GlobeNewswire Inc | Feb 17, 2021 05:05PM EST

February 17, 2021

ACHESON, Alberta, Feb. 17, 2021 (GLOBE NEWSWIRE) -- North American Construction Group Ltd. (NACG) (TSX:NOA/NYSE:NOA) today announced results for the fourth quarter and year ended December31, 2020. Unless otherwise indicated, financial figures are expressed in Canadian dollars, and comparisons are to the prior period ended December31, 2019.

Fourth Quarter and Year Ended 2020 Highlights:

-- Adjusted EBITDA of $46.2 million resulted in full year adjusted EBITDA of $175.5 million. Both are consistent with prior year, reflecting a continued recovery to pre-pandemic levels as the year progressed and a demonstrated ability to react quickly and implement cost discipline when required. -- Gross profit margin of 17.0% in Q4 2020 compared to 13.2% in prior period reflected positive operating conditions through the start of the winter season of work. -- COVID-19 related safety protocols and mine site access restrictions remained consistent with mid-year conditions and continue to have pervasive temporary impacts on all aspects of operations. -- Free cash flow ("FCF") of $40.5 million resulted in full year FCF of $43.5 million. In addition to strong adjusted EBITDA in the quarter, FCF was positively impacted by the typical Q4 changes in capital work in process, capital inventory and working capital balances. -- Net debt was $385.6 million at December31, 2020, reduced $21.0 million from the prior year balance of $406.6 million. Deleveraging was achieved through free cash flow generation and capital allocation prioritization in Q4. -- Diversification efforts led to 35% of adjusted EBIT being generated outside of the Fort McMurray region. Realized progress towards the diversification goal and the strength of the active bid pipeline have led to an increase of our 2022 diversification target to 50%. -- On October 8, 2020, we extended our credit facility agreement to October 8, 2023 and increased the available borrowings permitted under our revolving facility by $25.0 million to $325.0 million. -- On October 22, 2020, we announced the award of a two-year major earthworks contract in Northern Ontario. The contract was awarded to a joint venture owned and operated equally by us and Nuna. Valued at over $250 million, the project has begun to ramp up with peak volumes expected in Q3 2021 and completion in fall 2022. -- On December 16, 2020, we announced the appointment of Joe Lambert as President and Chief Executive Officer, effective January 1, 2021. Effective on the same date, Joe was also appointed to the Board. -- On February 2, 2021, we issued our inaugural sustainability report. The annual report provides structured framework for environmental, social and governance initiatives moving forward and will allow for measurement of progress towards our goals in a various business areas. -- In mid-February 2021 and effective January 1, 2021, Barry Palmer was appointed Chief Operating Officer.

NACG Executive Chairman, Martin Ferron, commented: I am very pleased that our exceptional team of employees marked my final quarter as CEO with strong operating and financial performance. In particular, we met our safety target, despite the distractions, restrictions and anxiety caused by the ongoing pandemic. Also, we achieved our free cash flow objective, allowing good debt reduction from the prior quarter and made significant progress towards our diversification goal, with the award of a major construction project on a gold mine in Ontario.

NACG President and CEO, Joseph Lambert, added: Looking forward, I am excited for the opportunity to lead North American Construction Group through the next stage of our long and storied history. It is reassuring to inherit a strategy that can withstand the challenges experienced in 2020. I have been intimately involved in the development and execution of this proven strategy and am committed to progressing it further."

