Prepared remarks
Good morning, ladies and gentlemen. Welcome to the North American Construction Group conference call regarding the first quarter ended March 31, 2026. 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 that 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 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 will now turn the conference over to Jason Veenstra, CFO.
Thanks, Joanna, and good morning, everyone. I'll start today's call with brief commentary on the financials, then pass the call to Barry for his operational and forward-looking remarks, and we'll conclude as per usual with Q&A. Starting on Slide 4. We delivered $99 million of EBITDA in the first quarter, demonstrating sequential improvement in both earnings and margin performance. Australia produced a Q1 regional revenue record, excluding IMC, including an all-time monthly record in March. And IMC contributed $65 million of revenue as expected. Canada also grew sequentially despite the full quarter impact of the 797 divestiture. This $423 million start provides a solid foundation for our reaffirmed 2026 combined revenue midpoint of $1.6 billion. Moving to Slide 5. The quarter's margin performance is an important indicator of operating execution. Australia delivered a 16.7% gross profit margin and Canada delivered 9.5% despite seasonal conditions in both regions. These results reflect disciplined project execution, improved internal maintenance capability, lower repair costs and the implementation of continued fleet efficiency initiatives. Moving to Slide 6. Q1 EBITDA and EBIT were in line with the prior year quarter, but improved meaningfully on a sequential basis over Q4 2025, up 27% and 119%, respectively. Direct G&A was $14 million or 4.3% of reported revenue, below our 5% target, demonstrating operating leverage on stronger revenue. Depreciation remained within our expected range at approximately 15% of combined revenue. Adjusted EPS was $0.37. Interest expense, in particular, increased to $19.1 million from $17.8 million last year, reflecting the financing of our strategic expansion in Australia. Moving to Slide 7. The business generated $63 million of operating cash flow before working capital, supported by EBITDA performance net of cash interest. Free cash flow was $4 million after a $34 million working capital investment in the quarter. Moving to Slide 8. Net debt increased $18 million to $196 million, reflecting growth capital, share purchases and dividends. Net debt leverage remained consistent at 2.5x, while senior secured debt increased to 1.7x based on the payout of the convertible debentures. While IMC added $125 million of debt on April 7th, its EBITDA contribution and financing structure are expected to keep the presented leverage ratios broadly consistent. Since commencement of our normal course issuer bid in November, we have returned approximately $30 million to our shareholders through the combination of share repurchases and dividends, demonstrating our commitment to shareholder returns while simultaneously growing our business and expanding our global presence. With those comments on the financials, I'll pass the call to Barry.
Thanks, Jason, and good morning, everyone. As you're seeing in our Q1 report, our operations team on both sides of the Pacific performed ahead of expectations we had set entering the year. I'm encouraged by this performance, particularly in light of the cautious outlook we communicated back in our Q4 update as the quarter reflects disciplined execution, improved operating focus and, with that, early progress against the priorities we established in 2026 in both our core regions of Australia and Canada. As a heavy equipment and civil construction company at our core, consistent disciplined execution is what drives our business. And from my vantage point, that is what our teams delivered in the first quarter. With that, let's dive into Slide 10. I'll start with some exciting updates regarding our previously announced acquisition of Iron Mine Contracting or IMC for short. We successfully closed on IMC on April 7, 2026, shortly after our Q1 wrapped up. This shifts our focus now on the integration of IMC into our Australian operations to establish a nationwide Tier 1 platform capable of executing large comprehensive scopes in both Eastern and Western Australia. Strategically, IMC is a strong fit. Culture, core values and maintenance capabilities align well with our existing platform in Australia and worldwide. To remind everybody, IMC brings approximately 120 heavy equipment assets and roughly $840 million of contractual backlog. This also accelerates our objectives to expand lower capital unit rate work across Australia, where in times of geopolitical uncertainty, the Western world is increasingly looking for stable and predictable critical mineral supplies. Having overseen our operations in Australia over the past couple of years, I'm incredibly excited about our opportunities on the continent and what that will mean for North American Construction Group overall. Moving to Slide 11. As outlined in March, I want to share an update on our operational priorities and how we've been tracking since our last earnings call. I've been particularly encouraged by the increase of internal maintenance headcount during the quarter at MacKellar, which is a key driver in reducing the use of external subcontract labor and more efficient operations through improved equipment availability translating to improved utilization. Moving to Slide 12. With my operational focus in mind, the next slide steps back and looks at the bigger picture and structural growth drivers we 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, firstly, scaling into a Tier 1 contractor platform in Australia; secondly, securing infrastructure awards across North America; and third, expanding our mining services in Canada and the U.S. Diversified in