North American Construction Group Ltd. Q4 FY2025 Earnings Call

Good morning, ladies and gentlemen. Welcome to the North American Construction Group conference call regarding the fourth quarter ended December 31, 2025. The company wishes to confirm that today's comments contain forward-looking information and that actual results could differ materially from a conclusion, forecast or projection contained in that forward-looking information. Certain material factors or assumptions were applied in drawing conclusions or in making forecasts or projections that are reflected in the forward-looking information. Additional information about those material factors is contained in the company's most recent management's discussion and analysis, which is available on SEDAR and EDGAR as well as the company's website at nacg.ca. I will now turn the conference over to Jason Veenstra, CFO. Please go ahead.

Thanks, Joanna, and good morning, everyone. We've shortened the deck this quarter, and I'll start off with brief commentary on the financials and pass the call to Barry for his operational and forward-looking remarks. Starting on Slide 4. The headline EBITDA number of $78 million was significantly impacted by a $13 million retroactive life-to-date adjustment for the Fargo project, which we'll discuss on the next slide. Australia revenue for the quarter of $176 million was a Q4 record for the region despite the wet weather. And the oil sands region also posted solid top line numbers for the quarter. In looking at the $344 million of combined revenue and when factoring out the volatility of Fargo in the quarter, we are trending in a positive way and on our way to the $1.6 billion midpoint for 2026, which will be another company record. When looking at the $1.5 billion generated in 2025 of combined revenue, we can see that Australia and Canada are up on a combined net basis, 10%, with Australia up an impressive 17% and Canada up a modest 4%. When looking at our employee exposure hours, we can see that the 6.3 million hours in 2024 was eclipsed in 2025 by a correlated 15% and reached 7.1 million hours, representing a steadily growing workforce of 3,300 employees. These metrics showcase the baseload momentum we're currently experiencing and give us the historical context and confidence in the 2026 outlook, which Barry will close our prepared remarks with. Moving to Slide 5. I've already touched on the revenue momentum, but we'll add that 2025 Q4 was impacted by the strategic divestiture we made of our ultra class fleet, which was effective December 1, 2025. Regarding gross profit, we were impacted by two significant factors in the quarter with the Fargo cost adjustment being the major factor. Based on an updated full project forecast, the Fargo team increased the estimated cost to complete of the structures, railroads and aqueduct. On a gross basis, the increase to cost was approximately $50 million and on a net basis to us was a $13 million life-to-date adjustment given the late stage the project is at. With approximately 85% of the project complete, management is confident in the updated cost estimate and is looking forward to completing the project here in 2026 at the forecasted level. The second impact in the quarter was the above-average rainfall in very late Q4 in Queensland and the financial effect it had on the results, primarily at the Carmichael mine. Excluding these isolated items, gross profit of approximately 15% is a reasonable run rate metric of where our combined business is currently operating and consistent with the more routine third quarter of 2025. Moving to Slide 6. Q4 EBITDA and EBIT were down from their 2024 comparables as already discussed, with the 23% EBITDA margin being approximately 7% lower than the run rate metric of around 30% based on the two factors mentioned. Included in EBITDA is direct general and administrative expenses of $15 million in the quarter and equivalent to 4.9% of reported revenue. Going from EBITDA to EBIT, we expensed depreciation equivalent to 18% of combined revenue, which is higher than the 14% to 16% run rate of the business based on the unique conditions in the quarter. Adjusted earnings per share was a loss for the quarter of $0.14 and reflects the EBIT generated by the business, net of interest and taxes. The average cash interest rate for Q4 remained consistent at 6.4%. Moving to Slide 7. I'll briefly summarize our cash flow. Net cash provided by operations prior to working capital of $56 million was generated by the business, reflecting EBITDA performance net of cash interest. Free cash flow of $57 million was a highlight for the quarter based on EBITDA generation and disciplined sustaining capital maintenance. The $57 million in Q4 and $46 million in Q3 compiled to $103 million of free cash flow generated in the second half of 2025. Moving to Slide 8. Net debt levels ended the quarter at $878 million, a decrease of $26 million in the quarter as free cash flow generation was used to pay down debt, but was also used on growth capital, share purchases and dividends. Net debt and senior secured debt leverage ended at 2.4x and 1.4x, respectively. As mentioned last quarter, senior unsecured debt or high-yield debt now accounts for approximately 40% of our overall net debt, and we've been pleased with the demand for that source of financing as it provides the ability to confidently grow our Australian and infrastructure businesses. As shown on the slide, the $422 million of cash liquidity, up from $334 million at the end of September has positioned us for success. We expect to pay out the convertible debentures at the end of the month with this capacity, which will bring the credit facility net of cash up to around 15% of our overall debt. With those comments on the financials, I'll pass the call to Barry.