Consolidated Financial Highlights

Three months ended Year ended December 31, December 31,(dollarsinthousands,except 2020 2019 2020 2019per share amounts)Revenue $ 136,771 $ 189,455 $ 500,374 $ 719,067 Project costs 39,419 66,091 139,452 277,646 Equipment costs 47,809 69,960 177,532 243,427 Depreciation 26,273 28,327 89,008 101,582 Gross profit^(i) $ 23,270 $ 25,077 $ 94,382 $ 96,412 Gross profit margin^(i) 17.0 % 13.2 % 18.9 % 13.4 %General and administrativeexpenses (excluding stock-based 6,264 7,656 22,158 27,455 compensation)Stock-based compensation expense 4,839 1,754 1,944 9,443 Operating income 11,987 15,332 68,945 58,834 Interest expense, net 4,441 5,498 18,681 21,623 Net income and comprehensive $ 10,044 $ 8,242 $ 49,208 $ 36,878 income available to shareholders Adjusted EBITDA^(i)(ii) $ 46,243 $ 47,789 $ 175,450 $ 174,229 Adjusted EBITDA margin^(i) 33.8 % 25.2 % 35.1 % 24.2 % Per share information Basic net income per share $ 0.34 $ 0.32 $ 1.75 $ 1.45 Diluted net income per share $ 0.32 $ 0.28 $ 1.60 $ 1.23 Adjusted EPS^(i) $ 0.36 $ 0.38 $ 1.73 $ 1.72

(i) See "Non-GAAP Financial Measures". (ii)In the three months ended December 31, 2019 we changed the calculation of adjusted EBITDA. This change has not been reflected in results prior to the three months ended December 31, 2019. Applying this change to previously reported periods would result in increases in adjusted EBITDA of $0.2 million for the year-ended December 31, 2019.

Year ended December 31,(dollars in thousands) 2020 2019Cash provided by operating activities $ 147,272 $ 157,944 Cash used in investing activities (113,573 ) (160,678 )Capital additions financed by leases (27,882 ) (28,107 )Add back: Growth capital additions 37,665 45,803 Cash reclassification to investments in affiliatesand joint ventures from change in presentation of ? 10,630 NL PartnershipFree cash flow^(i) $ 43,482 $ 25,592

(i)See "Non-GAAP Financial Measures".

Declaration of Quarterly Dividend

On February 16, 2021, the NACG Board of Directors declared a regular quarterly dividend (the Dividend) of four Canadian cents ($0.04) per common share, payable to common shareholders of record at the close of business on March 4, 2021. The Dividend will be paid on April 9, 2021 and is an eligible dividend for Canadian income tax purposes.

Results for the Three Months December31, 2020

Revenue was $136.8 million, down from $189.5 million in the same period last year. While operations are steadily returning to pre-pandemic levels, the delay of several large projects impacted revenue in in Q4. There was little activity at the Fort Hills mine in Q4 2020, whereas operations at Fort Hills contributed significantly to revenue in Q4 2019. A significant decrease in revenue was also seen in the external maintenance program, as prior year included the completion and delivery of rebuilt and refurbished haul trucks. Offsetting these decreases was additional reclamation volume at the Aurora Mine, revenue generated from the operations support contract at the coal mine in southern Texas and increased demand for equipment rental support at the Millennium Mine.

Gross profit of 17.0% was up from 13.2% in the prior year. The increase was the result of an effectively operated fleet and was bolstered by the Canada Emergency Wage Subsidy program. Operations support contracts from both the coal mines in Texas and Wyoming also allowed for the higher gross profit margin.

Direct general and administrative expenses (excluding stock based compensation benefit) were $6.3 million, or 4.6% of revenue, lower than Q4 2019 spending of $7.7 million but higher than the 4.0% of revenue as a result of the continued limiting of discretionary and non-essential spending.

Cash related interest expense of $4.2 million represents an average cost of debt of 3.7% as we continue to benefit from low posted rates on our credit facility and competitive rates in equipment financing.

Free cash flow in the quarter was $40.5 million and was impacted by typical Q4 positive timing changes of capital work in process, capital inventory and working capital balances. Primary routine drivers of free cash flow were adjusted EBITDA of $46.2 million less sustaining capital spending of $26.7 million and cash interest paid of $4.0 million. Sustaining capital spending was escalated and increased in the quarter in response to the stronger than expected demand for the upcoming busy winter season.

Canada Emergency Wage Subsidy (CEWS)

Our Q4 2020 results include $6.6 million of salary and wage subsidies presented as reductions in project costs, equipment costs and general and administrative expenses of $4.0 million, $2.0 million and $0.5 million, respectively. These amounts were received under the CEWS program which reimbursed us for a portion of wages paid to employees and greatly helped us protect jobs through retention and rehiring. Should we continue to qualify, we plan to seek assistance from this program for the remainder of 2020 and onward.

