North American Construction Group Ltd

Good morning, ladies and gentlemen. Welcome to the North American Construction Group conference call regarding the fourth quarter and the December 31, 2024. 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 a 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 data 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 on the company's website at nacg.ca. I will now turn the conference call over to Joe Lambert, President and CEO.

Thanks, Jenny. Good morning, everyone, and thanks for joining our call today. I'm going to start with our operational performance in the fourth quarter of 2024 before handing it over to Jason for the financial overview. And then I'll conclude with the operational priorities, bid pipeline, backlog expectations for 2025, and our continued path for increased growth and diversification before taking your questions. On slide three, our Q4 trailing 12-month total recordable rate of 0.39 was a continuation of the improvements seen in Q3, and these full-year 2024 results remain below our industry-leading target frequency of 0.5. Key safety initiatives in the fourth quarter included implementing inspection and observation programs in Australia, improving heavy equipment operator mentorship programs, developing new field-level risk assessment tools, expanding the green hand training program, and launching a new safety leadership survey to increase management awareness and provide gap analyses for further areas for continued safety improvement. Rest assured that from the frontline to our boardroom, we're always looking to improve our safety and will relentlessly pursue our principle cultural value to get everyone home safe. On slide four, we highlight some of the major operational and financial improvements of 2024. In 2024, we achieved record annual revenue fueled by strong growth in Australia and in Q4 saw McKellar Group achieve its highest revenue quarter ever. Our major Fargo infrastructure project achieved peak annual revenue of over $150 million and progressed past the 60% completion mark with over 20% being completed in the second half of 2020-24 after rain impacted first half. The year ended with record backlog of $3.5 billion after major contract wins, including a four-year $500 million regional contract extension in the Canadian oil sands, $100 million mining and site development project for a New South Wales copper producer, and a two-year $125 million heavy civil construction contract in the Canadian oil sands. As I mentioned in my letter to shareholders, I was particularly pleased to see the win at the New South Wales copper mine as our McKellar team not only increased our geographic and commodity diversity, but also demonstrated we can compete and win unit rate contracts, which are typical in the markets where we see significant growth opportunity in other resource-rich Australian states. Slide five highlights the year one achievements of our McKellar acquisition. Growth, diversification, high utilization driving high returns on capital, and providing opportunity to place underperforming assets from Canada are just a few areas where our Australian business has exceeded expectations. We see this Australian contractor market as second to none and believe we can continue this positive trend for many years to come. On slide six, our Australian acquisition was a major driver in our 2024 growth and will continue being a primary contributor going forward. But our overall five-year growth trend and 20% annual growth rate demonstrate consistent improvements and a business culture always looking to improve. During this timeframe, we won and commenced our Fargo flood diversion project, which was the largest infrastructure project in company history. Commenced and completed our joint venture with NUNA at the Ontario Gold Mine, which was the largest project in NUNA history. We acquired DGI in Australia, ML Northern in Canada, expanded our in-house maintenance capabilities, including about $100 million worth of second-life rebuilds of our largest assets, and added to our technology with tools such as our equipment telematics and real-time machine health and production monitoring. This five-year trend demonstrates not only can we replace work as completed, but we can win more than we consume and consistently improve profitability. I will talk more about this later with details on our outlook and future expectations. Moving on to slide seven, our Australian equipment fleet, which in Q4 now includes a couple dozen assets shipped from Canada, and about 20 growth assets required for contract wins earlier in the year, maintained a consistent monthly utilization over 80%, and total Q4 utilization of 82%, which keeps us right on track to achieve our target range of 85% in Australia early in 2020-25. Our Canadian fleet utilization improved at 54%, building off the Q3 achievement of 51% and the Q2 low of 42%. The Canadian fleet utilization achieved monthly utilization of 60% during the quarter, and we expect to be back in the 60s through our busy Q1 winter season and achieve our target range of 75% by the end of 2025. Achieving Canadian utilization targets will require continuing to build off our project wins, and with the increased revenue in Q4 and expected further increase here in Q1 of 2025, and we're working diligently to achieve these project wins for the later half of the year. With that, I'll hand it over to Jason for the Q4 financials.

