Earnings call transcript: North American Energy misses Q2 2025 forecasts, stock drops

North American Energy Partners Inc. (NOA) reported its Q2 2025 earnings, missing analyst expectations with an EPS of $0.33 against a forecast of $0.7454, marking a 55.73% negative surprise. Revenue also fell short at $320.63 million compared to the expected $326.17 million. Following the earnings announcement, NOA’s stock plummeted 19.8% in after-hours trading, closing at $13.4, near its 52-week low of $13.19. According to InvestingPro data, the company maintains a strong financial health score of 2.73 (GOOD), suggesting underlying stability despite the earnings miss.

Key Takeaways

• North American Energy’s Q2 earnings significantly missed expectations.
• Revenue growth was recorded at 12% year-over-year.
• Stock price fell sharply post-earnings release.
• The company highlighted growth in the Australian market and infrastructure projects.
• Free cash flow was neutral for the quarter.

Company Performance

North American Energy Partners Inc. showed a mixed performance in Q2 2025. While the company achieved a 12% increase in total revenue year-over-year, reaching $371 million, it faced challenges that impacted its bottom line. The Australian market contributed significantly to this growth, with revenues doubling since 2022. However, increased maintenance costs and an unplanned work stoppage in the Oil Sands region affected overall profitability. InvestingPro analysis reveals the company has maintained consistent dividend payments for 12 consecutive years, with a current dividend yield of 2.09%.

Financial Highlights

• Revenue: $371 million, up 12% YoY
• EBITDA: $80 million with a 21.6% margin
• Gross Profit Margin: 10.7%
• Net Debt: $897 million
• Free Cash Flow: Neutral for the quarter

Earnings vs. Forecast

The company’s earnings per share (EPS) came in at $0.33, significantly below the forecasted $0.7454, resulting in a 55.73% negative surprise. Revenue also fell short of expectations, with a surprise of -1.7%. This marks a notable miss compared to previous quarters, contributing to the negative market reaction.

Market Reaction

Following the earnings release, North American Energy’s stock experienced a sharp decline of 19.8%, closing at $13.4 in after-hours trading. This drop places the stock near its 52-week low of $13.19 and reflects investor concerns over the company’s ability to meet its financial targets. The stock’s performance contrasts with broader market trends, indicating specific challenges faced by the company. InvestingPro analysis suggests the stock is currently undervalued, with historically low price volatility. For deeper insights into undervalued opportunities, investors can explore the Most Undervalued Stocks list.

Outlook & Guidance

Looking ahead, North American Energy aims to achieve normalized free cash flow of $120-150 million by 2026, with an organic revenue growth target of 5-10% annually. The company remains focused on expanding its infrastructure projects, particularly in Australia, and expects similar EBITDA performance in the upcoming quarters.

Executive Commentary

CEO Joe Longberg expressed confidence in achieving the company’s second-half targets, stating, "We remain confident in delivering second half year results consistent with our original expectations." He also emphasized the company’s strategic focus, saying, "Our ability to handle large civil infrastructure projects with the same operational and financial success is the key to our expansion."

Risks and Challenges

• Maintenance Costs: Higher costs in Australia could continue to impact profitability.
• Contract Volatility: Unplanned work stoppages in the Oil Sands region pose risks to revenue stability.
• Labor Challenges: Skilled trades shortages in Australia may affect project timelines.
• Debt Levels: With net debt at $897 million, financial flexibility may be constrained. InvestingPro data shows a total debt to capital ratio of 0.57, though the company maintains a solid Altman Z-Score of 4.29, indicating financial stability.
• Market Conditions: Broader economic factors could influence future growth prospects.

Q&A

During the earnings call, analysts questioned the volatility in Oil Sands contracts and the company’s strategies for managing fleet movements. Discussions also covered labor challenges in Australia and adjustments to project margins, particularly concerning the Fargo project.

Full transcript - North American Energy Partners Inc (NOA) Q2 2025:

Conference Operator: Good morning, ladies and gentlemen. Welcome to the North American Construction Group Conference Call regarding the Second Quarter Ended 06/30/2025. At this time, all participants are in listen only mode. Following management’s prepared remarks, there will be an opportunity for analysts, shareholders, and bondholders to ask questions. The media may monitor this call in listen only mode.

They are free to quote any member of management, but they are asked not to quote remarks from any other participant without the participant’s permission. 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 on the company’s website at nacg.ca. I’ll now turn the conference over to Mr.

Jason Winstra. Thank you. Please go ahead.

Jason Winstra, CFO, North American Construction Group: Thanks, Ina, and good morning, everyone. A bit of a change today as I’ll start off right away with the financials and pass the call to Joel for the operational and outlook commentary. Starting on Slide four, the headline EBITDA number of $80,000,000 and the correlated 21.6% margin were impacted primarily by three distinct challenges in the quarter. First, based on the strong growth in Australia, we were required to incur higher than expected maintenance costs on subcontractor labour. The ramp up curve in Australia has resulted in a lag in recruitment of our critical heavy equipment technician personnel and the resulting contractor costs resulted in higher expenses in the quarter.

