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Edited Transcript of NOA.TO earnings conference call or presentation 31-Jul-19 1:00pm GMT

Q2 2019 North American Construction Group Ltd Earnings Call

Acheson Aug 5, 2019 (Thomson StreetEvents) -- Edited Transcript of North American Construction Group Ltd earnings conference call or presentation Wednesday, July 31, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jason William Veenstra

North American Construction Group Ltd. - Executive VP & CFO

* Joseph C. Lambert

North American Construction Group Ltd. - President & COO

* Martin R. Ferron

North American Construction Group Ltd. - Chairman & CEO

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Conference Call Participants

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* Ben Cherniavsky

Raymond James Ltd., Research Division - MD of Industrial Research

* Daine Biluk

CIBC Capital Markets, Research Division - Associate

* Maxim Sytchev

National Bank Financial, Inc., Research Division - MD & AEC-Sector Analyst

* Richard Dearnley;Longport Partners;Analyst

* Yuri Lynk

Canaccord Genuity Corp., Research Division - Director and Senior Engineering & Construction Equity Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Welcome to the North American Construction Group Earnings Call for the second quarter ending June 30, 2019. (Operator Instructions)

This company wishes to confirm that today's comments contain forward-looking information and that actual results could differ materially from the conclusion, forecast or projection contained in that forward-looking information. Certain material factors or assumptions were applied in drawing conclusions or in making forecast 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 decisions and analysis, which is available on SEDAR and EDGAR as well as the company's website at www.nacg.ca.

I'll now turn your conference over to Martin Ferron, Chairman and CEO.

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Martin R. Ferron, North American Construction Group Ltd. - Chairman & CEO [2]

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Thanks, Natalie, and very warm welcome to everyone. I would like to start this call by stating emphatically that I could not be happier with the way things are going at NACG. Despite all the headwinds blowing at us by the macro environments, we keep finding ways to improve our performance, even in the toughest of overall industry times. Just imagine, what we will be able to do when these headwinds finally abate. In terms of proceedings today, we're going to change things up by covering a purpose-made deck of slides for the quarter that better illustrate and numerate our current performance and outlook than mere scripted words. In particular, we are growing at such a strong pace that we feel it is very important to keep our honest investors fully up-to-date on the trajectory of this growth. The slide deck can be found at www.nacg.ca/presentations.

We're going to start off on Slide 2, which provides the business update, and I feel that it is only right and fitting that Joe Lambert, our President and Chief Operating Officer, who is the main driving force behind our terrific operational execution and the brains behind many of our equipment-based growth initiatives to take us through that and Slide 3.

Then Jason Veenstra, our CFO and coal industry guru is going to talk through Slide 4 to 7, which show mainly our Q2 financial performance. Finally, I will talk about our outlook and current thinking on capital allocation with the help of Slides 8 to 10 before the usual Q&A session. So over to you, Joe.

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Joseph C. Lambert, North American Construction Group Ltd. - President & COO [3]

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Thanks, Martin. I'm a little biased, but I think I get the best job on the call on adding some color to our robust business update on Page 2 of the presentation, starting at the top of the financial performance. Jason will provide all the financial details later on, but the one point I wanted to make is that our strong financial performance was especially pleasing as our projections were seen as optimistic by many. On the safety front, we were likewise pleased to maintain our industry-leading results despite having to integrate over 400 new employees into our safety culture. You can see more details of our safety performance on the following Page 3 of this presentation.

Moving on to third bullet. What I'd like to highlight is that the above safety and financial results were positively influenced by the long-term contracts awarded over the last 2 years. These contracts provided improved planning and scheduling of work, which subsequently allows better planning of people and equipment repairs. Consistent work and good planning mutually benefit us and our customers with better safety and costs. On the fourth bullet of note is that Nuna continues to produce as planned and Q3 is their peak activity. Also of note is that Nuna has a major contract for northern operation in late tender stage, and we have seen an uptick on our existing work on-site, which gives us a bit of an optimism of being awarded this larger tendered scope. So stay tuned for what we believe will be an impressive second half of the year from Nuna.

The fifth bullet relates directly to the 2 items below in the sixth and seventh. On the sixth, we have received 25 of the 31 ultra-class trucks so far this year, with 24 being fully utilized and one in process of a complete second-life rebuild at our Acheson shop. Remaining 6 trucks are expected in Q4, and we expect them to be immediately utilized to support our site overburden work. In conjunction with this, we have also just recently rebuilt a used EX8000 shovel we purchased in Q1 out of Australia, and that unit is loading overburdened and fully utilized as of early last week.

