North American Construction Group's Q2 2025: Unpacking Contradictions in Workforce, Margins, and Strategic Diversification

Australia workforce and labor challenges, oil sands work improvement and seasonality, gross margin expectations in Australia, and contract backlog and diversification strategy are the key contradictions discussed in North American Construction Group Ltd.'s latest 2025Q2 earnings call.



Revenue Growth and Australian Operations:
- North American Construction Group Ltd. (NACG) reported combined revenue of $371 million for Q2 2025, a 12% increase from the previous year.
- Australia, in particular, showed consistent growth, with revenue of $168 million, up 7% from the first quarter of 2025 and 14% from the previous year's Q2.
- Growth in Australia was driven by demand and expansion into new areas, like the MacKellar Group, which generated nearly $60 million in June alone.

Operational Challenges and Margin Impact:
- NACG's EBITDA for Q2 2025 was $80 million, with a 21.6% margin, impacted by several factors: higher-than-expected maintenance costs in Australia, operational inefficiencies in the oil sands region, and a margin adjustment at the Fargo project.
- These challenges were attributed to recruitment lags for critical heavy equipment technicians in Australia, unplanned work stoppages in the oil sands, and a significant margin adjustment in the Fargo project.

Outlook and Infrastructure Opportunities:
- NACG expects to have secured strong project teams to pursue infrastructure projects by year-end, aiming to increase infrastructure work to around 25% of their overall business by 2028.
- This is driven by significant infrastructure opportunities fueled by factors such as aging infrastructure, energy transition, and climate resiliency, which NACG sees as a growing market.

Capital Allocation and Free Cash Flow:
- The company's net debt levels ended the quarter at $897 million, with a significant portion used for growth spending.
- Free cash flow was neutral for the quarter due to sustaining capital spending, with expectations for a midpoint of $100 million in free cash flow for the second half of the year, supporting future growth and investment opportunities.