Second, an abrupt stop to work in April in the Oil Sands region resulted in higher operational and overhead costs due to the inefficiencies associated with unplanned outages. NACG has been working in the oil sands for decades and we understand the need to be agile, but the inconsistency experienced this quarter was abnormal and resulted in us incurring costs we normally could avoid through routine mine planning and resourcing. And thirdly, although the project team and workforce at Fargo progressed the project extremely well, they had an eventful corporate quarter as a settlement with the authority and the finalization of an updated detailed plan to completion led to a significant margin adjustment in the quarter. For those familiar with project management, adjusting margins even slightly for a project that is 70% complete can be material. Excluding these items, EBITDA would have been well above $100,000,000 and at our typical margin profile of around 27% to 28%.

These three challenges drove the financial results for the quarter, but have been mitigated and addressed as Joe will describe in his prepared remarks. We included a comment here about our steady revenue growth as we posted $371,000,000 of combined revenue, which is a 12% increase from last Q2. Australia in particular continues to impress with its consistent growth trajectory being up 7% from the 2025 and 14% from last Q2. When we look back on Australia, the revenue of $168,000,000 that we generated this quarter is more than double since the 2022, three short years ago, which was $81,000,000 on a pro form a basis. The McKellar Group generated almost $60,000,000 in June alone and set another company record for monthly revenue.

June’s strong top line bodes well heading into a 2025, and this growth rate is indicative of the demand we see in Australia. Moving to slide five and our combined revenue and gross profit. Australia was up $21,000,000 on a strong quarter, which benefited from growth capital being commissioned and fairly stable operating conditions. Equipment utilization in that region of 76% was strong, but was slightly held back from rainy conditions in April that carried over from Q1. This top line positive variance was further bolstered by higher revenue quarter over quarter in the Oil Sands region, which compares favorably to last year’s Q2, but was significantly impacted by inconsistent demand, primarily in April.

Our share of revenue generated in the first quarter by joint ventures was down $4,000,000 from last year, primarily due to lower scopes being completed within the Nuna Group of Companies. Fargo was consistent quarter over quarter, but that consistency factored in an approximate $8,000,000 reduction in recognized revenue based on the updated project plan. Excluding that one time entry, Fargo scopes completed in the quarter were approximately 30% higher than that of Q2 twenty twenty four. Combined gross profit margin of 10.7% was impacted approximately 8% by the three factors previously mentioned: subcontractor costs in Australia, operational and overhead costs in Canada from unplanned stoppages and the Fargo settlement and updated project plan. Less prominent impacts included the continuation from Q1 into April of the rainy weather in Australia and early failures of certain components in our heavy equipment fleet in Canada.

Moving to Slide six. Q2 EBITDA and EBIT were down from their twenty twenty four comparables as discussed. The 21.6% margin we achieved is not indicative of where we see our business operating at and well below the 28% run rate we’ve been on since the acquisition of the McKellar Group. Included in EBITDA is direct general and administrative expenses of $12,000,000 an equivalent of 3.6% of reported revenue, which is below the 4% target we set for ourselves. Going from EBITDA to EBIT, we again expensed depreciation equivalent to approximately 16% of combined revenue, which is higher than the 13% posted in twenty twenty four Q2 and reflects the component issues we are experiencing in Canada.

Again, the 16% is higher than our expected run rate moving forward, given historically we’ve been between 1314%. Adjusted earnings per share for the quarter of $02 reflects the significant bottom line impact of the challenges we faced, with interest expense identical to last year and tax rates consistent as well. The average cash interest rate for Q2 was 6.4%. Moving to slide seven, I’ll briefly summarize our cash flow. Net cash provided by operations prior to working capital of $64,000,000 was generated by the business, reflecting EBITDA performance net of cash interest paid.

Free cash flow was neutral for the quarter based on the sustaining capital spending. Moving to slide eight, net debt levels ended the quarter at $897,000,000 an increase of $29,000,000 in the quarter as gross spending required debt financing. Net debt and senior secured debt leverage ended at 2.2 times and 1.5 times, respectively. With those brief comments, I’ll pass the call to Joe.

Joe Longberg, President and CEO, North American Construction Group: Thanks, Jason. Good morning, everyone. I’m going to start with a brief overview of our Q2 twenty twenty five operational performance, and then I’ll conclude with our second half outlook, our growth opportunities in Australia and the infrastructure markets, and our expanding bid pipeline before taking your questions. On slide 10, our q two trailing twelve month total recordable rate of 0.42 remains better than our industry leading target frequency of 0.5. We continue to advance our systems and training with key focus on increased high risk task awareness and serious accident prevention.

A lot of people in our business claim safety as part of their core beliefs and culture, but when you look at their history, their promises don’t match the facts. Unlike others, NACG can demonstrate ten years of industry leading results from 2016 to now, while showing simultaneously increasing exposure hours by more than four times. Importantly for investors, these facts readily show our customers what a strong safety culture looks like and differentiates us from our competitors. This translates to contract wins, lower downtime, higher revenue, and lower costs. Moving to slide 11, I want to highlight some of the major achievements of Q2.

The trailing twelve month revenue set another company record with Australia leading the way and continuing an impressive three year growth rate of 28%. Just as impressive, if not more so, our business in Australia is growing at that rate and continues to improve on fleet utilization. Our Fargo Flood Diversion project, a highlight for our diversification efforts, enters the last year of major construction and remains on track for scheduled completion and handover to operations and maintenance teams. Soon, Fargo and the surrounding communities will have flood protection in place to quell those annual spring fears. Our disciplined management approach kept administrative costs at 3.6%, showcasing our ability to grow and support top line revenue without adding to our overheads.