On the maintenance front, since moving into our new Acheson facility in November last year, we have doubled our maintenance workforce and continue to grow such that we are now building a new 40,000 square foot facility adjoining the Acheson Shop, where we will expand our component rebuild and track-train services for both our internal fleet and external customers. This facility will be completed in mid-Q4 and should be fully operational by year-end. Our external maintenance work continues to grow, and we recently received a significant PO to perform second-life rebuilds and component repairs to 4 large units for northern diamond mine.

The last bullet relates to the success we have had on diversification. This opportunity to manage the Wyoming coal mine not only provides diversification outside of oil sands but also ticks the box for a 0 capital investment, low-risk return and has what we believe is a high potential for growth.

That completes, and I hope you agree it is an exciting business update, and I'll turn it over to Jason.

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Jason William Veenstra, North American Construction Group Ltd. - Executive VP & CFO [4]

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Thanks, Joe. Good morning, everyone. As mentioned, I'll take us through Slide 4 to 7, which provide a high-level summary of our financials.

Starting with the top line on Slide 4. Revenue for the quarter of $177 million was $97 million above 2018, but generally consistent with Q1. A recurring theme you'll notice in our posted results this quarter is the more uniform demand this year as opposed to a more seasonal business in 2018 and revenue illustrates this best. If we look at 2018, the decrease from Q1 to Q2 was approximately 30%, while the corresponding change to this year, in 2019, was less than 4%, essentially flat.

The year-over-year growth of 123% is mostly due to the fleet we acquired in Q4 2018, which provided new work at the Fort Hills and Aurora mines as well as significant incremental work at the Millennium mine. Organic scope and volume growth was also significant at the Kearl mine, as we have expanded our scope and presence at that mine site. Our share of revenue from the Nuna group of companies became more significant in the quarter as Nuna's busy season began in mid-June. Including the equity-accounted portion of nearly $6 million, Nuna revenue of $17 million in the quarter was an encouraging start to what we see as a strong Q3 in Northern Canada.

Lastly, on revenue, steady increases in our external maintenance services here in our new facility as well as increases in the Dene North joint venture were offset by year-over-year decreases from the Highland Valley Copper and Fording River mines in BC. Gross profit for the quarter was $23.5 million and 13.3% margin, up from a gross profit of $9.7 million and a 12.1% margin last year. The higher gross numbers this quarter were, of course, a function of a higher revenue. The higher profit margin was due to a variety of items, but can largely be broken down into 3 major categories. First, and as a positive, our long-term contracts and significant backlog are generating efficiencies on-site that directly improve margin. This comes in the form of improved planning and minimal unnecessary downtime, less ad hoc activities on-site related to movement of personnel and equipment, and most importantly, improved scheduling of heavy equipment maintenance, which can now be scheduled with production in mind.

The second category, which had a negative impact on Q2 profit margin, was the continued struggles at the Fort Hills mine. Both the legacy contracts we inherited, which have now largely run their course; and the condition of the acquired fleet there, which has required substantial maintenance to get to our operating standards; have had a noticeable impact on the first half of 2019. These factors have affected both operating costs as well as increased capital costs, which I'll touch on later.

The third impact in the quarter was accounting in nature and was a positive to the reported unadjusted gross margin percentage. As part of our closing processes, we determined the need to put our growing parts inventory on the balance sheet. In short, this had a $2.8 million impact or a 1.6% margin impact in the quarter related to costs that had been expensed prior to 2019. For clarity, we have adjusted this impact for both adjusted EBITDA and adjusted EPS. As our third-party and internal maintenance programs have grown, our parts on the shelf have grown to a level where we needed to make this appropriate change in the quarter. Below gross profit, general and administrative expense, excluding stock-based compensation, was $6 million or 3.4% of revenue. This percentage level is an all-time NACG low and exceeds our generally expected 4% run rate. This performance measure indicates the operating leverage in our heavy equipment business, which requires very little incremental G&A when adding top line revenue. In quantitative terms, for this specific quarter, this meant a 10% increase in gross G&A year-over-year, while increasing revenue 123%.