Business Updates

2021 Focus & Priorities

-- Safety - focus on people and relationships, maintain an uncompromising commitment to health and safety while elevating the standard of excellence in the field. -- Sustainability - commitment to the continued development of sustainability targets and constant measurement of progress to those targets. -- Diversification - continue to pursue diversification of customer, resource and geography through strategic partnerships, industry expertise and our investment in Nuna. -- Execution - enhance our record of operational excellence with respect to fleet maintenance, availability and utilization through leverage of our reliability programs, technical improvements and management systems.

Liquidity

Liquidity is critical during times of uncertainty and cash conservation is a key priority for management in weathering this crisis. Including equipment financing availability and factoring in the amended credit facility agreement, total available capital liquidity of $177.4 million includes total liquidity of $148.0 million as at December31, 2020. Liquidity is primarily provided by the terms of our $325.0 million credit facility which allows for funds availability based on a trailing twelve-month EBITDA and is now scheduled to expire in October 2023.

Achievement against 2020 targets and outlook for 2021

Given our visibility into 2021 and the assumption of continued easing of site access restrictions, management has provided stakeholders with guidance through 2021. This guidance is predicated on contracts currently in place and the heavy equipment fleet that we own and operate.

Key measures 2020 Actual 2020 Stated 2021 Outlook TargetsAdjusted EBITDA $175M $155 - $170M $165 - $205MAdjusted EPS $1.73 $1.60 - $1.70 $1.60 - $1.90Sustaining capital $99M $80 - $90M $90 - $105MFree cash flow $43M $40 - $55M $60 - $80M Capital allocation measuresDeleverage $21M $10 - $15M $35 - $45MGrowth capital $38M $35 - $40M $5 - $10MShare purchases $19M $20 - $30M $10 - $25M Leverage ratios Senior debt 2.0x 2.1x - 2.3x 1.6x - 2.0xNet debt 2.2x 2.3x - 2.5x 1.8x - 2.2x

Conference Call and Webcast

Management will hold a conference call and webcast to discuss our financial results for the three months and year ended December31, 2020 tomorrow, Thursday, February 18, 2021 at 9:00 am Eastern Time (7:00 am Mountain Time).

The call can be accessed by dialing:

Toll free: 1-833-900-2285International: 1-236-714-2745Conference ID: 8197967

A replay will be available through March 18, 2021, by dialing:

Toll Free: 1-800-585-8367International: 1-416-621-4642Conference ID: 8197967

A slide deck for the webcast will be available for download the evening prior to the call and will be found on the companys website at www.nacg.ca/presentations/

The live presentation and webcast can be accessed at:

https://onlinexperiences.com/Launch/QReg/ShowUUID=D2025F90-D728-4FAC-A0C7-581702D07932

A replay will be available until March 18, 2021 using the link provided.

Basis of Presentation

We have prepared our consolidated financial statements in conformity with accounting principles generally accepted in the United States ("US GAAP"). Unless otherwise specified, all dollar amounts discussed are in Canadian dollars. Please see the Managements Discussion and Analysis (MD&A) for the three months and year ended December31, 2020 for further detail on the matters discussed in this release. In addition to the MD&A, please reference the dedicated Q4 2020 Results Presentation for more information on our results and projections which can be found on our website under Investors - Presentations.

Forward-Looking Information

The information provided in this release contains forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words anticipate, believe, expect, should or similar expressions.

The material factors or assumptions used to develop the above forward-looking statements include, and the risks and uncertainties to which such forward-looking statements are subject, are highlighted in the MD&A for the three months and year ended December31, 2020. Actual results could differ materially from those contemplated by such forward-looking statements because of any number of factors and uncertainties, many of which are beyond NACGs control. Undue reliance should not be placed upon forward-looking statements and NACG undertakes no obligation, other than those required by applicable law, to update or revise those statements. For more complete information about NACG, please read our disclosure documents filed with the SEC and the CSA. These free documents can be obtained by visiting EDGAR on the SEC website at www.sec.govor on the CSA website at www.sedar.com.