Our ability to handle large civil infrastructure projects with the same operational and financial success is the key to our expansion in this segment. On the corporate front, we won the biggest contract in company history last week, shortly after our Q2 close, which drove record backlog and continued our trend of 100% renewal rate in Australia. Continuing another Australian trend, this contract renewal was achieved more than two years before the previous contract expiration. On the topic of renewals in The US, we also renewed our Texas thermal coal mine management contract out to 2028. Lastly, on the financial front, we completed a $225,000,000 offering of senior unsecured notes, providing liquidity for our future growth opportunities.

We ended Q2 with what I believe are two critical additions to our senior team. We’ve hired a VP of Asset Management and a VP of Infrastructure and Growth. Stuart and Melanie are industry tops in their respective fields will play major roles in leading our growth and diversification strategies. I expect to be sharing their accomplishments with you frequently in the coming quarters. On slide 12, we’ve combined the Australian Canadian fleets to form a global utilization rate as measuring our global utilization becomes more and more important to our decision making.

A seventy five twenty five Australian to Canada weighting was chosen as it’s roughly proportionate to our respective earnings expectations. Despite our Q2 setbacks, our global utilization rate is trending up and our continued prudent fleet management is expected to deliver utilization in the second half of the year in our target range of 75% to 80%. Moving on to our outlook for the remainder of the year, Slide 14 highlights the three steps which are mainly cost related that bridge our Q2 EBITDA margin results to our H2 expectations. To start, the Fargo settlement that is now behind us is one time in nature, and we have high confidence in the forecasted estimates complete as we have thoroughly reviewed the forecast as have our other partners. In Australia, we expect lower costs as we reduce our reliance on contracted subcontracted skilled trades.

And importantly, we’re ahead of schedule on those reductions through July. And lastly, in our oil sands business, we expect more consistent operations as our customers have no planned plant outages in the second half of the year as historically lower weather exposure. On slide 15, we’ve provided outlook for the 2025 and highlighted a variance to previous H2 expectations. As I said in my letter to shareholders, we remain confident in delivering second half year results consistent with our original expectations, aside from our oil sands business. Although these oil sands changes negatively impact our second half EBITDA and EPS, the unchanged combined revenue and free cash flow expectation reaffirms a strong finish to the year and sets us up to be back on historical growth trends for 2026.

On Slide 16, we highlight why our long term growth targets remain intact with anticipated organic revenue growth of 5% to 10% annually, underpinned by ongoing Australian growth, new infrastructure projects, which I’ll detail further on the next slide, and new mining projects and opportunities to displace higher cost contractors in Australia and Canada that will further enhance fleet utilization and operational diversification. On slide 17, we detail the growing civil infrastructure opportunities in North America. Aging infrastructure, energy transition, climate resiliency, and tariff threats pushing nations to seek more resource independence, all fueled by federal stimulus, are driving what we believe is a vastly growing opportunity in the civil infrastructure markets, with spending uptick kicking off in 2026. This infrastructure growth is coming off a major previous uptick in 2023 and positions us well to support major general contractors who are at capacity as either a partner or subcontractor. We expect to have secured two strong project teams to pursue our top 10 projects before year end and maintain our plans to increase infrastructure to around 25% of our overall business by 2028.

As I mentioned earlier, our VP of infrastructure and growth is now in place. And although she has only been with us a bit over a month, she’s hit the ground running and has already shown the skills and tenacity that fit right in at NACG. This gives me confidence in our ability to achieve our infrastructure goals. Slide 18 highlights a strong bid pipeline, including our top 20 infrastructure projects totaling around $2,000,000,000 The big blue spot in the middle is now gone, as that is the $2,000,000,000 contracted win at the Queensland coal mine we announced last week. The remainder of the bid pipeline remains essentially unchanged as no other significant bids in active procurement have been awarded.

Although not a sizable enough project to warrant a press release, it should also be noted that our mine management contract extension at the Texas coal mine never entered the bid pipeline, and we are able to negotiate that extension directly with our Lastly, regarding capital allocation going forward, we have been active in our NCIB having purchased and canceled around 680,000 shares since inception to quarter end, demonstrating our commitment to shareholder focused allocation. We have increased liquidity with our high yield grade and an expected midpoint of $100,000,000 in free cash flow for the second half of the year, which gives us confidence to continue investing in shareholder friendly ways, provides us funds should we need to settle our remaining convertible debt with cash, which is now a current liability due the end of Q1 twenty twenty six, and provides additional funding should we need letters of credit for future infrastructure bids or find other high return investment opportunities. In summary, while Q2 was not an easy time for us, we’re looking forward to a strong back half of the year and are excited to share more operational updates with you as we move towards the end of the year.

With that, I’ll open up for any questions you may have.

Conference Operator: Thank you. We will now begin the question and answer question. One moment, please, for your first question. Thank you. And your first question comes from the line of Aaron MacNeil from TD Cowen.

Please go ahead.

Aaron MacNeil, Analyst, TD Cowen: Hey, good morning all. Thanks for taking my questions.

Joe Longberg, President and CEO, North American Construction Group: Good morning, Aaron.