Before we look at net earnings and EPS, I'll touch on the strong gross adjusted EBITDA of $37.1 million. The adjusted EBITDA margin of 21.1% in the quarter was, as mentioned, heavily impacted by Fort Hills, but excludes the previously mentioned benefit of the accounting change for parts inventory. The 21% margin reflects the transition we are undergoing as the full synergies in the oil sands from our expanded fleet remain on schedule for 2019, but are not yet reflected in this quarter of operations due to the factors mentioned. Putting this in perspective, the as-reported trailing 12-month EBITDA of 24% maintains our recent profitability watermark established at the end of 2018 and reflects a year-over-year increase with upside remaining.

In an incredibly complex and unique first half of 2019, our operations team have done an incredible job in maintaining the low-cost culture that has been embedded in our company while integrating such a large fleet. Below EBITDA of $37 million, we applied $22.4 million of depreciation. This represents 12.7% of revenue and reflects a very strong quarter of component performance and utilization. Interest expense of $5.1 million for the quarter includes $900,000 of noncash expense for implied and deferred expenses, a $4.2 million of cash-related expense relates to the debt financing we put in place over the past 9 months. We remain very happy with the credit facility and capital lease financing rates, given we operated at an overall cost of debt well below 5% in Q2.

Below interest, we have income taxes, which benefited from the tax rate reductions implemented by the Alberta government in June. Given the deferred nature of our tax position, we reflected the full impact of this staged -- of the staged tax reductions, and therefore, our tax expense in the quarter was actually a benefit of $120,000. This is a $3.5 million improvement had the tax reductions not been put in place.

That gets us to adjusted net earnings of $10.8 million compared to $1.8 million last year. This $9 million year-over-year improvement can be quickly summarized by the $11 million increase in adjusted operating results offset by the $3.5 million increase in interest. Adjusted EPS of 43% is the compilation of all the commentary provided and is over 6x higher than the comparable earnings last year of $0.07. As stated in the slide, this can be generally broken down into 3 drivers. Consistent demand quarter-to-quarter, disciplined G&A and the enacted tax rate reductions.

Moving to Slide 5. I'll summarize our free cash flow. As mentioned, we generated $37 million in adjusted EBITDA. Sustaining capital expenditures totaled $36 million, and when factoring in cash interest paid in the quarter of $4.2 million and the various working capital movements, the business essentially broke even in the quarter. Regarding the significant capital investment of $36 million, our routine capital program is heavily weighted to the first half of the year. And this level of spending after 6 months was a key factor in our determination to provide full year guidance, which Martin will address next.

That said, the majority of the $22 million increase year-over-year was necessary from a timing perspective on the recently acquired fleet to both maximize revenue in the quarter and responding to immediate customer demands on-site as well as the requirement to establish our benchmark maintenance standards and ensure reliable equipment availability as we continue to get further into our longer-term contractual commitments.

Growth capital of $8.3 million in Q2 primarily relates to the purchase and commissioning of large loading units required to fulfill performance obligations under the recently signed contracts, which will provide incremental revenue that form the basis for the projections we've provided.

Moving to the balance sheet on Slide 6. Cash on hand has remained stable through Q1 and year-end, with our liquidity taking a step change due to the issuance of the $55 million convertible debentures in March. On a trailing 12-month basis, our senior leverage ratio, as calculated by our credit facility agreement, has predictably decreased to 2.1x. On a full year 2019 basis, which is indicative of our current run rate, senior leverage is 1.6x and below our stated goal of being lower than 2.0.

To close out, I'll touch on the capital and equity returns that our business is generating, which is shown on Slide 7. Moving forward, we will be communicating ROIC and ROE on a more routine basis as they are important performance measures for our business. As of June 30, return-on-invested capital was 8.3% on a trailing 12 basis. Invested capital of $647 million is essentially a doubling from 12 months ago and incorporates the upfront cost of this year's sustaining and growth capital programs. With the front-weighted capital program along with the trailing 12 months of profit, which includes the pre-acquisition quarters of Q3 and Q4 2018, we see the trend line taking us from the current 8.3% to between 9% and 10.5% by year-end once we have operated our expanded fleet in Nuna for 12 continuous months. Return on equity is an equally important measure to ensure focus on bottom line and is expected to have a more pronounced change in the second half as positive earnings look to overwrite breakeven earnings we recorded in the back half of 2018. As the 2019 range shows, we expect to be above 20% by year-end.

And with those financial comments, I'll pass the call to Martin.