scope, these are building blocks for an even stronger, more resilient operating profile and a deeper pipeline of opportunities across end markets. Moving to Slide 13. Australia is our primary growth engine with operations across 18 sites with reasonably consistent conditions that support year-round equipment utilization. Our commodity exposure spans coal, gold, iron ore, lithium, copper and mining-related infrastructure. IMC strengthens our Western Australia position and accelerates our move towards nationwide Tier 1 scale, particularly in the rare earth and critical minerals market. And this is all in the context of a contractor market that is over $19 billion in size and of which our market share remains less than 10%. The support of the 2026–27 Australian federal budget, including major investments in critical minerals, fuel security and streamlined project approvals further reinforces our strong long-term outlook for mining activity and contract mining demand across that country. Moving to Slide 14. Fargo-Moorhead advanced 5% in the quarter and has now moved beyond the 90% completion, further demonstrating our execution capability in large-scale civil earthworks. That track record supports our pursuit of major infrastructure opportunities and projects across Canada and the U.S. moving from announcement towards execution. Our infrastructure bid pipeline is approximately $5 billion, including roughly $1.3 billion tied to the Ring of Fire, Northern Access and Northern Basing opportunities. Moving to Slide 15. We operate across a broad geography from north of the Arctic Circle to the heart of Texas and are one of the most experienced operators in the Canadian oil sands with one of the largest fleets of haul trucks, shovels and mining equipment in North America in the Canadian oil sands. We have identified our primary heavy equipment fleet and are focused on improving the mechanical availability of those units to best support our clients. And while last year, the main theme was budget constraints, this year the focus is increased production and it is our responsibility to meet that demand in a cost-effective and efficient manner. Moving to Slide 16. We are reintroducing an overview of our bid pipeline this quarter. Our global pipeline remains strong, and we are well positioned to convert some of these opportunities into meaningful growth. Operating throughout the regions, our global bid pipeline totals approximately $14.5 billion, of which $4.6 billion are in active tender and procurement phase. While Australia has approximately $3.3 billion in its active pipeline, we continue to see strong opportunities for nation-building projects, defense contracting and critical mineral mining in Canada. I'd like to highlight that these opportunities are based on strong demand for our heavy assets and low obsolescence offering. While other industries may face downward pressure to their business due to the threat of AI, our pipeline opportunities are going nowhere as mining services and infrastructure demand continues to ramp without alternatives. Turning to our 2026 financial outlook and guidance on Slide 17. Let me start with how I see our execution priorities and strategic growth drivers translate to our financials. We started 2026 with strong visibility supported by our contractual backlog and bidding activities. Currently, our contractual backlog sits at $3.9 billion with $1.5 billion of estimated annual revenue already secured for 2026, which is up $1.2 billion during our last earnings call. Beyond our backlog, our total bid pipeline and bids currently in active tender are both up from last quarter's call. Taken together, this provides improved visibility into the year ahead and supports our expectation for another year of growth for NACG. At the midpoint, we continue to expect combined revenue of $1.6 billion, adjusted EBITDA of $400 million and free cash flow of $120 million. An important point on the cadence and contour of our adjusted EBITDA. While we were pleased with our strong start of the year, our guidance continues to reflect our original outlook for Q2 performance due to the seasonal extended spring breakup in the oil sands, which historically corresponds to a 15% revenue impact between Q1 and Q2. Our clear focus under my leadership is to deliver to expectations, and I will make certain we remain focused on this objective. We, however, continue to expect meaningful improvements in the second half of 2026 as IMC synergies and opportunities are realized, newly acquired equipment is commissioned and seasonal activity strengthens. Historically, from 2022 to 2025, second half revenue consistently exceeded the first half, averaging approximately 20% higher contribution. So this profile is consistent with how our business typically builds through the year. That ends my prepared remarks, and we're happy to take any questions you have.
Questions and answers
First question comes from Adam Thalhimer from Thompson Davis.
Congrats on a solid Q1. I want to start on Slide 16, which as you mentioned, is a new presentation of the bid pipeline. The Q2 award outlook is strong, but the Q1 2027 bucket is super strong. Could you provide some color on why so many awards are in that Q1 2027 bucket?
Yes, sure. I think what's happening is this work is coming out now. It's in the expression of interest stage. Some of these projects take quite a while to get through the procurement stage to where they are actually put out for tender and then proceed through awards. These are large projects, and it simply takes that amount of time to get through the process.
Can you provide some color on how that shakes out geographically?
Yes. I would say, geographically, Adam, primarily it's North America for early 2027. That's more of a lag with the projects going through a process here in early Q3 through Q4 and then award in early '27. The Australian opportunities are more near term.
