North American Construction Group Ltd. 2026 Q2 Earnings Call

Thanks, Jenny, and good morning, everyone. I will start today's call with brief commentary on the financials, then pass the call to Barry for his operational and forward-looking comments, and we will conclude, as per usual, with Q&A. Starting on slide 4, we delivered CAD 93 million of EBITDA in the first quarter, translating into year-over-year improvements in both adjusted earnings and margin performance. Combined revenue was up CAD 86 million from last year, with IMC contributing CAD 91 million of revenue in the quarter. Excluding IMC, Australia was up organically 15% in the quarter on commission growth assets and strong execution. Offsetting these increases was the year-over-year impact of the divestiture of the ultra class haul trucks in Canada. The CAD 456 million of total combined revenue finished off a strong first-half foundation of over CAD 875 million, supporting our 2026 combined revenue midpoint of CAD 1.7 billion.

Moving to slide 5, Australia posted 13.6% gross profit margin and Canada delivered a combined adjusted margin of approximately 7%, despite difficult seasonal conditions early in the quarter in both regions. These results reflect a disciplined project execution, improved internal maintenance capability, lower repair costs, and the implementation of continued fleet efficiency initiatives. Importantly, are trending in the right direction heading into the second half of 2026. Moving to slide 6, Q2 EBITDA and EBIT were both up meaningfully from the prior year quarter on the acquisition of IMC and a more typical quarter from the Fargo joint ventures. Direct adjusted G&A was CAD 15 million, or 3.8% of reported revenue, well below our 5% targeted threshold, demonstrating operating leverage on stronger revenue.

Depreciation as a percent of combined revenue dropped to 13% from 16% last year, as IMC's lower capital intensity resulted in the combined number being lower than our expected range midpoint of 15%. All told, adjusted EPS of CAD 0.32 was generated by solid operational performance. Interest expense increased to CAD 18.9 million from CAD 14.1 million last year, reflecting the financing of our strategic expansions in Australia. Our average cost of debt for the quarter remained consistent at 6.4%. Moving to slide seven, the business produced CAD 78 million of operating cash flow before working capital, generated by EBITDA performance net of cash interest. Free cash flow generation was CAD 23 million after a CAD 13 million positive working capital change in the quarter. Moving to slide eight, net debt increased CAD 191 million to CAD 1.1 billion, reflecting the acquisition of IMC and growth capital equipment purchased during the quarter.

Trailing 12 net debt leverage is reported as 2.9 times, but importantly, is not yet benefiting from 12 months of IMC EBITDA. Based on our second half run rate, we are operating at a 2.6 times leverage ratio, with the plan to decrease that moving forward. Senior secured debt remains steady at 1.7 times based on the CAD 200 million of senior unsecured notes we raised in the quarter and the impact of unsecured debt that partially funded the IMC acquisition. With those comments on the financials, I'll pass the call to Barry.

Thanks, Jason, and good morning, everyone. As Jason just outlined, our first half performance was stronger than expected entering the year and gives us the confidence to raise our full year revenue outlook. More importantly, the quarter reinforced that North American Construction Group is in an inflection point. The strategic groundwork we have put in place is increasingly translating to measurable growth, stronger earning visibility, and more resilient operating profiles. Our operating platform continues to evolve, and there's even more opportunity ahead of us. We are now seeing clear evidence that our broader geographic reach, expanded capabilities, and operating discipline are working together. Our focus is to convert that opportunity into quality earnings and free cash flow through consistent execution across all operations. On slide 11, summarizes the three strategic building blocks supporting our growth. First, scaling toward a national Tier 1 contractor platform in Australia.

Secondly, securing infrastructure awards across North America. Third, expanding mining services in Canada and the U.S. These are distinct markets, but the underlying model is consistent. We establish a position where our equipment, people, and execution capabilities create the right to win. We then deepen our customer relationship, expand the scope of work, and allocate capital where we can earn attractive returns. The regional updates that follow are proof that this strategy is gaining further traction. On slide 12, Australia remains our primary growth engine. Revenue has increased approximately 31% compound annual rate from the first half of 2024 through the first half of 2026. First half 2026 revenue was 14% above the second half of 2025. This momentum reflects the scale we have added through MacKellar and IMC, supported by favorable operating conditions and strong market demand.