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Martin R. Ferron, North American Construction Group Ltd. - Chairman & CEO [5]

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Thank you, Jason. I will now turn to the slide on Slide 8 to talk about our outlook for the remainder of 2019-2020. Our initial projection for 2019, EBITDA was $160 million, with 50% equally occurring in each half of the year. After the better-than-expected Q2 outcome, we are currently at $89 million of EBITDA for the first half of the year. So now we introduced a range of $175 million to $190 million for the full year, which we will tighten up after Q3. This leads to a 10% to 20% improvement in the initial number and a $1.60 to $1.90 range for our adjusted EPS. Total CapEx spend for the year will now be in the range of $155 million to $170 million with additional capital expended on growth and to maintain the performance of the recently acquired ultra-class truck fleet. We bought a large new shovel in Australia, that Joe mentioned, to complement the fleet, and it is important to note that while the upfront cost of the fleet was reasonable, the annual sustaining capital will be around $15 million. When the fleet is fully in our hands and up and running, we can earn around $30 million of incremental annual EBITDA with it, though. The CapEx spending plan has been front-end loaded, as Jason mentioned, leading to a second half free cash flow of up to $50 million, which will cover the growth capital plan and modest deleveraging.

Moving now to 2020. Based on our backlog, other expected work and 2019 growth CapEx, we put our initial EBITDA and adjusted EPS ranges of $190 million to $215 million and $1.90 to $2.30, respectively, which really impress me as I announce them. Sustaining capital will be lower, as we'll not have the one-off spend on the fleet board from a competitive last November. So free cash flow could be $100 million at the top end of the EBITDA range. This provides us with tremendous optionality with respect to capital allocation. We could stick to our previously stated target of reducing leverage by $150 million in the period 2019 to 2021 or we could lower that objective and reintroduce NCIB activity and so our capital allocation thinking. You can see from the slide that due to the rapid escalation of our EBITDA, our leverage ratios are already returning to very healthy pre-acquisition phase levels.

This takes me to Slide 9, which mostly shows that our EPS and EBITDA multiples almost seem to have an inverse correlation to our strong growth performance. If you take our stock closing price of yesterday and the midpoint of our adjusted EPS range for 2020, our EPS multiple for that year has a 6 multiple. Those of you that have listened to me for a while, I affirm you wish it was 6 multiple on many occasions, but I honestly did not mean for that to be our EPS multiple. I really hope that the excellent Q2 results we have now posted provide an inflection point for our stock price performance, as we have delivered on the lofty post-acquisition expectation as we set.

But that does not prove to be the case. I'm sure that we will have some constructive Board discussions, both allocating our cash flow between deleveraging, stock buybacks and a dividend increase. After all, we should have sufficient cash flow to meaningfully do all 3.

Slide 10 shows our previous track record for NCIB transactions. And you can see that the execution has been as good as we achieved operationally, with almost 11 million shares repurchased since 2013 at an average price of $4.09 per share. What is less clear due to the opaque nature of equity accounting is that we have funded the trustee of ministers, our equity-settled employee long-term incentive plan, to buy around 4 million shares from the open market, both from the employees' settled tax obligations. In this way, we have shielded shareholders from around 15% dilution for a fraction of the cost of a cash-settled plan. Unfortunately, this hedging action seems to come into the category of "no good deed goes unpunished," as we got little credit for the hedge and the treasury shares are included in the diluted earnings calculation, despite our intention to keep around 2 million shares available to facilitate the hedge.

On those shareholder friendly notes, I'll turn the call back over to, Natalie, the operator for any questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

And our first question comes from the line of Yuri Lynk with Canaccord.

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Yuri Lynk, Canaccord Genuity Corp., Research Division - Director and Senior Engineering & Construction Equity Analyst [2]

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Nice quarter. In the slide deck and I think in the MD&A, you mentioned a step change in, I guess, in the current results and also in 2020. Maybe a little more color on what's driving that? Is that incremental demand from your oil sands customers? And if so is any of that on the construction side? Is it more opportunities like the coal opportunity that you mentioned in the quarter. Just some more color on where that growth is coming from?

