North American Construction Group Ltd. Q1 FY2025 earnings call

• Safety Aspect: Safety is the top priority. The Q1 trailing 12 - month total recordable rate was 0.34, which was better than the industry - leading target of 0.5, and there was a focus on HOP principles.
• Equipment and Utilization Details: The heavy equipment fleet in Australia was expanded by over 10%; in Canada's oil sands, the Q1 equipment utilization rate was 68%, and February peaked at 70%; the Fargo project surpassed 65% completion in Q1 and had final construction in Q2; the parts and component supply and services agreement with Finning had an impact for a full quarter.
• Geographic and Commodity Diversification: Australia and Canada had different utilization trends; there was a growing civil infrastructure spend in key markets driven by energy transition and climate resiliency; the bid pipeline was expanding with a $15 billion bid pipeline and the pro forma backlog was at $3.2 billion, and it was expected to reach $4 billion by mid - year.
• Customer Satisfaction: High renewal rates were expected in the Queensland and Alberta markets, with a 100% renewal rate in Queensland.
• Systems and Maintenance: There was a reliance on expanded and upgraded systems for management information and cost monitoring; efforts were being made to improve internal maintenance skills for external revenue streams.

In Q1 2025, the combined revenue over the trailing 12 months reached a record $1.5 billion. For the product segments: In Canada, the Canadian fleet achieved the best quarterly utilization since winter 2022 - 2023, with a Q1 utilization of 68%. It is expected to have a modest drop in Q2 but then trend back up to approach the 75% target by year - end. In Australia, the Q1 utilization was 68% due to rain impacts, but the company is confident of hitting the 85% target in late Q2 to early Q3. The Heavy Equipment Australia (combining MacKellar Group and DGI Trading) saw a $24 million quarter - over - quarter increase despite weather impacts, with a more than 10% increase in the fleet capacity in Australia. The Canadian operations reported a revenue of $178 million this quarter, which is impressively 45% higher than that in the second quarter of 2024. The combined gross profit margin was 13.2%, but when excluding the abnormal component failures in Canada, it was approximately 14%, and Canada's gross profit margin was approximately 8%. Australia's gross profit margin was affected by weather, coming in at 16% - 17% instead of the normal 25%, and the financial impact of the rainy weather in Australia was estimated to be about 5% - 7% of the gross profit margin.

• It is expected that Q2's top - line and EBITDA will be consistent with those in Q1.
• The backlog is expected to reach a record $4 billion by mid - 2025.
• As the full trailing 12 - month benefit of the increased Australian fleet and the achievement of certain financial milestones by the Fargo project are realized, the ROIC is expected to trend back to the company's target of 15%.
• It is expected that the 2025 EBITDA margin will be in the range of 14% as the depreciation runs at the expected rate.

• Weather - related impacts: They affected the business in both Australia and Canada, influencing utilization and gross margins. In Australia, the rainy weather led to poor utilization and increased costs; in Canada, the extreme cold led to equipment idling and increased costs.
• Tariff - related impacts: There was a potential impact on internal costs, with some vendors experiencing cost increases due to tariffs, but it was expected that the tariffs would raise internal costs by less than one - half of one percent over the next year or so if they remained in place.

Q: Can you help us a little bit think about seasonality for the rest of the year? I'm curious about how you guys think Q2 might trend compared to Q1 from a top - line and EBITDA perspective?

A: Yeah, I can take that. Actually, we see the top - line and EBITDA being quite consistent with Q1. The oil sands is seasonally slower, and it has less impact on our more diversified business, but we see the utilization in the oil sands coming down a bit. But with lower depreciation, we see a nice increase in EPS in Q2. So the top - line and EBITDA are consistent with Q1.

Q: John Gibson: Good morning guys. Thanks for taking my questions. First, I wonder if you could quantify the financial impact of the rainy weather in Australia in Q1?

A: Yeah. We put it at about 5% - 7% of the gross profit margin in Australia. Was your question just about Australia, John?