Aaron MacNeil, Analyst, TD Cowen: Jason, you sort of alluded to it in the prepared remarks. I’m hoping you can help us a bit with sort of future free cash flow generation. I know there’s no guidance out for 2026 yet, but I’m hoping you can just quantify the challenges this year, including the Fargo settlement, the margins in Australia and Canada, at least to the extent that you don’t expect them to recur next year. And then just give us a sense of what you expect will be the big moving pieces on free cash flow generation. I’m thinking about, again, Australian margins, sustaining growth capital or anything else you think is relevant.

And again, like not to put too fine a point on it, I just want to think about sort of the moving pieces there and if you can give any visibility to an improvement in free cash flow in 2026.

Jason Winstra, CFO, North American Construction Group: Yeah, as far as it relates to the second half, we see about a $20,000,000 working capital, a good guy in the second half from collections that slipped from June into July, so that sort of reconciles the reduction in EBITDA but the consistency in free cash flow. As far as the first half goes, the EBITDA difference from expectation to actual fell to free cash flow essentially. So CapEx came in slightly higher than expectation, about $10,000,000 higher, but the primary driver of the free cash flow difference is the difference in EBITDA. JV, the Fargo settlement and the $8,000,000 impact, we do collect from Fargo on a percentage of completion basis, so that does have an impact on free cash flow as well. So essentially, EBITDA impact does fall to free cash flow

Sean Jack, Analyst, Raymond James: for the first half.

Aaron MacNeil, Analyst, TD Cowen: Right. I’m just thinking more about 2026. Like, I guess, not to put too fine a point on but, like, you know, the sustaining capital is higher, growth capital is higher. Are those sort of the right, is the run rate this year something that we should think about into next year?

Jason Winstra, CFO, North American Construction Group: No, we would expect 2026 sustaining CapEx range to be the 180 to 200 that we had for this year. Some of the component issues we experienced in Canada were driving that overage and we don’t expect those to happen again in 2026. So we would expect a similar free cash flow target, call it 01/1930 to 150 for 2026 when we guide in October.

Aaron MacNeil, Analyst, TD Cowen: Got it. And then, Joe, one for you. I’m just looking at not the Q2 presentation, but the August investor presentation that just hit your website. You speak to 15% Australia growth in 2024, twenty twenty five twenty five percent in 2025 and then a consolidated long term growth rate of 5% to 10%. So I can realize that’s a top line target, but how is the Australian labor strategy evolving?

And what do you think is a practical sort of ceiling on your potential revenue growth in Australia before you sort of get into the negative margin outcomes that we saw with Q2?

Joe Longberg, President and CEO, North American Construction Group: I think managing a 5% to 10% growth rate is very reasonable. Obviously, we’ve had a bit higher than that. We also started the copper mine up in New South Wales. That wasn’t an area we’ve been operating in previously. You know, skilled trades is an issue that always rises its head in our in our business at certain times.

We we we react to it fairly quickly. You know, I think we’ve we’ve been through this before. Reoccurring items, and we’ve addressed it. I feel very comfortable that we’ll have worked our way out of this in the second half of the year down there. Like I said, I think we already had a good head start on it in July.

And then at a lower growth rate, it’s much easier to manage. The higher the growth rate in any particular area, the more pressure it puts on any kind of hard to get trades like that. Gotcha. Okay. Thanks.

I’ll turn it back. Thanks.

Conference Operator: Thank you. And your next question comes from the line of Kevin Gainey from Thomas and Davis. Please go ahead.

Kevin Gainey, Analyst, Thomas and Davis: Good morning, Joe, Jason. It’s Kevin on for Adam.

Jason Winstra, CFO, North American Construction Group: Hi, Kevin.

Prem Kumar, Analyst: Hi,

Kevin Gainey, Analyst, Thomas and Davis: Kevin. Hi, guys. Despite the shutdown, revenue growth in Canada was still strong, I think about 20% year over year. Would revenue have been even stronger without the shutdown, or did the shutdown impact cost more than sales?

Joe Longberg, President and CEO, North American Construction Group: Revenue revenue, it was a direct relationship to revenue. And and the the cost, the inefficiency is when you have those kind of abrupt shutdowns, you know, laying people off and hiring them back on takes time and money and and and carryover of overheads. You know, you don’t wanna lay off your entire staff and then try and bring them back three weeks later or a month later. So the yeah. Those were direct impacts.

And and we don’t see that happening again because it was predominantly related to their timing of a of a turnaround major turnaround in their plant.

Kevin Gainey, Analyst, Thomas and Davis: Do you think do you guys think that the that turnaround was just a one time off turnaround or and that oil sands will be smoother in h two?

Joe Longberg, President and CEO, North American Construction Group: They generally do those about every three or four years, but, you know, we we actually met with them in in early in May and had discussions on what those impacts were to us and how it negatively impacted them. And I think we’ve got a good understanding and relationship that hopefully we the next one that happens, be it three years down the road or whatever, that we’ve got plans in place to schedule around it to where you don’t have an abrupt shutdown of work and then bring it back online. So that’s very expensive and it creates issues across the board, operationally, safety, cost. And so we’ve had those discussions and I think our clients understand it. It was an unfortunate situation in q two, and hopefully, we can plan our way around it in the future.