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Martin R. Ferron, North American Construction Group Ltd. - Chairman & CEO [3]

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Yes. I think our outlook for 2019 and 2020, Yuri, is based on what we're seeing in the oil sands and from Nuna. So very little incremental from the coal industry at this point, although we see that as an exciting opportunity going forward. So yes, we're seeing increased demand from our customers. Obviously, we've added a lot to the fleet. We're able to plan the work better now to do the work when we want to, which is really all Q2 as you see. So just being in control of our own operational destiny makes a big difference. So all of the things you mentioned, except the coal opportunity, has gone into that outlook mix.

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Yuri Lynk, Canaccord Genuity Corp., Research Division - Director and Senior Engineering & Construction Equity Analyst [4]

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Is the nature of your work for your customers, the nature of the activities you're performing, is that evolving at all? And I ask that question because you're making quick use of ultra-class trucks, which you never had in the fleet before. So I'm wondering if your customer base are offloading more of the mining or the earthworks than they did before to you.

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Martin R. Ferron, North American Construction Group Ltd. - Chairman & CEO [5]

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Certainly, on the overburden side, I think one of our stated long-term objectives is maybe to get into (inaudible) at some point. Obviously, the customers do that themselves right now. But I think they're testing us with both the operation and maintenance of these ultra-class trucks to see if we can perform as well with those as we do with the smaller equipment. So it's going to be an interesting few years in that transition.

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Operator [6]

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And our next question comes from the line of Ben Cherniavsky of Raymond James.

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Ben Cherniavsky, Raymond James Ltd., Research Division - MD of Industrial Research [7]

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I just want to clarify a comment or ask you about a comment in the MD&A about the construction of a new component rebuild facility. Can you -- that is in addition to the service base you've already established. Is that a new facility that you're building there? Can you elaborate on that?

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Martin R. Ferron, North American Construction Group Ltd. - Chairman & CEO [8]

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Yes. So you might recall, Ben, that when we pushed the button on the investment on the new facility, it was prior to the acquisition of the competitive fleet, right? So we had a certain demand in mind for that facility. And we've seen that demand both from internal efforts and from external needs grow dramatically. So we felt -- we take the opportunity to buy some adjacent land that might be snapped up by others eventually to grow our footprint for that type of external maintenance activity and to particularly handle components, which we're seeing in all the truck frames, which we're seeing a tremendous demand for. But the new place will also serve as a staging point for Nuna, for example, and some other suppliers. So it's got a multiuse purpose.

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Ben Cherniavsky, Raymond James Ltd., Research Division - MD of Industrial Research [9]

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So that will take you a little deeper into the aftermarket activity, presumably, expanding your capabilities there?

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Martin R. Ferron, North American Construction Group Ltd. - Chairman & CEO [10]

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Yes, exactly. We see tremendous opportunity. You can see in the commentary that we've picked up work for customers, both inside and outside the oil sands. There's just a lot of interest in our capability. People are excited about how hiring us as an option now to do some of that maintenance, which is great.

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Ben Cherniavsky, Raymond James Ltd., Research Division - MD of Industrial Research [11]

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Do you -- have you had competitors knocking on your door saying we'd like you to fix our fleet?

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Martin R. Ferron, North American Construction Group Ltd. - Chairman & CEO [12]

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We do some work for some rental companies. So that's about the extent of it so far on the competitive side.

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Ben Cherniavsky, Raymond James Ltd., Research Division - MD of Industrial Research [13]

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And then in addition, like growing that business, do you see any need to invest further capital in facilities? Or would you consider acquisitions of companies that have those kind of facilities or capabilities? Or is this -- should this be between this and the existing facility that you've just opened? Will this sort of satisfy the needs you have for the next short to medium term?

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Martin R. Ferron, North American Construction Group Ltd. - Chairman & CEO [14]

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Yes. I think the second one there. We also suggest to build a new main facility. We're in the process on the second one. So let's see if those facilities meet our objectives. We're confident they will, but I think it's wise to prove that out.

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Ben Cherniavsky, Raymond James Ltd., Research Division - MD of Industrial Research [15]

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So it would be unlikely that you would do an acquisition in that area until you prove that out, at least?

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Martin R. Ferron, North American Construction Group Ltd. - Chairman & CEO [16]

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Yes, it's kind of difficult to do any acquisition when you're trading at 6x EPS. So how can you be accretive on that basis.

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Ben Cherniavsky, Raymond James Ltd., Research Division - MD of Industrial Research [17]

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Fair enough. And just to clarify another part of the story here is on the deleveraging. I'm trying to -- like you've stuck to the deleveraging target from 2019 to '21, but it looks like it's pushed out to the back half of that, because I don't see how 2019, based on the guidance you've given, would involve any deleveraging this year or traction on $1 million to $2 million based on the math I see here in the guidance.