Thanks, Joe, and good morning, everyone. Starting with slide 9, the headline EBITDA numbers of $104 million and 27.8% margin were driven by both a fifth consecutive successful quarter from Australia since the change of control on October 1, 2023, but also a strong operational quarter in the oil sands. I'll get to it on the next slide, but operations posted combined gross profit margin of 20%, which requires effective operations in both Australia and Canada. We included a comment here about our oil sands business, which, although down from last year's top line revenue, is posting more consistent quarter to quarter results than in the recent past, and generated an over 10% increase from the third quarter on continued improved site conditions, and steady usage of the equipment. The improved consistency is due to the nature of the contracts in the oil sands, which are now focused on more steady time and material and rental arrangements. Moving to slide 10 and our combined revenue and gross profit, and for the first time, now has McKellar quarter over quarter in the results. McKellar and DGI, which we combine as Australia in our results, were up $31 million on a quarter which was impacted by rains in December, but during which McKellar posted another impressive utilization number at 82%. This top line positive variance was offset by lower revenue quarter over quarter in the oil sands, but as previously mentioned, was importantly up from the third quarter by 13%. Our share of revenue generated in the fourth quarter by joint ventures was down from last year, as consistent scopes at the Fargo-Moorhead project were offset by lower scopes being completed within the NUNA group of companies. Our reported combined gross profit margin of 14.6% was significantly impacted by two items which we have adjusted for in the adjusted EBITDA margins. First was a claim that we extinguished as part of our four-year regional contract, and second, was the expensing of certain shipping and logistics costs in the quarter for the equipment that was sent to Australia. Excluding these items, combined gross profit of 19.7%, which reflects the strong underlying operational quarter we had. Margins benefited both from the operations in Australia, which were 22% in the quarter, and the Canadian operational personnel and fleet posting solid margins of 18%, as they benefited from consistent and stable operating conditions. Moving to slide 11, Q4 EBITDA of $104 million beat last year. As mentioned, the 27.8% margin we achieved reflects an effective operating quarter and was almost 3% higher than last year's margin. This margin level is indicative of where we see our business operating at, with cumulative EBITDA margin since the McKellar acquisition, now at 27.0%, which covers over $1.8 billion in revenue and an eventful 15-month time frame. Included in EBITDA is general and administrative expenses of $13.7 million in the quarter, and equivalent to 4.5% of reported revenue, which is slightly above the 4% target we set for ourselves. G&A costs in Canada, in particular, have been lowered in light of lower revenue being generated in the oil sands. Going from EBITDA to EBIT, we expensed depreciation equivalent to 14.0% of combined revenue, which is consistent with the third quarter and reflects the depreciation rate of our entire business. When looking at just the wholly owned entities of our heavy equipment in Australia and Canada, the depreciation percentage for the quarter was also 14.0% of revenue and reflects the lower percentage of the Australian fleet, as well as the fourth quarter operations in the oil sands, which require high idle time during the cold weather. Adjusted earnings per share for the quarter of $1 reflects all the positive factors mentioned, with interest and taxes generally consistent with last year. The average cash interest rate for Q3 was 6.7%. Moving to slide 12, I'll briefly summarize our cash flow. Net cash provided by operations prior to working capital of $62 million was generated by the business reflecting EBITDA performance and net of cash interest paid. Free cash flow of $50 million was driven by the strong EBITDA quarter offset by the typically lighter capital spending in the fourth quarter. Moving to slide 13, net debt levels ended the quarter at $856 million, a decrease of $26 million in the quarter as free cash flow was directed to both growth assets and debt reduction. Of the $856 million, $448 million, or roughly half, is denominated in Australian dollars and is naturally hedged with the heavy equipment we own in Australia. Net debt and senior secured debt leverage ended at 2.2 times and 1.7 times respectively, which decreased in Q4 on free cash flow. Of note, of course, is that subsequent to year end, we had $73 million of convertible debentures convert into shares, which when applied to the December 31st balances, resulted in net debt of $783 million, and net debt leverage of 2.0 times. With that, I'll pass the call back to Joe.