North American Construction : Q2 - 2023

Table of Contents

Management's Discussion and Analysis

Overall Performance	M-2
Significant Business Events	M-3
Financial Highlights	M-4
Liquidity and Capital Resources	M-10
Accounting Estimates, Pronouncements, and Measures	M-16
Internal System and Processes	M-18
Legal and Labour Matters	M-19
Outlook	M-19
Forward-Looking Information	M-19
Additional Information	M-21

Interim Consolidated Financial Statements

Interim Consolidated Balance Sheets	F-1
Interim Consolidated Statements of Operations and Comprehensive Income	F-2
Interim Consolidated Statements of Changes in Shareholders' Equity	F-3
Interim Consolidated Statements of Cash Flows	F-4
Notes to Interim Consolidated Financial Statements	F-5

Management's Discussion and Analysis

For the three and six months ended June 30, 2023

July 26, 2023

The following Management's Discussion and Analysis ("MD&A") is as of July 26, 2023, and should be read in conjunction with the attached unaudited interim consolidated financial statements and notes that follow for the three and six months ended June 30, 2023, the audited consolidated financial statements and notes that follow for the year ended December 31, 2022, and our annual MD&A for the year ended December 31, 2022.

All financial statements have been prepared in accordance with United States ("US") generally accepted accounting principles ("GAAP"). Except where otherwise specifically indicated, all dollar amounts are expressed in Canadian dollars. The consolidated financial statements and additional information relating to our business, including our most recent Annual Information Form, are available on the Canadian Securities Administrators' SEDAR system at www.sedar.com, the US Securities and Exchange Commission's website at www.sec.govand our Company website at www.nacg.ca.

A non-GAAP financial measure is generally defined by securities regulatory authorities as one that purports to measure historical or future financial performance, financial position or cash flows, but excludes or includes amounts that would not be adjusted in the most comparable GAAP measures. Non-GAAP financial measures do not have standardized meanings under GAAP and therefore may not be comparable to similar measures presented by other issuers. In our MD&A, we use non-GAAP financial measures such as "adjusted EBIT", "adjusted EBITDA", "adjusted EBITDA margin", "adjusted EPS", "adjusted net earnings", "backlog", "capital additions", "capital expenditures, net", "capital inventory", "capital work in progress", "cash provided by operating activities prior to change in working capital", "cash related interest expense", "combined gross profit", "combined gross profit margin", "equity method investment backlog", "equity investment depreciation and amortization", "equity investment EBIT", "free cash flow", "gross profit margin", "growth capital", "growth spending", "invested capital", "margin", "net debt", "senior debt", "share of affiliate and joint venture capital additions", "sustaining capital", "total capital liquidity", "total combined revenue", "total debt", and "total net working capital (excluding cash)". We provide tables in this document that reconcile non-GAAP measures used to amounts reported on the face of the consolidated financial statements. A summary of our non-GAAP measures is included below under the heading "Non-GAAP financial measures".

Management's Discussion and Analysis	M-1	North American Construction Group Ltd.
June 30, 2023

OVERALL PERFORMANCE

Interim MD&A - Quarter 2 Highlights

(Expressed in thousands of Canadian Dollars, except per share amounts)			Three months ended
					June 30,
			2023			2022				Change
Revenue		$	193,573		$	168,028			$	25,545
Total combined revenue(i)			276,953			227,954				48,999
Gross profit			21,531			12,440				9,091
Gross profit margin(i)			11.1 %			7.4 %				3.8 %
Combined gross profit(i)			36,194			21,839				14,355
Combined gross profit margin(i)(ii)			13.1 %			9.6 %				3.5 %
Operating income			10,270			6,301				3,969
Adjusted EBITDA(i)(iii)			51,833			41,649				10,184
Adjusted EBITDA margin(i)(iii)			18.7 %			18.3 %				0.5 %
Net income			12,262			7,514				4,748
Adjusted net earnings(i)			12,489			4,717				7,772
Cash provided by operating activities			40,185			35,485				4,700
Cash provided by operating activities prior to change in working capital(i)			27,145			33,373				(6,228)
Free cash flow(i)			(4,282)			10,393				(14,675)
Purchase of PPE			38,419			27,121				11,298
Sustaining capital additions(i)			38,311			22,341				15,970
Growth capital additions(i)			2,748			-		2,748
Basic net income per share	$	0.46	$	0.27			$	0.19
Adjusted EPS(i)		$	0.47		$	0.17			$	0.30

(i)See "Non-GAAP Financial Measures".

(ii)Combined gross profit margin is calculated using combined gross profit over total combined revenue. (iii)Adjusted EBITDA margin is calculated using adjusted EBITDA over total combined revenue.

