North American Construction Group Ltd. Q2 FY2024 earnings call

• Safety: Q2 trailing 12-month recordable injury rate below industry target, awarded John T. Ryan National Safety Award. Workforce hours up from previous lows.
• Australian Business: Strong and consistent results, MacKellar's May performance and Q2 growth; ERP system planned to go live in Q3.
• Integration: Smooth progress with ERP system for Australian operations; positive client feedback on integration.
• JV Business: Fargo-Moorhead project at 40% completion; Nuna partnership returned to profitability in Q2.
• Fleet Utilization: Australian utilization strong, Canada's target for over 75% shifted to early 2025; reallocation of 100-ton trucks from Canada to Australia and sales of some trucks.

The Australian business delivered strong results, with MacKellar achieving its best monthly result in company history in May and a 10% quarter-over-quarter growth in Q2 2024. The Canadian fleet faced challenges due to wildfire protocols and abnormal rainfall but maintained solid margins. The Fargo-Moorhead flood diversion project was 40% complete in Q2, and the Nuna partnership returned to profitability, including historical monthly margins in June. Revenue contribution: Australian business was a key driver, with MacKellar and DGI contributing significantly, while Canadian fleet and joint ventures had their own performance dynamics.

• Backlog stands at CAD 2.8 billion, expected to build in late Q3 or early Q4.
• Q4 expected to be better than Q3 in 2025, with full year contributions from 2024 growth capital.
• Bid pipeline robust, with oil sands opportunities, resource market demand, and Australian heavy equipment demand growing.
• Outlook for 2024 remains essentially unchanged for EBITDA and EPS in the second half, with expectations of improved consistency in utilization and revenue.

• Weather impacts: Wildfires and abnormal rainfall in Canada affected fleet utilization in Q2.
• Market competition: Challenges in bidding for certain projects, like some unsuccessful bids in Ontario.
• Asset oversaturation: Oversupply of certain truck classes in Canada leading to reallocation and sales.

Q: Does the guidance for the back half of the year require winning ex oil sands awards or is it more for 2025?

A: More for 2025; some early reclamation work in Q4 not in forecast.

Q: How has the bid funnel shifted?

A: Lost or deferred bids replenished; oil sands has active tenders, while some smaller civil construction in oil sands was slow in Q2.

Q: Are the write down of assets held for sale the 12 trucks auctioned off?

A: Yes, proceeds came in early July, reflected in Q2 financials but free cash flow in Q3.

Q: Utilization of oil sands fleet in Q3?

A: Up from Q2 lows, projecting low 60s; May was worst since 2016 wildfires.

Q: Consolidated EBITDA expectations for Q3 and Q4?

A: Slight increase in Q4 from Q3; Q3 has slight positive, mostly Q4.

Q: Free cash flow expectations?

A: Almost everything in Q4, slight positive in Q3.

Q: MacKellar acquisition free cash flow impact?

A: Third quarter post-acquisition, slightly exceeded financial expectations.

Q: Utilization difference in Canada from target?

A: Weather and fires in Q2 caused ~20% impact; reallocation and asset sales to reach 75% in Q1 2025.

Q: ERP implementation benefits and scope?

A: Expected 1% EBITDA improvement in 2025; ERP for MacKellar, DGI has own ERP.

Q: Visibility on non-commodity related work?

A: Fargo-Moorhead has 3-4 years left; pre-qualifying on major infrastructure project in Northern California.

Q: Wildfire impact near Kearl mine?

A: Affected one site for ~5 days, 10-15% of revenues, no major impact on Q3.