Thanks, Jason, and good morning, everyone. This is my first earnings call as President and CEO, and after 44 years with North American Construction Group, my focus is on execution and operating discipline. I'll start with some remarks on Slide 10 regarding our previously announced acquisition of Iron Mine Contracting or IMC. We expect that transaction to close early in the second quarter of 2026, subject to customary closing conditions, including approval by the Australian Competition and Consumer Commission. Strategically, IMC is a strong fit. Their culture, core values and maintenance capabilities align well with our existing platform in Australia and across the globe. IMC brings roughly 120 heavy assets — yes, 120 heavy assets — and about $1 billion of contractual backlog, which increases our overall backlog by roughly 30% and Australian backlog by roughly 35%. Most importantly, IMC and MacKellar together will create a national Tier 1 contractor platform in Australia, capable of executing large comprehensive scopes in both Eastern and Western Australia. This also accelerates our objective to expand lower capital unit rate work across Australia, where in times of geopolitical restrictions, the Western world is increasingly looking for critical mineral supply. Having overseen our operations in Australia over the last two years, I'm incredibly excited about our opportunities on the continent and what it will mean to North American Construction Group overall. Before walking through the next couple of slides, I want to separate two things. First, our 2026 operational priorities, which are the actions we are focused on executing this year. Second, the structural growth drivers that expand our earnings power over time. Moving to Slide 11, my operational priorities. As new CEO they are straightforward, operational and aimed at sustainable growth that compounds long-term shareholder value. First and always, safety. Everybody gets home safe everywhere we operate. Second, in Australia, we're further optimizing our workforce mix based on the improvements we have already implemented in the second half of 2025, driving even stronger consistency, productivity and execution. Third, after the major growth in Queensland over the last two years, we will review and optimize operating costs while fully maintaining customer requirements. Fourth, we'll integrate and commission the expanded IMC fleet following the transaction close in Western Australia to support growth and scale. Fifth, we will deliver the successful completion of the Fargo Moorhead diversion project, reinforcing our civil execution credentials. Lastly, we will continue improving mechanical availability and reliability in the oil sands through rightsizing the fleet, disciplined maintenance and operating fundamentals. Moving to Slide 12. With that operational focus in mind, the next slide steps back and looks at the bigger picture, the structural growth drivers we have put in place over the past several years that will translate into visible traction in the back half of 2026 and beyond. At a high level, first, scaling into a Tier 1 contractor platform in Australia; second, expanding mining services across Canada and the U.S.; and third, securing infrastructure awards across North America. Diversified in scope, these are building blocks for an even stronger and more resilient operating profile and a deeper pipeline of opportunities across end markets. Let's dive into the first one. On Slide 13, Australia is our primary growth engine. We are operating across 18 sites with favorable consistent operating conditions that support year-round equipment utilization. Our platform is diversified across key commodities, including gold, coal, iron ore, lithium, copper and mining-related infrastructure. With IMC, we will expand to a national Tier 1 scale and we become even better positioned in Western Australia, particularly in rare earth and critical minerals, where Australia is increasingly a strategic hub for the West critical mineral supply chains. Moving to Slide 14. In North American infrastructure, we are seeing nation-building projects across Canada and the U.S. now advancing from announcements to the bid stage and into execution. Fargo-Moorhead is a key proof point that sets us up to win more work. Our earthworks scopes representing approximately $600 million in total project volume for the company have been completed as planned. The execution record strengthens our credibility and expands the set of opportunities we are able to pursue. We're tracking a strong pipeline across Northern Canadian infrastructure, defense-related scopes and critical mineral infrastructure work with our partner, Nuna, and mass civil earthworks and opportunities in the U.S. as a subcontractor. We're focused on winning work where we have a clear competitive advantage such as mine site civil scopes and subcontracted earthwork roles on large programs. Moving to Slide 15. Mining services remain a core strength of North American built on decades of operating experience and a large specialized fleet. We operate across a broad geography from north of the Arctic Circle to the heart of Texas. And our track record, safety culture and equipment base support expansion as mining activity grows across this continent. We see tailwinds from increased focus on critical minerals and energy infrastructure and a reduction in regulatory hurdles, and we intend to earn that work by executing our fundamentals of safe operations, high equipment availability and disciplined maintenance. Moving on to Slide 16. Let me start with how we see execution priorities and strategic growth drivers translate to our financials. We entered the year with strong visibility supported by our contractual backlog and bidding activity. Currently, our backlog is approximately $3.9 billion with $1.2 billion already secured for 2026. Beyond that backlog, we are tracking a total bid pipeline of approximately $12.6 billion, including roughly $4.6 billion currently in active tender and procurement processes. Taken together, this provides strong visibility into the year ahead and supports our expectation for another year of growth for NACG. At the midpoint, we expect combined revenue of $1.6 billion, adjusted EBITDA of $400 million and free cash flow of $120 million. And an important point on the cadence for our adjusted EBITDA, our outlook reflects a stable first half performance broadly in line with the current Q4 run rate, excluding the Fargo impacts with meaningful improvements expected in the second half of 2026 as IMC synergies and opportunities are realized, new acquired equipment is commissioned and seasonal activity strengthens. Historically, from 2022 to 2025, second half revenues consistently exceeded the first half, averaging approximately 20% higher contribution. So this profile is consistent with how our business typically builds through the year. We also ended 2025 with strong momentum in free cash flow, including $57 million in Q4 2025, which supports our confidence entering 2026. That ends the Q4 presentation, and we would be happy to take any questions you have. I'll now turn it back over to the operator.