Q: John Gibson: Yeah. I guess just what a normalized quarter would have been without the severe weather impact?

A: Yeah. So we are in the range of about $10 million in Australia. They are normally at about a 25% gross profit margin, but they came in at 16% - 17%. So it's of that order of magnitude.

Q: Unidentified Analyst: Hey, good morning guys. Hoping you're having a good day. Joe and Jason and the whole team, thanks for your time. I was looking through the financials and saw that the subcontractor services increased significantly. It looked like it went from about $59.6 million in 2024 Q1 to $75.6 million in 2025 Q1. How would you comment on that? What was the reason for the increase?

A: Yeah. So that's all driven by Australia, and we are doing some new work in Australia that requires subcontractor services, especially at that copper mine in Australia as well as the rainy weather required some services to be brought into sites that we coded as subcontractors. So -- about $18 million of that increase is related to MacKellar. And we -- it's a kind of run rate that we would expect to see. We do enjoy a margin on that subcontractor work. So it's all part of the different scopes year - over - year.

Q: Chris Thompson: Good morning guys. Last quarter, you put out a bit of guidance on the quarterly cadence of EBITDA. You kind of framed it as the percentage of your guidance per quarter. I'm just wondering if you could reiterate that for us going forward?

A: Yeah, Chris, just as mentioned in the previous call, I think we didn't put that in Joe's shareholder letter this quarter, but we do see Q2 looking a lot like Q1 on the EBITDA perspective. I think as far as the first half and the second half, the way we see it is on the EBITDA that about 55% is in the second half of the year with 45% in the first half. So that's the cadence we're seeing right now. Q3 will be a little bit up on Q4.

Q: Devin Schilling: I see a couple of contracts up for renewal in 2025. Any updates on these two renewals in terms of timing and maybe expectations on any potential scope changes?

A: Yeah. The first one in the middle row there, that is the earlier one is actually a negotiated early renewal. We've been very successful with these, Devin. And like I said before, you can't be more successful. We've had a 100% renewal rate. The second one is actually an expansion, which is in the top line - there, is an expansion of an existing operation where we are looking to potentially increase our scope. And that one we'll know more towards the end of the year. The one in the middle of the early renewal potentially we should know in the next quarter or so. And that's really the driver for what I said is going to be an increase to $4 billion in our backlog. So I'm highly confident in our ability. And obviously, a record of 100% renewal supports that confidence.

Q: Unidentified Analyst: Good morning gentlemen. It's [Caspin] (ph) here for Maxim guys. My question is regarding the technician count. You've mentioned in the past that it has been a bottleneck. I'm just wondering for both your regions in Canada and Australia, is that still the case? And if so, how much of a shortfall in technician count do you think you have? And is it still a factor preventing you from reaching your respective utilization targets in both regions or is the gap mostly because of weather in your business?

A: I'll start with [indiscernible] would be more of weather. In Australia, we've got very full demand in Australian long - term contracts. I think the consistency of how equipment stays on site and the consistency of our labor workforce, especially our skilled labor and the mechanics. We've been very successful in attracting and retaining maintenance personnel. I think skilled trades are an issue around the world, but I think we manage it extremely well in Australia, and that's why between that, the high demand and the weather, you'll see that the utilization target is at 85%. And we are very confident in that. We've been right in that range, obviously, not the last quarter, but before that. In Fort McMurray, the oil sands, we're getting -- when we get into that close to 70% range and above, that means we're full on demand and getting from 70% to 75% is the efficiency of our skilled labor workforce. We've put in systems and processes and developed things like our apprentice program over the years to address this. And now is the time to deliver. So as you look to get from that high 60s to mid - 70s towards the year - end, that's really where you are testing your abilities in that. And we are confident we've got the systems and the processes in place now. And when the high demand is there, we'll get into that range of utilization. So it's not hindering us at any point right now. And as we go forward, we think we've got the systems and processes as far as attracting and retaining skilled workforce in place, both in Australia and in Canada.