Kevin Gainey, Analyst, Thomas and Davis: I appreciate the color on that. And then maybe for you, Jason, on the guidance. How are you guys looking at Q3 versus Q4? Are you expecting strong results in Q4 or Q3? And then Or should they look relatively similar from an EBITDA standpoint?

Jason Winstra, CFO, North American Construction Group: Yeah, there’s some puts and takes, but it’s basically flat quarter over quarter. Fargo will be a little stronger in Q3, but Australia is going be stronger in Q4. So it works out to pretty much equal quarters from an EBITDA and EPS perspective.

Kevin Gainey, Analyst, Thomas and Davis: Perfect. I’ll turn it over. Thanks, guys.

Conference Operator: Thank you. And your next question comes from the line of Prem Kumar. Please go ahead.

Prem Kumar, Analyst: Hey. Good morning, team. I had a couple of questions, so please bear with me. My first question is on if you could expand on any changes to your OEM partnerships. You mentioned in the letter that you’ve expanded your partnership with OEM and dealer networks.

Can you please kinda help us explain what those changes are? And also, have you are there any changes to your physical network in Fort Fort Mac over the last quarter or so with regard to, like, these partnerships? Thank you.

Joe Longberg, President and CEO, North American Construction Group: Yeah. This you know, we’ve I I think this was actually something we transitioned to last year was a partnership with our Caterpillar dealer in a component remanufacturing side for a certain portion of our components. That’s gone very well. Actually, that’s that was the driver switching to that was based on the component issues we were having last year. We’ve had some lesser component issues that Jason mentioned.

Those were actually in some of the OEM products. They weren’t the same components as we were talking about last year. And we do have a we’ve had a very positive response from our from our dealer. And right now, it’s basically making sure parts are available and on the shelf for any issues and then troubleshooting that to prevent reoccurrence. And, you know, those partnerships are very strong for us with our with our major Caterpillar dealer.

Prem Kumar, Analyst: Okay. And so so no changes to your existing footprint in Fort Mac other than just other than this partnership with OEMs?

Joe Longberg, President and CEO, North American Construction Group: Yeah. We we have the same relationships with clients and and our equipment dealers that we’ve had in the past.

Prem Kumar, Analyst: K. And then can you please expand on the the the contract labor issues in Australia? I was a little surprised that, I guess, based on your commentary from the past where you mentioned you’ve seen growth in Australia, I was I was kinda hoping you’d be prepared for for the exceptional growth in Australia. So the the labor issue took me by surprise. So you please expand on that, please?

Joe Longberg, President and CEO, North American Construction Group: Yeah. I you know, for the forty years I’ve been in the industry, from the certain skilled trades are always difficult. With us, it’s heavy equipment technicians. And we’ve built systems around how we increase and develop our own mechanics. But when you have a very high growth rate, you go into new areas like we did in Australia, it’s often difficult to find those guys, and we react very quickly.

But in the near term, you subcontract out those services. And it’s not an unusual event in their industry, but it’s one we learn to react to. And it’s much easier when you’re on a 5% or 10% growth rate than when you’re on a 20% to 30% growth rate. So it’s not something we’re ill prepared for, it’s just harder to do with that kind of growth than with a lower rate of growth. And it’s an area where we have our HR team focused on how we develop and access those people faster when we need to meet them for fast growth.

So we’ll be it’s always an issue in industry, has been forever. It’s the guys that react quickly and then develop long term solutions, which I think we’ve demonstrated we can do.

Prem Kumar, Analyst: K. And then on your contract backlog, any concerns about having, like, around 50% of the backlog coming from, like, one site, I think, in Australia?

Joe Longberg, President and CEO, North American Construction Group: I, you know, I think that’s our biggest client right now, and we’ve signed a five year term, so it’s fresh in the books. So, you know, it’s it’s it’s just the timing of things. As When we get two years in on that contract, something else will be on the top. Hopefully, a big infrastructure project is my expectations. So it’s just at this point in time, just because we were only awarded that contract a week ago, it sits that high in the backlog percentages.

As we advance and renew and win others, you’ll see that percentage drop. So no, it doesn’t worry me.

Prem Kumar, Analyst: Okay. I have just two more, I apologize for asking quite a few questions today.

Joe Longberg, President and CEO, North American Construction Group: I just need to write to get to the bonus round, Chris.

Chris Thompson, Analyst, Bank of Commerce: So Alright. And and I just wanted to

Prem Kumar, Analyst: ask, like, so how are the prospects in infrastructure work shaping up? I think you talked about hiring the new head of infrastructure and then and the VP as well. So could could you expand on, like, how your, like, the progress on building out the team and then, you know, where in the process are you guys right now?

Joe Longberg, President and CEO, North American Construction Group: Yeah. If you if if you if you look at that slide on the infrastructure, it actually lists our top 10 projects. And what we’re seeing is a significant increase in infrastructure projects that really fit in our wheelhouse, which are ones that have major earthworks. And we’re seeing it across Canada and The US, Just getting into Australian side as well. So there’s a lot of pumped hydro kind of earthwork stuff around the energy transition.

