NOA Q1 2025: Backlog hits record $4B on 100% contract renewals
- Consistent EBITDA and revenue performance: Guidance in Q2 is expected to be similar to Q1, with stable top line and EBITDA performance despite weather impacts, supporting a view of steady performance and potential EPS improvement from lower depreciation.
- Robust contract renewals and expanding backlog: The company reported a 100% renewal rate on key contracts and is on course to grow its backlog from $3.2 billion to a record $4 billion midyear, indicating strong recurring revenue and high customer retention.
- Enhanced operational efficiency with skilled workforce retention: Despite concerns over technician counts, management highlighted effective retention and attraction strategies for skilled labor in both Australia and Canada, which supports improvements in equipment utilization and overall operational efficiency.
- Weather-Related Operational Risks: Severe weather impacted Q1 gross margins in Australia, dragging them down by about 5% to 7%, and could continue to negatively affect performance if abnormal conditions persist.
- Missed Market Opportunity: The company was unsuccessful in the California infrastructure project due to a lack of local experience, raising concerns about its ability to win bids in new or strategic markets.
- Rising Operational Costs: Increased reliance on subcontractor services—up about $18 million in Australia because of weather-related demands and new projects—could pressure margins and elevate cost risks.
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Seasonality Trends
Q: How will Q2 top line and EBITDA perform?
A: Management expects consistent top line and EBITDA performance in Q2 with a modest EPS boost due to lower depreciation and normal seasonal factors. -
EBITDA Cadence
Q: What is quarterly EBITDA cadence guidance?
A: Management projects the first half to deliver 45% and the second half 55% of EBITDA, with Q3 modestly outpacing Q4, reflecting steady execution even amid weather challenges. -
NCIB Flexibility
Q: Can NCIB ease debt concerns?
A: Management indicated they can lean on the NCIB opportunistically given strong liquidity and intrinsic share value, providing flexibility on the debt side. -
Oil Sands Performance
Q: What changes are improving oil sands operations?
A: Improved efficiency in oil sands operations and better fleet management have helped offset cold-related shutdowns, supporting modest growth expectations as seasonal impacts abate. -
Infrastructure Pipeline
Q: What about infrastructure bidding and new hire?
A: Management highlighted growing P3 opportunities and an expanding bid pipeline, reinforced by a strategic new hire to boost infrastructure business in the U.S.. -
Contract Renewals
Q: Update on renewals and scope expansion?
A: With a 100% renewal rate and one expansion under review next quarter, management’s renewals are driving a boost in backlog toward a record $4 billion. -
Subcontractor Services
Q: Why did subcontractor costs increase?
A: Increases, roughly $18 million more, are due to additional subcontractor services for new work and weather-related site needs, notably at the copper mine in Australia. -
Weather Headwinds
Q: Are Queensland rains impacting margins?
A: Early rain caused short-term disruptions, but management expects conditions to normalize by quarter-end, minimizing long-term gross margin headwinds. -
Technician Shortfalls
Q: Are technician shortages affecting utilization?
A: Weather, rather than technician shortfalls, has primarily impacted utilization with strong efforts in skilled labor retention ensuring targets remain achievable. -
Management Confidence
Q: How is management addressing weather risks?
A: Management stressed that meeting guidance is paramount, and despite weather challenges, they remain focused on consistent execution and operational discipline. -
California Bid Loss
Q: What’s the update on the California bid?
A: Management acknowledged an unsuccessful bid in California due to limited regional experience, but they are actively pursuing other promising infrastructure projects.
Research analysts covering North American Construction Group.