Revenue of $193.6 million represented a $25.5 million (or 15%) increase from Q2 2022. Revenue across all major sites in the oil sands region has continued to see year-over-year revenue growth with our heavy equipment fleet at Fort Hills driving the largest increase as the site continues to ramp up. Equipment utilization of 61% benefited from the strong momentum heading into the quarter, a quick spring break up in April, and continued steady demand for heavy equipment but was significantly impacted in June by unusually wet weather as well as a required fleet remobilization in the oil sands region. Maintenance headcount levels have remained consistent which continues to lower equipment repair backlog and increase mechanical availability. The purchase of ML Northern Services Ltd.'s ("ML Northern") fuel and lube fleet, which occurred on October 1, 2022, and DGI Trading had modest impacts on revenue increases with services and sales provided to external customers. Lastly, another ultra-class haul truck was rebuilt, commissioned and sold to the Mikisew North American Limited Partnership ("MNALP"), bringing its haul truck fleet to sixteen.

Combined revenue of $277.0 million represented a $49.0 million (or 21%) increase from Q2 2022. Our share of revenue generated in Q2 2023 by joint ventures and affiliates was $83.4 million compared to $59.9 million in Q2 2022 (an increase of 39%). Consistent with the prior year, top-line performance was driven by the Nuna Group of Companies ("Nuna"), as they continued their project execution at the gold mine in Northern Ontario. The other drivers of the revenue increases were the joint ventures dedicated to the Fargo-Moorhead flood diversion project, which posted solid top-line revenue as the project ramps up, and the aforementioned expanding revenue capacity from rebuilt ultra-class and 240-ton haul trucks directly owned by MNALP.

Adjusted EBITDA of $51.8 million represented an increase of $10.2 million (or 24%) from the Q2 2022 result of $41.6 million, consistent with increases in combined revenue. The adjusted EBITDA margin of 18.7% reflected normal impacts typically incurred in the second quarter during the transition from winter to spring at the mine sites, particularly in Fort McMurray. In addition, the difficult wet conditions in June had a significant impact on margin as low equipment utilization of less than 50% in the month resulted in fixed costs both at the operational sites and corporate facilities becoming a factor in impacting the overall EBITDA margins.

Management's Discussion and Analysis	M-2	North American Construction Group Ltd.
June 30, 2023

Depreciation of our equipment fleet was 12.6% of revenue in the quarter, compared to 15.7% in Q2 2022, benefiting from efficient and productive use of the equipment fleet. Our internal maintenance programs continue to produce low-cost and longer life components which is impacting depreciation rates. In addition to these factors, our lower capital intensive services continue to have noticeable impacts on the depreciation percentage when comparing to previous benchmarks.

General and administrative expenses (excluding stock-based compensation) were $7.2 million, or 3.7% of revenue, compared to $6.9 million, or 4.1% of revenue in Q2 2022. Consistent costs were incurred as increases from ML Northern and cost items impacted by inflation were mostly offset by cost discipline in discretionary areas and incremental G&A recoveries from our joint ventures.

Cash related interest expense (See "Non-GAAP Financial Measures") for the quarter was $7.2 million at an average cost of debt of 6.9%, compared to 5.2% in Q2 2022, as rate increases posted by the Bank of Canada directly impact our Credit Facility and have a delayed impact on the rates for secured equipment-backed financing. Total interest expense was $7.5 million in the quarter, compared to $5.6 million in Q2 2022.

Adjusted EPS of $0.47 on adjusted net earnings of $12.5 million is up 176% from the prior year figure of $0.17 and is consistent with adjusted EBIT performance as tax and interest tracked fairly consistently with the prior year. Weighted-average common shares levels for the second quarters of 2023 and 2022 reflected a decrease at 26,409,357 and 27,968,510, respectively, net of shares classified as treasury shares, due to the share purchases and cancellations which occurred in the third quarter of 2022.

Free cash flow was a use of cash of $4.3 million and was primarily the result of adjusted EBITDA of $51.8 million, as detailed above, offset by sustaining capital additions ($38.3 million) and cash interest paid ($8.4 million). Free cash flow was also impacted by the cash settlement of certain deferred share units ($7.3 million). As stated in the previous disclosures regarding our annual capital spending, our program is front-loaded in the year and the first half spending is considered typical and consistent with the annual sustaining capital range provided.

SIGNIFICANT BUSINESS EVENTS

As announced, and more particularly described, in our July 26, 2023 press release (the "Transaction Press Release"), which is incorporated by reference here in, we signed a definitive share purchase agreement to acquire MacKellar Group, Australia's largest privately owned mining equipment and services provider, for estimated consideration of $395 million (the "Transaction"). The Transaction is expected to close in the fourth quarter of 2023. Upon the filing of the material change report in respect of the Transaction, such material change report will also be incorporated by reference herein.

Management's Discussion and Analysis	M-3	North American Construction Group Ltd.
June 30, 2023