The first question comes from Adam Thalhimer at Thompson, Davis.

Can you provide a little bit more color? The total bid pipeline is up $12.6 billion. And I think this is a new metric, this $4.6 billion in active tender value. What's in that kind of geographically? And when could that come into backlog?

It's kind of spread all over the place. It involves some of the defense spending. It involves some of the water projects in the U.S. It's some mining projects that are out there. It's scattered across various projects. It's roughly 40 projects within that number.

Okay. I have a couple of questions. Is there any risk of additional costs, and are those embedded in the 2026 guidance at all? Also, can you remind us if there will be a tail of income from this project once construction is complete and comment on that?

Yes, I can take that one, Adam. Yes, we don't see a lot of risk in the remaining 15% of the project. This was a very detailed update done by the project team, and it's a limited amount that's left. So we see limited risk. Of the $400 million of EBITDA for this year, only about $5 million is contemplated from Fargo at these reduced margins. With the life-to-date adjustment that was made, that assumes that margin carries through to completion. So that's kind of the risk profile. And what was the second part of the question?

The second question was, I think, is there revenue from that project going forward?

Right. Yes, there is revenue, but it's not a meaningful number, Adam. We do own 15% of the special purpose vehicle that will do the operate and maintain portion of the contract, but it's not a meaningful contributor moving forward. So it's not worth modeling out, I would say.

Okay. And last one for me. Can you comment on the strategic review in the oil sands and what the outlook is for margins there this year?

