North American Construction Group Ltd. Q3 FY2024 earnings call

Management Statement and Operational Highlights:

• Safety: Q3 trailing 12-month total recordable rate 0.39, improving on Q2 and below industry-leading target of 0.5. Focus on hazard analysis, frontline supervision, and Audiometric testing.
• Awards: Recognized with industry awards in safety innovations and leadership.
• Major Achievements: Fargo and Nuna JVs finished summer season as expected; Australia commenced ERP rollout, received equipment from Canada, and achieved record fleet utilization; parts supply agreement with Finning reestablished vendor partnering.
• Equipment Utilization: Australia Q3 utilization 84% (below 85% target), Canadian fleet improved to 51% from Q2's 42%, expected 60% by year end.
• Priorities: Develop frontline supervision for safety consistency; advance telematics system in Australia; prioritize winning bids to grow backlog; early contract renewals; roll out ERP in Australia; expand external maintenance business.

Segment Performance:

• Australia (MacKellar and DGI): Q3 revenue up $134 million with 84% equipment utilization, peaking at 88% in July. MacKellar's 84% utilization in Q3, with a trailing 12-month EBITDA margin contributing significantly.
• Oilsands Region: Lower equipment utilization q-o-q compared to Australia, but oilsands business posted more consistent quarter-to-quarter results with an 8% increase from Q2 due to improved site conditions.
• Joint Ventures: Fargo-Moorhead project up $12 million q-o-q with strong operational performance. Nuna group had lower revenues due to completion of a gold mine project in Q3 2023. Combined gross profit margin 21.9% reflects strong operational excellence across segments.

Guidance:

• Q3 EBITDA beat previous record by 75% due to MacKellar acquisition. Trailing 12-month EBITDA margin at 27%.
• 2025 outlook expects meaningful increase from Australia growth, consistent contributions from JVs, and stable oilsands.
• Year-end backlog expected healthily above $3 billion with increased geographic and resource diversification.
• Capital allocation updated with increased growth capital and debt supporting Q3 contract wins in Australia.

Risks: No major specific risks detailed in the transcript, but potential market fluctuations, contract uncertainties, and equipment utilization challenges could impact performance.

Q: Aaron MacNeil asked about smaller opportunities in the oilsands and pushing off Canadian utilization target.

A: Joe Lambert responded about 25% increase in winter reclamation works, and oilsands numbers not a huge impact, with 2025 oilsands expected similar to 2024 but waiting on contract details.

Q: Yuri Lynk asked about sequential recovery in JV revenue and oilsands outlook.

A: Joe Lambert said Fargo-Moorhead had more milestone achievements, and oilsands expected similar to 2024 with potential upside from civil construction and increasing barrels.

Q: Adam Thalhimer asked about Nuna turnaround and bid pipeline.

A: Joe Lambert said Nuna turnaround completed, focused on winter work and winning next year's work; bid pipeline over $10 billion with increased activity in Australia and Canada.

Q: Maxim Sytchev asked about free cash flow conversion and Fargo equipment.

A: Jason Veenstra said free cash flow conversion ratio expected to improve in 2025; Joe Lambert said Fargo equipment is JV assets, disposed of at project end.

Q: Prem Kumar asked about parts supply agreement and US revenues.

A: Joe Lambert explained parts supply agreement changes and US infrastructure opportunities with pre-qualification plans; US revenues currently 10% with focus on climate resiliency projects.

Q: Devin Schilling asked about operational strategy adjustment and Australia trucks.

A: Joe Lambert said strategy adjusted to rental market for better cost tracking; 25 trucks shipped to Australia expected to contribute $10-20 million EBITDA next year.