There’s a lot of stuff like Fargo, you know, climate resiliency projects where areas that used to flood once every twenty years are flooding every four years, and now they wanna build flood diversions or or or beef up their levies. And then we see a lot of infrastructure building access into like in Canada, access up to the Ring Of Fire or the Grays Bay Arctic Port, there’s opportunities and those fit into our wheelhouse as far as building that infrastructure, those roadways, those access ways through remote Arctic areas. So you can see the project list on that slide, but if you go look at it, you’ll find is they’re very much earthworks oriented. Historically, we never saw this level of earthworks side in the infrastructure. And where we sit right now is putting together project teams.

So we’re going look at partners similar to the guys we have at Fargo, they actually own in Chikungun Manui. We’ll look at partners that fit those particular projects well, that we think have the highest rating,

Aaron MacNeil, Analyst, TD Cowen: if

Joe Longberg, President and CEO, North American Construction Group: you would, in teams. And then we’re gonna look to team with them by the end of the year, have two of them, and then take those team, and we expect to win a couple of projects and have 25% of our work in the next couple of years.

Prem Kumar, Analyst: Okay. Thank you. I’ll ask my last question. So, regard to free cash flow, I think Jason mentioned normalized for maybe, like, next year, free cash flow would be about 120 to 150,000,000. Looking at some of your older presentation, like, some 2023, what you were guiding just for the Canadian division was around 100 to 115,000,000 free cash flow.

And then came the Macallor acquisition, so I’m a little surprised that your combined normalized free cash flow for next year, or for a normalized year, is almost as close to your upper guidance for just the Canadian division just about a year and a half, two years ago. And also considering the fact that over the last twelve months, you’ve had free cash flow of 20,000,000 for a company with a replaceable asset value of over 4,000,000,000. That’s, in my opinion, pretty poor returns for a high 4,000,000,000 asset. And I think the market agrees too, like, especially with regard to where the share price is now. Can you can you expand, like can you help me with regard to, like, the the free cash flow?

What are what’s the team doing to, like, improve that? And, I guess, does the team also, like, have the same notion on on the free cash flow being low right now?

Joe Longberg, President and CEO, North American Construction Group: Absolutely, we think it’s low, but we see it coming back to that midpoint of $100,000,000 over the next six months. There’s a lot more questions in that than I can answer, Graham. But yeah, we’re very confident in our free cash flow projections and it growing going into and going back to normal in 2026.

Prem Kumar, Analyst: Okay. Thank you so much. I’ll end it with that.

Kevin Gainey, Analyst, Thomas and Davis: No worries. Thank you.

Conference Operator: Thank you. And your next question comes from the line of Sean Jack from Raymond James. Please go ahead.

Sean Jack, Analyst, Raymond James: Good morning, guys. Just wanted to ask one question on Australia. Just wondering how we should be thinking about gross margin moving into the back half here. Seems like efforts have definitely been taken to mitigate the skilled trade stuff. But are we gonna be looking at a more gradual improvement, kind of a step change in the third quarter?

Any color would be great.

Joe Longberg, President and CEO, North American Construction Group: Yeah. I don’t know what the number was. It’s been a half Jason left to answer that, but we expect to be back to what we had originally projected in our original guidance.

Jason Winstra, CFO, North American Construction Group: Yeah, so we’re in the low 20% for gross profit margin, Sean. And as Joe mentioned in his prepared remarks, the subcontractor issue is rectifying quickly. We got through most of it in July, so we expect to be a percentage up in Q4 over Q3. But yeah, low 20% is the expectation for Australia.

Sean Jack, Analyst, Raymond James: Okay, perfect. One more for me. So you guys also just talked about kind of putting the project teams together on the infrastructure side

Aaron MacNeil, Analyst, TD Cowen: and kind of

Sean Jack, Analyst, Raymond James: getting the right people in place. Wondering, if you guys have any visibility on what that sort of bid pipeline looks like right now from a timing perspective. How early could investors see, you know, realistically new projects from the infrastructure side coming into the fold?

Joe Longberg, President and CEO, North American Construction Group: Well, there there there are actually some that are on very fast tracks. And and additionally, looking at ones that we may not be part of the bid team, but we can look at from a subcontractor standpoint. Those opportunities could be as early as 2026. You know, most of the other ones where where you’re actually bidding as a team, you know, a design build kind of thing, I’d say probably more out into the the 2027 standpoint. And if, like, if you look at the bid pipeline, those light blue dots in the very bottom line, those are where those projects are expected to start.

But some of them are starting with just engineering and design, and that construction could be out. So you could win a project in 2026, but it might just be engineering and design. You don’t start the construction until 2027. So there is some opportunity for 2026, but I think the biggest ones are in 2027.

Sean Jack, Analyst, Raymond James: Perfect. That’s all for me, guys. Thanks. Thanks, Sean. Thanks, Sean.

Conference Operator: Thank you. And your next question comes from the line of Ghazim Nakvi from National Bank Financial. Please go ahead.

Ghazim Nakvi, Analyst, National Bank Financial: Good morning, guys. Ghazim here on for Maxim.

Chris Thompson, Analyst, Bank of Commerce: Good morning, Ghazim.

Ghazim Nakvi, Analyst, National Bank Financial: Just most of the questions have been asked. I just was wondering, like, what the JV forecast adjustment for Fargo means for the future profitability of that JV? Do you guys expect it to be profitable for the year? And, like, what what should we expect going forward for 2026?