Yes. We see the oil sands as still a very strong market. There's lots of activity. I've been in conversation with senior management in the oil sands and they're telling us they're focused on throughput this year, and there's opportunity for us. So we see a lot of good things there. As far as the margin improvement goes, that's on us. We need to put more of our gear to work, increase the availability of our equipment, and our projects will improve margin. There are opportunities not only for additional revenue, but margin improvements as well.

The next question comes from Joseph Reagor at ROTH Capital.

So my main question is around IMC. I think the original timeline expectation was to close by late Q1 and now that's pushed to Q2, but I think the original guide hasn't changed. Is there something that's come up to offset whatever was lost from IMC being delayed? Or should we expect that once it closes, you'll give updated guidance? Like how should we think about that? And then can you talk a little bit about why it shifted from Q1 to Q2?

Yes, Joe, I can take that one. It's purely the ACCC process, a regulatory review, and it's taking a little longer than we had thought. We're being told there's no risk there. It's just getting through the administrative process. With regards to the second question, Q1 is a lighter quarter for IMC, so it wasn't a big part of our guide. And the shareholder agreement does allow for retroactive earnings back to January 1. So it doesn't require us to update — should this close in the normal course in early Q2, which we expect, it's of the same impact as what we issued in December when we announced it.

Okay. And on that retroactive item, if you closed in Q2, would there be like a catch-up in Q2 and Q1 would be a little lighter from a modeling standpoint? Or would...

No, we expect to allocate that to Q1 because that's when the economic activity would have happened. So that's our expectation.

The next question comes from Sean Jack from Raymond James.

First, just a clarification question. I see that the EBITDA guidance for 2026 remains the same, but I'm not seeing in this quarter's materials details on growth capital, EPS, et cetera. Just wondering, was this specifically left out? Have any expectations changed since the press release in late December? Or was it just not addressed?

Yes, I can take that one, Sean. It's intentional. With the changes that happened in the quarter, as was mentioned on the bid pipeline, we've changed the approach on a few topics. One of those is just guidance metrics that we are issuing. We're going to stick to the three that we think are the most important to shareholders: top line, operational margin (which is EBITDA margin), and free cash flow. We think that's a more simplistic approach to really stick to those three. But just to answer the question, nothing has changed as far as the December metrics. It's just for the public-facing guidance, we're going to stick with three to simplify the messaging. There still is a healthy amount of growth capital allocated for IMC so they can hit their growth targets for Q2, Q3 and Q4. So about half of free cash flow, I would say, this year will be directed to growth and then the rest is dividends and debt paydown.

Okay. Perfect. That's good context. And then just thinking about the operational focus on Australian workforce and cost reduction. Do you mind giving any sort of goalposts on how much you expect to save from these initiatives? Do you guys have a plan set out? Any color would be great.

Yes. We are looking for about a 3% to 5% savings there. On that workforce, it's been about reducing subcontractors. We started that in Q3 of last year and it's a process. A lot of the projects that had kicked off took larger numbers of people to get started, so we're slowly rightsizing the manpower and insourcing more of that manpower requirement as opposed to relying on subcontractors that helped us through a tough time early on.

Okay. Perfect. Last one, if I may. Just thinking about the bid pipeline across all these geographies. Wondering if you guys can comment on margins directionally. Should we be expecting improvements kind of embedded there?

It's a tough question. Margins vary by geography. There's a lot of great opportunities in Australia that seem to generate higher margins. When you get into large infrastructure jobs, it's a very competitive market. We'll bid these jobs at a margin that we're comfortable with and that we know we can execute on. It's hard to say where that ends up, but we do see improved margins through operational efficiencies and improvement in our equipment.

The next question comes from Tim Monachello from ATB Cormark Capital Markets.

Just given the operational issues that have happened with Fargo and cost changes and whatnot throughout the year and the fact that they were outside the scope of NACG's operational breadth on those projects, and then looking at how your strategic plan is to move into more of these infrastructure projects which will probably be consortiums, how do you think about the risk profile of that strategy? And how do you manage these things that are outside of your operational scope and the impacts that they can have to your earnings as you go and have more exposure?