Non-GAAP Financial Measures

This press release presents certain non-GAAP financial measures because management believes that they may be useful to investors in analyzing our business performance, leverage and liquidity. The non-GAAP financial measures we present include "gross profit", "adjusted net earnings", "adjusted EBIT", "equity investment EBIT", "adjusted EBITDA", "equity investment depreciation and amortization", "adjusted EPS", "margin", "senior debt", "net debt" "cash provided by operating activities prior to change in working capital", "sustaining capital", "growth capital" and "free cash flow". A non-GAAP financial measure is defined by relevant regulatory authorities as a numerical measure of an issuer's historical or future financial performance, financial position or cash flow that is not specified, defined or determined under the issuers GAAP and that is not presented in an issuers financial statements. These non-GAAP measures do not have any standardized meaning and therefore are unlikely to be comparable to similar measures presented by other companies. They should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Each non-GAAP financial measure used in this press release is defined and reconciled to its most directly comparable GAAP measure in the Non-GAAP Financial Measures section of our Managements Discussion and Analysis filed concurrently with this press release.

A reconciliation of net income and comprehensive income available to shareholders to adjusted net earnings, adjusted EBIT and adjusted EBITDA is as follows:

Three months ended Year ended December 31, December 31,(dollars in thousands) 2020 2019 2020 2019Net income andcomprehensive income $ 10,044 $ 8,242 $ 49,208 $ 36,878 available to shareholdersAdjustments: Loss (gain) on disposal ofproperty, plant and 122 259 757 (31 )equipmentStock-based compensation 4,839 1,754 1,944 9,443 expenseRestructuring costs ? ? ? 1,442 Net realized and unrealizedgain on derivative (3,429 ) ? (4,266 ) ? financialWrite-down on asset held ? ? 1,800 ? for salePre-2019 inventory ? ? ? (2,775 )correctionLoss on legacy claim ? ? ? 1,235 settlementTax effect of the above (1,141 ) (534 ) (621 ) (2,468 )itemsAdjusted net earnings^(i) $ 10,435 $ 9,721 $ 48,822 $ 43,724 Adjustments: Tax effect of the above 1,141 534 621 2,468 itemsInterest expense, net 4,441 5,498 18,681 21,623 Income tax expense 319 2,370 11,264 2,858 Equity loss (earnings) inaffiliates and joint 612 (795 ) (5,942 ) (795 )ventures^(ii)Equity investment EBIT^(i) 644 1,143 8,043 1,143 Adjusted EBIT^(i)(ii) $ 17,592 $ 18,471 $ 81,489 $ 71,021 Adjustments: Depreciation 26,273 28,327 89,008 101,582 Write-down on asset held ? ? (1,800 ) ? for saleAmortization of intangible 1,248 76 2,291 711 assetsEquity investmentdepreciation and 1,130 915 4,462 915 amortization^(i)(ii)Adjusted EBITDA^(i)(ii) $ 46,243 $ 47,789 $ 175,450 $ 174,229

(i) See "Non-GAAP Financial Measures".(ii) In the three months ended December 31, 2019 we changed the calculation of adjusted EBITDA. This change has not been reflected in results prior to the three months ended December 31, 2019. Applying this change to previously reported periods would result in respective increases in adjusted EBIT and adjusted EBITDA of $0.9 million and $0.2 million for the year-ended December 31, 2019.

We included equity investment EBITDA in the calculation of adjusted EBITDA beginning in the fourth quarter of 2019. Below is a reconciliation of the amount included in adjusted EBITDA for the three months and year ended December 31, 2020.

Three months ended Year ended December 31, December 31,(dollars in thousands) 2020 2019 2020 2019Equity (earnings) lossin affiliates and $ (612 ) $ 795 $ 5,942 $ 795 joint venturesAdjustments: Interest expense, net 106 44 376 44 Income tax expense 1,124 316 1,373 316 Gain on disposal ofproperty, plant and 26 (12 ) 352 (12 )equipmentEquity investment EBIT $ 644 $ 1,143 $ 8,043 $ 1,143 ^(i) Depreciation $ 1,096 $ 836 $ 4,329 $ 836 Amortization of 34 79 133 79 intangible assetsEquity investmentdepreciation and $ 1,130 $ 915 $ 4,462 $ 915 amortization^(i)

(i) See "Non-GAAP Financial Measures"

About the Company

North American Construction Group Ltd. (www.nacg.ca) is one of Canadas largest providers of heavy civil construction and mining contractors. For more than 65 years, NACG has provided services to large oil, natural gas and resource companies.