Joe Longberg, President and CEO, North American Construction Group: Yeah. That that change is made for end result of the project. So yeah, we expect to maintain that margin, hopefully improve upon it, but we’re very confident where that margin sits. We reviewed that forecast. This was also part of the overall agreement we made with the authority that settled all the old claims.

So we don’t have anything hanging over us from the past now, and we’re just looking forward to complete it. And we’re in the last kind of quartile of that work and expect to hand it over to kinda operations and maintenance at the end of next construction season next year.

Ghazim Nakvi, Analyst, National Bank Financial: Great. Thank you. And I think

Joe Longberg, President and CEO, North American Construction Group: two kids, and it it did you know, we’re it wasn’t a major loss of margin. It’s just the fact that you’re 70% complete that it made a big impact in q two. Great. So it’s just more

Ghazim Nakvi, Analyst, National Bank Financial: like a onetime thing. And

Joe Longberg, President and CEO, North American Construction Group: Absolutely. Correct.

Ghazim Nakvi, Analyst, National Bank Financial: Okay. Great. And, like, I think you already touched upon this about the Australian labor issues. But should we assume this will not continue on in 2026, or is this the new steady state margin given that, you know, labor costs have gone up?

Joe Longberg, President and CEO, North American Construction Group: No. We we wouldn’t expect this in 2026. This is it’s always cyclical, and and skilled trades are always an issue in in in our industry. They just come up. It puts more pressure on you when you have a high growth rate.

Adapting and growing and building our own development processes in our HR, we’ve demonstrated this in the past. We felt these pressures before and we know how to deal with it. So I don’t expect this to reoccur in 2026, no.

Ghazim Nakvi, Analyst, National Bank Financial: Thank you. That’s it for me. You bet.

Conference Operator: Thank you. And your next question comes from the line of Chris Thompson from Bank of Commerce. Please go ahead.

Chris Thompson, Analyst, Bank of Commerce: Hey, good morning, guys. Yes, I’ll start on the forward guidance for the Oil Sands. It looks like you lowered your margin expectation there for H2, but I’m just a bit confused because I was under the impression that the Q2 turnaround activity was really the cause of that impact this quarter and that that was behind us, but it feels like that that may not be the case. And then how should we think about that for 2026 margins in Oil Sands?

Joe Longberg, President and CEO, North American Construction Group: That is behind us. But I do think we had some issues with some of components and different components. And so we and and and we have lower revenue projections in the second half. Always did. So there’s there’s not the same efficiency.

And and then these component issues, which we’ve we’ve rectified as far as the impact to us operationally. Our our dealers have responded by putting parts on the shelf, but it’s probably another six months before we get the solutions in place to prevent reoccurrence. But I wouldn’t expect that to continue on into 2026. And I would expect we’re back at normal margins, very similar, my guess, to what we started the year with as far as our expectations.

Chris Thompson, Analyst, Bank of Commerce: Okay. So the impact for H2 margin, Joe, is purely parts related?

Joe Longberg, President and CEO, North American Construction Group: Well, we have a lower revenue per month, if you would, than we did in H1. And so there’s a little bit of loss of efficiency and overhead than that. There is still some component related issues, and they’re different than what we had last year. And we have the OEMs involved in this, where previous ones I spoke about last year were actually partnerships we had that weren’t with OEMs or OEM dealers. And so they’ve already reacted.

We have what we would call stage one, which is containment of an issue, And then we’re going to resolve to prevent it and put a solution in place, they’re actively working on that with our team.

Chris Thompson, Analyst, Bank of Commerce: Okay. And then thinking back to the oil sands contract that you had won in late twenty twenty four, the committed spend was $500,000,000 and you’d expected that represents a third of the total work to be performed across the mine site. So how much of that $500,000,000 committed spend have you already worked through? And how confident are you in that one third assumption that you originally went in with?

Joe Longberg, President and CEO, North American Construction Group: I’m confident in the one third as far as the amount of work that gets done every year, the amount that comes at backlog at any one time. And our it’s it’s the same for us, that their commitment to us is the same as our commitment to them. I actually don’t think the backlog burn changes the total amount of revenue we do with those clients. But I don’t know, Jason, what’s the number we’ve gone through, 150 or so? Yeah.

Yeah, so somewhere in that $150,000,000 $200,000,000 range. I talked about it, the backlog will probably consume faster. And we look at that as a good opportunity going forward to talk to our clients about increasing those commitments over these four years.

Chris Thompson, Analyst, Bank of Commerce: Because it’s Okay. And then in terms of the

Prem Kumar, Analyst: In

Chris Thompson, Analyst, Bank of Commerce: terms of maybe just addressing the volatility that you’ve experienced with with your oil sands work, I mean, going forward, is there a way to shift the way these contracts are structured to help guard against this volatility? I guess, like, what’s the long term solution to to try and manage this the amount of the amount of volatility we’ve seen in in that contract?

Joe Longberg, President and CEO, North American Construction Group: For us, it’s really maintaining a a good open relationship with our clients so that we can communicate and plan together. That didn’t occur in this instance very well. We had discussions afterwards, and I think we’ve reset that. And then from a contracting standpoint, for contractors to get more leverage is when we have higher demand than supply, and then you can get stronger in your terms and conditions. It’s just a matter of where that sits in the market at the time, like any other contracting business.

