter over quarter, a very similar mark to Q1, which was up $53 million over 2023. McKellar and DGI, which we combine as Australia in our results, were up $138 million on a steady, consistent quarter, during which McKellar posted an impressive 82% equipment utilization, peaking in May at 88%. This encouraging top line positive variance was offset by lower equipment utilization in the oil sands region, which was hampered by poor weather conditions in both May and June. Our share of revenue generated in Q2 by joint ventures and affiliates was a net $30 million lower than Q2 2023. The Fargo-Moorhead project had a strong operational quarter, was up $15 million quarter over quarter, and achieved the progress metrics and milestones required of the project schedule. More than offsetting this positive was the variance impact of the completion of the construction project at the gold mine in Northern Ontario in Q3. which led to much lower quarter-over-quarter revenues within the NUNA group of companies. Combined gross profit margin of 18.3% includes a one-time loss on equipment disposal and was 19.6% when adjusting for that transaction. Gross profit margins benefited both from the operations in Australia, which were higher than 20% in the quarter, and from ML Northern, whose fleet lowers our internal costs as well as generates strong margins from services provided to external customers. Despite lower than expected revenue, the Canadian fleet posted solid margins while managing costs during the operationally difficult months of May and June. Moving to slide 10, Q2 EBITDA beat the previous record by 70% as a result of the McKellar acquisition. As mentioned, the 26% margin we achieved reflects an effective operating quarter and is indicative of where we see our business operating following two quarters where we posted 25% and 27% margins. Included in EBITDA is general and administrative expenses, which were $12.8 million in the quarter and equivalent to 4.6% of revenue, which is slightly over the 4% threshold we've set for ourselves. The percentage overage is due in equal parts to lower revenue, as well as some higher accounting and legal costs associated with the McKellar acquisition. Going from EBITDA to EBIT, we expense depreciation equivalent to 12.2% 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 14.3% of revenue and generally consistent with the Q1 2024 rate of 14.8%. Adjusted earnings per share for the quarter of 78 cents, identical to Q1, was 31 cents up from Q2 2023, given all the positive factors previously mentioned, but offset by the impact of higher acquisition-related interest. The average interest rate for Q2 was 7% and remains a compelling indicator for us as we look to pay down debt in the back half of 2024. Moving to slide 11, net cash provided by operations prior to working capital of $69 million was generated by the business, reflecting EBITDA performance net of cash interest paid. Free cash flow usage of $2 million was driven by another $10 million draw on working capital accounts and $18 million spent on capital work in progress. Moving to slide 12, net debt levels ended the quarter at $833 million, an increase of $52 million in the quarter due to growth assets purchased as well as the change in the Australian exchange rate. Of the $833 million, $419 million, or roughly half, is denominated in Australian dollars, but is naturally hedged with the heavy equipment assets we own in Australia. Net debt and senior secured debt leverage ended at 2.2 times and 1.7 times, respectively, and remain reasonable levels nine months after a transformative debt-funded acquisition and halfway through a year for which free cash flow generation is expected in the second half. With that, I'll pass the call back to Joe.

Thanks, Jason. Turning to slide 14, our priorities for this year are unchanged. We continue to progress the overall McKellar integration as planned with ERP go-live scheduled for the end of Q3. Several projects to improve operational reporting and management systems are being implemented in the second half of the year with those requiring ERP systems data scheduled later in Q4. The timing of these systems improvements plans coincides with further growth and additional assets coming from Canada, and we remain confident that McKellar will be fully integrated heading into what we believe will be its best year ever with continued opportunities to grow the business in 2025. The second half of the year continues to include plans to win a large-scale mining or civil construction project to provide work for our remaining underutilized assets, and also to qualify with our partners on a major infrastructure project, which we believe could provide a smooth transition as our current infrastructure project in Fargo, North Dakota ramps down in a few years. We have already submitted tenders and have additional active tenders soon to be submitted that give us confidence in winning and qualifying for this work. We continue to advance our maintenance systems and processes to increase our uptime and achieve utilization targets. As mentioned earlier, our Australian business looks to achieve equipment utilization targets earlier than planned with Canadian targets planned for Q1 2025. We may still achieve the 75% Canadian target in the month of December if successful in winning a larger share of reclamation work than last winter, and the potential to do that has improved, as this year's reclamation volumes being tendered have increased significantly year over year. The final priority of returning NUNA to profitability and operational excellence advanced meaningfully, with Q2 demonstrating a return to profitability, and June in particular demonstrating a return to historical EBITDA margins. The second half of the year at NUNA will be focused on driving consistency across the business and winning work for 2025. Moving to slide 15, our bid pipeline remained robust, and we more than replenished the bidding opportunities lost or deferred. Our oil sands opportunities include our annual oil sands heavy civil regional services contract for 2025, which on initial review, appears to be about the same level of demand, with slightly lower unit rate work being offset with increased large truck and shovel rentals. We also received several reclamation tenders in oil sands in Q2 that we will bid this quarter that show a meaningful increase in volume, as mentioned previously, and also some year-round projects for this work that is typically only done in winter conditions. We have several active bids in the oil sands regions, including one which we submitted in Q2 but have not closed yet. These bids include the large stream diversion construction project that I mentioned on the Q1 call. This project is a large civil construction project for an existing client and is expected to be awarded in Q3. Outside of oil sands, we continue to see improved demand from the resource market, including a good-sized tender for an expansion of a British Columbia copper mine. The Australian opportunities and strong demand for heavy equipment continue to grow. We continue to see new and expanding operations seeking contractor equipment in the Queensland and New South Wales metallurgical and thermal coal markets, and are now regularly receiving contract mining and equipment rental opportunities in copper, gold, silver, and iron ore. We continue to expect to win one or more major contracts outside of oil sands this year, which we expect will provide a clear path for reallocating our remaining underutilized fleet in 2025. On slide 16, our backlog stands at $2.8 billion. We expect our backlog billed in late Q3 or early Q4 off contract awards in Canadian oil sands, Australian coal, and other resource markets in both countries. Slide 17 details our updated outlook for 2024. and represents an essentially unchanged outlook for EBITDA and EPS in the second half of the year combined with actuals for the first half. We expect Q4 to be better than Q3 in 2025 to continue the upward trend as we get full-year contributions from our 2024 growth capital. Although I'm disappointed we could not offset the operational interruptions incurred in the first half of the year, I can assure you The NACG team is focused and motivated on delivering strong results, and when you look at the implied Q4 financial estimates and add on to that the 2024 growth capital full-year impacts to 2025, it should be fairly straightforward to see what generates my optimism moving forward and my eagerness to execute the work we have in front of us. With that, I'll open up for any questions you may have.