It's a great question. We learned some valuable lessons on the Fargo project. Our expertise is in the earthworks side of the business, and it isn't in structures and aqueducts and concrete. We trusted our partners who know their business, and we didn't have much line of sight into that. Going forward, unless we are in total control of a project and know all of the risks, we will avoid taking on scopes where we don't own the risk. For projects where other major players have scopes that do not match our skill set, we will look to subcontract the work and sign up for a subcontract where we have terms and conditions that we're fully aware of and fully on board with. That's our focus on the infrastructure side: if it's not a project that fits us well, we will look to subcontract the earthworks that we are suited for.

Got it. And specific to Fargo, given these retroactive reforecastings that have happened throughout the year, is that project going to be cash generative overall?

Yes. It still is a profitable project. It started off at a higher margin and then the retroactive hits — three of them now that we've taken — have been hard on current quarter earnings, but it's definitely free cash flow positive and still a success story overall. It just clearly had a massive impact on this quarter.

That project wraps up here in 2026. I believe that the consortium is carrying some cash balances. What do you expect in terms of distributions to NACG when the project nears finalization? And is that included in your free cash flow guidance?

It's not included in our free cash flow guidance. The cash injection at the end will be modest in 2027. We get paid out a fixed margin monthly, and what would be left is the final margin that exceeds that. That number has shrunk. If I had to guess, it'd be in the $10 million range at the end of the project in 2027. So not the significant cash injection we had originally planned for, but it's still cash flow positive.

Okay. Switching gears. When you look at the Canadian fleet and opportunities globally, can you talk a little bit about where your utilization stands, the fleet that may be underutilized and the opportunities to redeploy that? And what's the strategy around optimizing that fleet, whether that be transfers to Australia or other infrastructure or mining projects in Canada or the U.S., or dispositions in 2026?

We're in the middle of rightsizing our fleet and identifying what we need to run successfully in the oil sands while meeting client demands. For the remainder of that fleet, we're looking at Australia if there's an opportunity to place it there, particularly in the West where they execute more unit rate style work. The challenge is some blue-chip operators demand fairly new equipment on site, which makes it tougher to place some of our fleet. But there's opportunity on the unit rate side where equipment performance matters more than newness. It has to make economic sense across the pond, and we're doing detailed costing, shipping price analysis and assessing economic viability.

So you haven't made any definitive decisions on equipment transfers or dispositions out of Canada as yet?

No. There have been inquiries, including from IMC, because there's a lot of growth opportunities. We're isolating the fleet, doing the costing, getting shipping prices and looking at the economic viability of doing that.

Commodity prices have been really strong across the board in 2026. Are you seeing increased opportunity across your business as a result?

Absolutely. We're seeing opportunities across different commodities. Some are in the bid pipeline and some we've already bid, including in uranium in Saskatchewan. Australia has significant opportunities. We need to be strategic because capital is limited and we can't chase everything.

When you look at the guidance for the year, capital is not included in there, but assuming free cash flow at least includes the maintenance portion. What's the range on the EBITDA guidance imply in terms of expectations for the year? And if you end up winning some of these awards across the opportunities you've outlined, what could be the range on CapEx required for growth?

The guidance doesn't include any material wins that would require significant growth CapEx. If we do win some active tenders, generally mine site civil work has growth CapEx that is roughly proportional to the top line revenue generated and margins are job-specific. Some unit rate work in Western Australia generates more revenue without equivalent fleet requirements and a lot more labor. It really depends on the actual job. We're looking at multi-year opportunities, typically three to five years, and growth CapEx would be tied to those.

And the second part was the guidance range for the year on EBITDA. What's the bottom end contemplate relative to the top end?

The range in our business is weather dependent. The midpoint assumes a conservative scenario. If weather is worse, then we're talking about the lower end. If we get great operating conditions, we can exceed the top end. Weather impacts utilization especially at certain sites, and that's why the range is there for 2026.