Okay. And then last one on that comment: could you update us on Western Australia demand and for IMC, how their pipeline has evolved since you completed the acquisition?
Yes. They're proceeding pretty consistent with our expectations. There are a couple of really good project opportunities near term that we're following closely. It's a busy, robust market over there, and they're well positioned to compete for some of these larger jobs now.
The next question comes from Joseph Reagor with ROTH Capital Partners.
Congrats on a strong start to the year. First, as we look at your revenue guide, are you open to breaking out what part of that is top-line revenue versus the combined revenue, including JVs?
Yes, Joe. About $100 million for the full year is JVs. With how IMC was reported in Q1, it came through in the adjusted combined metric, but IMC moving forward will come through in reported revenue. The JVs aren't a massive contributor in 2026, so about $100 million of the $1.6 billion is through the JVs.
Okay. And you pointed out about $60 million or so in that Q1 number was IMC, which moves up to the top line, right?
Correct. In Q2, that will be reflected. We see about a 10% increase in Q2 from that $65 million, and that will be in reported revenue moving forward.
And as you think about margins from IMC, should they be similar to other Australian operations, or should we expect any movement there as that transitions in Q2?
Our gross profit margins are quite consistent with Eastern Australia in the mid- to high teens. With unit-rate work, there can be more variability, so there can be upside. EBITDA margin is different because it's less capital intensive. Where Eastern Australia could be north of 30%, IMC will be in the low 20s from an EBITDA percentage perspective. So gross margin is consistent; EBITDA will be lower due to the less capital-intensive nature.
The next question comes from Sean Jack with Raymond James.
You touched on IMC earlier. How should we expect the year to trend from a seasonality perspective? Will IMC behave similarly to the rest of Australia, or is there anything to point out?
It's pretty consistent with the East. Weather patterns are similar, so I wouldn't expect much difference. They're busy and looking at lots of opportunities, so I see similar seasonality to the East.
Can you give more color on the opportunities in the domestic market right now from an end-market perspective? The updated bid pipeline looks like a lot of the opportunity is in mining. Specifically for North America, what sort of jobs are on your radar?
It's expansive, but obvious current highlights include the Ring of Fire—there are opportunities there that aren't necessarily mining-focused because before mining can ramp up, there's significant infrastructure that must be built, such as roads and bridges. Critical minerals projects also require infrastructure before they progress. So between mine site opportunities and the infrastructure needed to access them—things like Grays Bay—there are many road and deep port opportunities that we're tracking closely.
Last question: with current energy prices, are you seeing any shift or posturing from your oil sands relationships? Are you expecting any movement in how things are trending?
It's going to be very busy this year in the oil sands—that's what we're hearing from our clients. We met with our two major clients last week, and by all accounts, it's full steam ahead with production ramp-ups. That equates to more opportunity for us. As I said earlier, we need to be poised and ready to support them in the most cost-efficient manner, and we will.
Next question comes from Akshato, an investor.
Net debt stands at about CAD 896 million, which is almost two times the current market cap of the company. I don't see commentary from the team on leverage or net debt. In the past, the team focused on reducing leverage post-acquisitions and regularly discussed bringing down net debt. Is the team focused on leverage? Is that a priority? If so, can you comment on how you plan to reduce absolute net debt levels, keeping in mind this is a business where the depreciation is real?
Yes. It remains a significant focus of our company. We have communicated that, and it remains a key priority. We're currently at about 2.5x. That CAD 896 million you referenced equates to 2.5x. Our goal is to be 2.0x by the end of 2027 through directing free cash flow to net debt reduction. We understand enterprise value and the split between market cap and net debt. We would like market cap to be a larger component of enterprise value. We expect with the growth investments we've made and the free cash flow that comes from them to direct cash to reduce that absolute net debt level and improve the ratio. All future opportunities we pursue need to keep leverage under 2.0x as we invest in capital should opportunities arise. Over the past eight years, the company's growth has largely been financed with debt, which explains the current net debt balance. The Board has provided a longer-term target of 1.5x, which is Board-endorsed. That will take longer than 2027, but it's our ideal leverage ratio.
Okay. As a follow-up, of the forecasted free cash flow of $120 million, how much will be directed toward reducing debt?
Dividends are preserved to avoid disruption and we may consider increasing the dividend. Outside of dividends, free cash flow will be directed to debt repayment.
This concludes the Q&A section of the call. I will pass the call over to Barry Palmer, President and CEO, for closing comments.
Thanks again, everybody, for your time today hearing our news, and we look forward to talking again next quarter.
Thank you. This concludes the North American Construction Group conference call regarding the first quarter ended March 31, 2026. You may now disconnect.