Together, MacKellar and IMC give us a broader national presence and the capability to pursue larger, more comprehensive scopes across all of Australia. IMC's new 8-bay Muchea workshop is another important step. It expands our maintenance capacity and supports our equipment rebuild program, as well as the larger projects we expect to pursue over time. The strategic value extends beyond scale. We are increasing our exposure to lower capital unit rate work and diversifying across gold, lithium, iron ore, nickel, and other critical minerals. This combination will support more consistent utilization and a better balance of growth and returns. This integration is also benefiting from a close alignment in safety, culture, core values, and maintenance capabilities, which is critical to sustaining performance as the business expands. As of June 30th, our Australian operations had approximately CAD 3.4 billion of contractual backlog and a further CAD 3.9 billion bid pipeline.

Supported by approximately CAD 278 billion of public infrastructure spending and a CAD 242 billion major project pipeline. This gives us meaningful runway as we continue building the platform. Turning to slide 13. In northern Canada, where I want to focus on our infrastructure discussion for today's call. Our strategy is to position capital and capabilities where our operating experience provides a clear advantage. Nuna is a strong example, with a fleet of approximately 230 heavy equipment assets. New equipment is arriving in Nunavut during the third quarter, increasing capacity and mechanical availability at an established mine site. We expect that expansion to drive approximately 20% site-level revenue growth, with our ownership stake providing NACG exposure to Nuna's growing earnings contribution. At the same time, we are executing a land and expand strategy across priority mining regions.

The Yukon infrastructure award and 3 initial projects in Ontario establish footholds from which we can pursue larger follow-on scopes. Our ability to safely deliver on time, on budget, with zero deficiencies is how we earn the opportunity to do more for these customers. Nuna's deep remote operating expertise, established infrastructure, and indigenous partnerships are difficult to replicate. Those capabilities position us well as critical minerals, defense, and nation-building investment advances across northern Canada. With approximately CAD 5 billion of opportunities in the regional pipeline, we see a significant pathway to long-term growth while remaining disciplined in how we pursue it. Turning to slide 14. In the oil sands, customer demand is shifting towards more equipment-intensive work as haul distances lengthen and operating requirements broaden. This creates an attractive opportunity for North American that can provide reliable fleet availability and consistent service, but it has also required a disciplined operating plan.

During the second quarter, we formally identified 260 multi-life heavy equipment assets as our target fleet and aligned our maintenance and operations team around clear objectives. Mechanical availability is the primary operating measure with a medium-term target of 70%. Improving reliability reduces downtime, provides greater schedule certainty, and allows us to capture visible demand more efficiently. This is not simply about increasing activity. It's about improving the quality of earnings. We are concentrating on investment for assets and scopes that meet our return thresholds with incremental investments targeting IRRs above 40% and a clear line of sight towards gross profit margins in the 15% range. Better fleet performance, selective capital allocation, and operating discipline are the levers that we will translate strong customer demand into resilient margins. Turning to slide 15. This shows the depth of our diversity in the opportunity set.

Our total bid pipeline exceeds CAD 12 billion, with approximately CAD 3.6 billion currently in active tender and procurement. The active pipeline is balanced geographically with approximately CAD 1.8 billion in Australia and CAD 1.8 billion in North America. It is also balanced by type, with 54% in mining services and 46% in infrastructure across 14 resource categories. Expected award timing is weighted across the second half of 2026 and into 2027, with additional opportunities beyond that period. We do not need every project to move forward to create meaningful growth. Our priority is to convert the opportunities where our capabilities provide a clear advantage and where the risk-adjusted returns meet our standards. Turning to slide 16, our outlook. Record contractual backlog of approximately CAD 3.8 billion as of June 30th underpins our full-year expectations.

Based on stronger than expected revenue in the first half, including a quarterly revenue record for Q2, we are raising our combined revenue guidance to a range of CAD 1.6 billion to CAD 1.8 billion. The new midpoint of CAD 1.7 billion is CAD 100 million above our prior midpoint and approximately 14% above our full-year 2025 result. We are growing. We continue to expect adjusted EBITDA of CAD 380 million to CAD 420 million, and free cash flow of CAD 110 million to CAD 130 million. At the midpoints, that represents CAD 400 million of adjusted EBITDA and CAD 120 million of free cash flow. In Australia, we expect optimal dry seasonal conditions in Queensland to support MacKellar, while IMC activity ramps up in Western Australia. In the oil sands, utilization should improve following the spring breakup, supported by fleet optimization and incremental project scopes.