Chris Thompson, Analyst, Bank of Commerce: Okay. And then just last one on the oil sands. Slide 23, you highlighted replacement value of the fleet overall. Can you break out for us what the replacement value is for your oil sands fleet?

Joe Longberg, President and CEO, North American Construction Group: I yeah. I’m sure Jason can get that to you, Chris. I mean, I don’t know if he knows it off top of his head. But

Chris Thompson, Analyst, Bank of Commerce: Sure. No problem. Okay. And then last question just on Australia. When I look back at 2023, it looks like gross profit margins were were pretty strong, like mid twenties to low thirties.

And now for H two twenty five, we’re talking about low twenties. So I’m just wondering what what’s changed in the business that that has seen that margin shrink over time.

Joe Longberg, President and CEO, North American Construction Group: I I don’t have the exact bridge for you. I I I know what the difference is. And, we’ve expanded some of those marketplaces and added maintenance labor. So it’s just a mix of work. Your highest margin, if you do a straight dry rental, I don’t know if you’re familiar with that term, Chris, but if you just rent a truck, those have the highest margins because that and and, you know, if you now if you rent that truck and you provide maintenance for it and the labor, the the margins on labor aren’t as high.

So it it’s really just a mix of work. It’s not the same work having reduced margins.

Chris Thompson, Analyst, Bank of Commerce: Okay. Oh, that’s that’s good. Thanks for clarifying that. I’ll I’ll turn it back. Thank you.

Joe Longberg, President and CEO, North American Construction Group: Sure.

Conference Operator: Thank you once again. That is star and one to ask a question. And your next question comes from the line of Kevin Gainey from Thompson Davis. Please go ahead.

Kevin Gainey, Analyst, Thomas and Davis: Hey, guys. Appreciate you letting me jump back in. I just wanted to ask, has there been any thought or continuation of thought on moving more heavy equipment from Canada to Australia?

Joe Longberg, President and CEO, North American Construction Group: Absolutely. We’ve we’ve moved some small pieces. Actually, we got four more trucks we’re shipping over there right now. It’s not a huge amount of gear. If if you look at the bid pipeline, Kevin, and you’ll see a you’ll see a big blue dot on the top row.

It’s this is in 2027, and that’s our probably our biggest opportunity to move a good chunk of fleet that isn’t committed in in Canada right now. And so that that would be our biggest opportunities. We we we’re still moving a few pieces here and there, and we’re bidding other work outside of oil sands that we look to use and increase our utilization of our smaller end fleet. Oil sands demand is still very strong, and it’s a business that we still see staying at that level of revenue for years to come. But we will look to take our fleet and right size it to maximize our utilization and return.

And those kind of opportunities like that big blue dot in 2027, you’ll see are the biggest ones we see. And we see more of them coming up, actually.

Kevin Gainey, Analyst, Thomas and Davis: Do you guys wouldn’t preemptively move it? You would wait until you win the contract?

Joe Longberg, President and CEO, North American Construction Group: Yeah. We we no. It’s it’s they’re very high cost to to move stuff. It’s not the and it takes a significant amount of time to get it overseas. So now we would we would have won a contract, you know, six months, eight months in advance and of of when we would ship the fleet.

It’s roughly takes about roughly six months between tear down, get it over there, get it set up. We’ve moved 30 odd pieces over there now, so we’re pretty familiar with that process.

Kevin Gainey, Analyst, Thomas and Davis: Okay.

Joe Longberg, President and CEO, North American Construction Group: So we we would expect that big that big blue dot that starts in 2027, we would expect to win that in mid twenty twenty six such that we would have time to move equipment over.

Kevin Gainey, Analyst, Thomas and Davis: Thanks, Joe. I appreciate the color. And then maybe just quickly on Nuna. What’s the outlook for revenue at Nuna going forward?

Joe Longberg, President and CEO, North American Construction Group: I think, you know, it’s it’s pretty modest this year, and I think it’s but it’s pretty much on plan. There’s real big opportunities coming up, even on the infrastructure side, which we would probably partner with them on in some of these northern opportunities. So as an example, if you’re familiar with the Grays Bay Arctic Port and some of the Arctic jobs that are up there at Baffinland Iron Mines, those are all Nunavut and Kitikmek territory, in particular for Grays Bay, and we see great opportunities for us and for Nuna in those. And just on the northern mining side, we’re seeing more mines start to get permitted and expand. That’s generally a slow process, but any of that stuff, this was always anticipated to be kind of a trough year for Nunav just because of the way the industry dollars were looking to be spent.

And but we see from, you know, 2026 out, there’s some some great opportunities for them to continue to grow.

Kevin Gainey, Analyst, Thomas and Davis: Thanks, guys. I appreciate the color.

Joe Longberg, President and CEO, North American Construction Group: Thank you, Kevin. Thanks, Kevin.

Conference Operator: Thank you. This concludes the Q and A section of the call. And I will pass the call over to Joe Longberg, President and CEO for closing remarks.

Joe Longberg, President and CEO, North American Construction Group: Thanks again everyone for joining us today. We look forward to providing next update upon our closing of our third quarter results.

Conference Operator: Thank you. And this concludes the North American Construction Group conference call regarding the second quarter ended 06/30/2025. You may now all disconnect.

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