Last one. From a strategic standpoint, free cash flow generation and true deleveraging is something investors want to see. You're also facing a robust opportunity set. How are you thinking about the ranges on how much you're willing to spend and how do you manage the balance sheet in a growth environment?

Opportunities need to be net improvements to our deleverage. We're at 2.4x net debt leverage. We would only pursue opportunities that, within the next 12 months' EBITDA, would help bring that number down. We're committed to a medium-term target of 2.0x and expect to get there with free cash flow by the end of 2027. The Board's longer-term goal is 1.5x. We've funded growth mostly with debt so far, but these opportunities are financeable and we have strong banking relationships in both Australia and Canada. We need to ensure our balance sheet stays in the low 2x multiple range from a net debt perspective.

The next question comes from Yuri Lynk from Canaccord Genuity.

Well, after that barrage of questions, I still have one. Maybe a little more detail on your plan to get into infrastructure projects. A cynic could say you've got one of these projects and it hasn't performed as you wanted it to. What can you say about the contract structure of that job in particular, vis-a-vis whether it's a lump sum turnkey or some kind of reimbursable? And more importantly, are you seeing any shift in contract structure on some of the stuff that's up for bid? There's been a broad shift in the industry towards more collaborative, more equitable type contracts. Is your niche seeing the same thing?

Looking at Fargo, were we somewhat naive? Maybe. We see ourselves as earthworks experts, and the earthworks scopes executed as planned. Delays on structures can impact earthworks scheduling and cost. It's our first P3 endeavor and we've learned valuable lessons. What we're chasing in the infrastructure space is work more suited to us. There are large players accustomed to these contracts and we're making calls to team with them so we're considered as a subcontractor option, which would come with contract terms and conditions we must agree to. That puts us in a better light regarding risk understanding and execution. There are other projects where earthworks is central and we can be the general contractor and subcontract the smaller non-earthworks scopes. We're looking at a few of those now.

So you're trying to more insulate yourself by positioning yourself in the consortium differently. Overall contract structures are still about pushing risk down to subcontractors, would you say? Or are you seeing any change in overall structure?

That's a fair comment. If the work doesn't fit us well, we'll look to subcontract the associated risks rather than absorb them directly.

Next question comes from Maxim Sytchev from National Bank Capital Markets.

When we look at Canada and some of the nation building projects, I presume we shouldn't assume any contribution even if you are successful on some of the bid packages in 2026. The contribution at the earliest would be 2027 and beyond. Is that fair?

That's a fair statement for sure, Max.

Can you provide a bit of a blueprint in terms of where you guys are on inventory integration, ERP implementation, et cetera, post the IMC closing to make sure everything is above board with inventory management on a going-forward basis?

We don't see a lot of integration risk with the IMC acquisition. They're a well-run organization and this regulatory approval has given us more time to be ready for day one. Integration risk is limited. They'll manage their own inventories and fleet. We have ideas on integrating with our subsidiary Western Plant Hire since they're neighbors, so there will be limited integration but not a lot of headline risk.

Especially over the last 24 months, labor has been an issue in Australia. Can you comment on trends around inflation there and how that's being managed?

It comes down to effective recruiting, and we've seen trends in the right direction. Barry highlighted it as a top priority and a key focus. We'll provide further update as part of the Q1 close.

One quick one about Fargo. Correct me if I'm wrong, but all the equipment that was bought for that project was structured into an SPV. I realize the cash out won't be massive. But is there anything on the equipment side we should be keeping in mind?

Yes. Equipment was bought specifically for that project and will be disposed of by that project. It won't be a big number and will be contained within the close out at the end of the project. Although the project will be complete this year, financial closeout requires certifications, so that probably occurs in 2027.

We have no further questions. I will turn the call back over to Barry Palmer for closing comments.

Thanks, Joanna, and thanks again, everyone, for joining us today. We look forward to providing the next update upon closing of the first quarter results.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.