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Martin R. Ferron, North American Construction Group Ltd. - Chairman & CEO [18]

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Yes, the word I use is modest, and I guess, $1 million to $2 million is modest, but you can see the capacity we have with deleveraging in 2020. 2021 should be at least similar. We could achieve our targets in those years.

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Operator [19]

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And our next question comes from the line of Daine Biluk of CIBC.

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Daine Biluk, CIBC Capital Markets, Research Division - Associate [20]

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So I guess to get started, Q2 had a pretty healthy amount of construction-related work. I mean I guess could you just share what was that related to? And then how much of that do you expect to spill over into Q3? Or is that more kind of ring-fenced to Q2?

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Martin R. Ferron, North American Construction Group Ltd. - Chairman & CEO [21]

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Most of it, Daine, was related to one of the legacy contracts we inherited at Fort Hills. So it didn't come with a tremendous margin for the reasons we've gone through now, today and previously. So it's not going to spill far into Q3. In fact, we should be done with it by the end of August, I believe. So after that you'll see smaller construction work, $1 million to $5 million, $10 million projects, you've seen us do in the last couple of years.

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Jason William Veenstra, North American Construction Group Ltd. - Executive VP & CFO [22]

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And Daine, I'll add, Nuna gets added as construction revenue as well. So we had a better quarter-over-quarter Nuna. So that impacts that construction line item as well.

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Daine Biluk, CIBC Capital Markets, Research Division - Associate [23]

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Right. Okay. Thank you for that color. Moving over to the award in Wyoming, not to try to -- not that I'm trying to pry too much detail, but is there any strict goal post you can share on expected duration and financial impact of that award?

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Joseph C. Lambert, North American Construction Group Ltd. - President & COO [24]

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Yes, I could take that one. There is some band of length of term there. We see 2 phases of that coal mine similar to the mines here in Alberta, reclamation has a long tail, and we fully expect to be quite involved in the reclamation of that as well. So we're talking 10-plus years, whether it's mining coal or in reclamation fees. So should things go well, we see ourselves at this mine for a long time.

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Daine Biluk, CIBC Capital Markets, Research Division - Associate [25]

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Okay. And then I think if we were to dive into a little bit on the management contract aspect of it, do you see that being kind of a new opportunity for the company? And is there a lot of other mines that you could see getting these management contracts on if this Wyoming one proves out and shows that everything goes well?

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Joseph C. Lambert, North American Construction Group Ltd. - President & COO [26]

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Yes, we do see it as an opportunity. It's quite a unique one. It takes people a bit to talk them through. A lot of these power producer mines that feed power plants will be phased out in the medium to long term. And these blue-chip power producers are looking for companies that they can trust to operate these mines. And we feel like our track record, our low-cost culture and our impressive resume that we're able to kind of show these power producers that puts us in a pretty good spot for some of these opportunities. There's a lot of them in the U.S. and there are some here in Alberta as well. So we'll be keeping our eye out for more. And we do feel there's a good growth opportunity there.

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Daine Biluk, CIBC Capital Markets, Research Division - Associate [27]

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Okay. Okay. That's good color. And then last one for me and a bit of a follow-up on the new component rebuild facility you guys are adding. With you guys adding that, does that change -- I mean previously you've talked about a $30 million annual run rate revenue for the third-party R&M business that you were looking to eventually get to. Do you see that increasing at all? Or is that still kind of holding firm at this stage?

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Jason William Veenstra, North American Construction Group Ltd. - Executive VP & CFO [28]

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Well, it will increase. We wouldn't invest in a $10 million in a new additional facility without some expectation of incremental EBITDA, but the $30 million was kind of a 2- to 3-year objective, and we'll just stick with that for the time being. We'll update maybe next quarter.

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Daine Biluk, CIBC Capital Markets, Research Division - Associate [29]

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Got you. And you said the facility cost was $10 million. Did I hear that correct?

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Jason William Veenstra, North American Construction Group Ltd. - Executive VP & CFO [30]

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Yes.

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Daine Biluk, CIBC Capital Markets, Research Division - Associate [31]

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Okay. Perfect. That answers everything for me. Congrats on a great quarter, guys.