For further information contact:

Jason Veenstra, CPA, CAChief Financial OfficerNorth American Construction Group Ltd.Phone: (780) 948-2009Email: jveenstra@nacg.cawww.nacg.ca

Consolidated Balance Sheets As at December 31 (Expressed in thousands of Canadian Dollars) Note 2020 2019Assets Current assets Cash $ 43,915 $ 5,544 Accounts receivable 5 36,373 66,746 Contract assets 6(b) 7,034 19,193 Inventories 2(k) 19,174 21,649 Prepaid expenses and deposits 4,999 4,245 Assets held for sale 4,129 424 Derivative financial instruments 7(b) 4,334 ? 119,958 117,801 Property, plant and equipment, net ofaccumulated depreciation $302,682 (2019 8 633,704 587,729 ?$276,185)Operating lease right-of-use assets 9 18,192 21,841 Investments in affiliates and joint ventures 10 44,050 42,908 Other assets 6,617 6,718 Deferred tax assets 11 16,407 15,655 Total assets $ 838,928 $ 792,652 Liabilities and shareholders' equity Current liabilities Accounts payable $ 41,369 $ 88,201 Accrued liabilities 12 19,111 17,560 Contract liabilities 6(b) 1,512 23 Current portion of long-term debt 7 16,307 18,514 Current portion of finance lease obligations 9 26,895 29,206 Current portion of operating lease liabilities 9 4,004 3,799 109,198 157,303 Long-term debt 7 341,547 313,443 Finance lease obligations 9 42,577 47,072 Operating lease liabilities 9 14,118 17,710 Other long-term obligations 13 18,850 24,504 Deferred tax liabilities 11 64,195 52,501 590,485 612,533 Shareholders' equity Common shares (authorized ? unlimited numberof voting common shares; issued and 15 255,064 225,966 outstanding ? December 31, 2020 - 31,011,831 (a)(December 31, 2019 ? 27,502,912))Treasury shares (December 31, 2020 - 1,845,201 15 (18,002 ) (15,911 )(December 31, 2019 - 1,725,467)) (a)Additional paid-in capital 46,536 49,919 Deficit (35,155 ) (79,855 )Shareholders' equity 248,443 180,119 Total liabilities and shareholders' equity $ 838,928 $ 792,652 Contingencies 20 Subsequent event 15 (b)

See accompanying notes to interim consolidated financial statements.

Consolidated Statements of Operations and Comprehensive Income For the years ended December 31(Expressed in thousands of Canadian Dollars, except per share amounts) Note 2020 2019Revenue 6 $ 500,374 $ 719,067 Project costs 14(b) 139,452 277,646 2Equipment costs (k),14 177,532 243,427 (b)Depreciation 89,008 101,582 Gross profit 94,382 96,412 General and administrative expenses 14 24,102 36,898 (b),17Loss (gain) on disposal of property, plant 757 (31 )and equipmentAmortization of intangible assets 578 711 Operating income 68,945 58,834 Interest expense, net 16 18,681 21,623 Equity earnings in affiliates and joint 10 (5,942 ) (2,780 )venturesNet realized and unrealized gain on 7(b) (4,266 ) ? derivative financial instrumentsIncome before income taxes 60,472 39,991 Current income tax expense 11 ? 13 Deferred income tax expense 11 11,264 2,845 Net income and comprehensive income 49,208 37,133 Net income attributable to noncontrolling 10 ? (255 )interestNet income and comprehensive income $ 49,208 $ 36,878 available to shareholders Per share information Basic net income per share 15(b) $ 1.75 $ 1.45 Diluted net income per share 15(b) $ 1.60 $ 1.23

See accompanying notes to consolidated financial statements.