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Operator [32]

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And our next question comes from the line of Maxim Sytchev of National Bank Finance (sic) Financial.

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Maxim Sytchev, National Bank Financial, Inc., Research Division - MD & AEC-Sector Analyst [33]

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Martin, just wanted to ask you on the comments you made around some of the oil sands players right now looking potentially at giving you a chance to hold the ore as well. Are there any tidbits you can share with us in terms of why there is that shift in mentality? Is it capital discipline on their side? Or what's the driving force? And maybe any potential time lines you can contemplate in terms of when you could get a shot to actually do that?

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Martin R. Ferron, North American Construction Group Ltd. - Chairman & CEO [34]

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Yes. I'd say, Max, it's a medium- to long-term objective. I think all our customers are still comfortable and then [indiscernible]. It's just that we think once we've shown them we can operate and maintain these ultra-class trucks. They might entrust us with some of handling of the ore. So we're not including it in any objectives right now. We've still got plenty of other work to do. It is just when you look at how mines operate, it might make sense of just one party to do all the earthworks rather than 2. So we'll see how that pans out, but it's really a medium- to long-term objective.

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Maxim Sytchev, National Bank Financial, Inc., Research Division - MD & AEC-Sector Analyst [35]

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Okay. Fair enough. And then was wondering if -- you mentioned thinking about potential dividend increase. I mean obviously, right now, the dividend payout ratio versus net income is quite de minimis, but in terms of -- are there -- is there a range where you would feel sort of more comfortable telegraphing right now in terms of where -- if you were to increase the dividend, where it could go?

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Martin R. Ferron, North American Construction Group Ltd. - Chairman & CEO [36]

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No, I think it's a little bit early for that, Max. We have a Board meeting next week, and we're going to be discussing potential NCIB dividend increases. So I'll leave it till next time to give you more color on that, if I may.

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Maxim Sytchev, National Bank Financial, Inc., Research Division - MD & AEC-Sector Analyst [37]

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Of course. And then lastly, just wanted to get an update on the potential opportunity that you spoke about -- on Nuna in Northern Canada. Do you mind maybe sharing a couple of data points in terms of which commodity that you're thinking about and potential materiality on that?

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Martin R. Ferron, North American Construction Group Ltd. - Chairman & CEO [38]

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Which commodity I can say is nonoil.

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Maxim Sytchev, National Bank Financial, Inc., Research Division - MD & AEC-Sector Analyst [39]

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Okay.

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Martin R. Ferron, North American Construction Group Ltd. - Chairman & CEO [40]

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Not much over there. And I can also say that if it transpires and we're very, very hopeful it will, it will be the largest contract in Nuna's history by far. So it's an important potential award, and let's see. We're looking forward to bringing it home in Q3, hopefully.

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Operator [41]

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(Operator Instructions)

Our next question comes from the line of Richard Dearnley of Longport Partners.

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Richard Dearnley;Longport Partners;Analyst, [42]

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I was intrigued by the comment on the slide about 40% of the second quarter revenue came from backlog. Now in the past you didn't have much backlog, so I guess the historic percent of revenue from backlog was very small. What would you expect the -- as now that you have backlogs, what would you guess the -- you'll be running in the future as a -- how much is turns business versus backlog?

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Joseph C. Lambert, North American Construction Group Ltd. - President & COO [43]

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Yes, it's an excellent question. Thank you, Richard. I think the main point we're making is that our backlog has grown very dramatically. Some of us might think that that's driving all of our activity right now, whereas you can see, it's only driving 40%. So despite having the large part of a work, we still get 60% from the spot market and Nuna. So the backlog only contributes 40% despite its size, right? I think that's the point we're trying to make.

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Richard Dearnley;Longport Partners;Analyst, [44]

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Right. But in the winter months, where you're probably doing a higher mix of contract work, I would guess your percent from backlog is higher. So on a full year basis, where do you think you'll come out?

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Martin R. Ferron, North American Construction Group Ltd. - Chairman & CEO [45]

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Yes, around 50%.

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Operator [46]

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And there are no further questions at this time. I'll turn the call back over to the presenters.

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Martin R. Ferron, North American Construction Group Ltd. - Chairman & CEO [47]

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Good. Thanks, Natalie, and thanks everybody for joining us today. We look forward to talking to you next time. Thank you.

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Operator [48]

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This concludes the North American Construction Group Conference Call. Have a great day.