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Edited Transcript of SOX.TO earnings conference call or presentation 25-Mar-20 1:30pm GMT

Q4 2019 Stuart Olson Inc Earnings Call

CALGARY Mar 27, 2020 (Thomson StreetEvents) -- Edited Transcript of Stuart Olson Inc earnings conference call or presentation Wednesday, March 25, 2020 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David J. LeMay

Stuart Olson Inc. - President, CEO & Director

* Dean R. Beacon

Stuart Olson Inc. - Executive VP & CFO

* Hugh Harley

Stuart Olson Inc. - IR Officer

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Conference Call Participants

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* Christopher Allan Murray

AltaCorp Capital Inc., Research Division - MD of Institutional Equity Research for Diversified Industries & Senior Analyst

* Frederic Bastien

Raymond James Ltd., Research Division - MD & Equity Research Analyst

* Maxim Sytchev

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

* Michael Tupholme

TD Securities Equity Research - Research Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Stuart Olson Inc. Fourth Quarter and Full Year 2019 Financial Results Conference Call. (Operator Instructions) I would like to remind everyone that this call is being recorded.

At this time, I will turn the conference over to Hugh Harley, Investor Relations for Stuart Olson Inc. Please go ahead, sir.

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Hugh Harley, Stuart Olson Inc. - IR Officer [2]

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Good morning, and welcome, everyone. We're going to start today with some opening commentary from President and CEO, David LeMay; and Dean Beacon, Executive Vice President and CFO. After the prepared remarks, we will open the call to questions. The presentation accompanying today's conference call can be viewed on the webcast.

I would like to remind listeners that several statements made today may be forward-looking in nature and that there are risks that actual results could differ materially from what is discussed. Any forward-looking statements made in this presentation represent the views of management and are presented for the purpose of assisting shareholders and analysts in understanding our financial position, objectives and priorities and anticipated financial performance and may not be appropriate for other purposes.

In addition, our presentation today includes references to a number of financial measures which do not have standardized meaning under IFRS and are therefore considered non-IFRS measures. In that regard, I would strongly encourage you to review the forward-looking information and non-IFRS measures sections of our annual 2019 MD&A and Slide 2 of our webcast presentation.

I will now turn the call over to Dave LeMay.

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David J. LeMay, Stuart Olson Inc. - President, CEO & Director [3]

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Good morning, everyone. Thanks, Hugh. Thanks for joining us. I want to open the call by addressing the current market conditions before highlighting what decisive and comprehensive actions we have taken and continue to take to respond to these challenging and uncertain times.

First, we remain focused on managing through the unprecedented global challenges of the COVID-19 pandemic and the historic decline in oil prices. As the duration and magnitude of the financial impact of these 2 events on us continue to evolve, plans and mitigation strategies have been put in place that prioritize the safety of people and stakeholders first and ensure the company maintains a resilient business. We remain operational as we adhere to guidelines, recommendations, protocols and best practices, set by all levels of government and health officials representing each of our operating regions. We are taking all necessary precautions to remain operational. And most importantly, through consistent communication channels with trade partners, our clients and keeping a common position with our peers who are national industry associations, we are evaluating new information and risks on a daily basis. We are working at the direction of local health authorities and incorporating any additional requirements as dictated by our clients.

In response to these challenges, we have and are continuing to take decisive actions to provide our business a stronger foundation in which to operate going forward. We are taking this -- we are attacking this in a number of ways. We recently amended our revolving credit facility to allow for further financial flexibility. This was completed with the support of our lenders and includes improved access to liquidity via changes to our required debt-to-EBITDA and interest coverage covenants.

Also, to improve liquidity in the near term, we reached an agreement to settle a project dispute that was ordinary in nature for the construction industry, but much larger in scale than usual for us. This settlement was made subsequent to the year-end and will enable us to collect approximately $22 million of cash proceeds by the end of this month and extinguish a $9 million letter of credit.

Our decision to resolve this larger-than-usual dispute resulted in a $14.3 million reduction of contract assets and EBITDA in the fourth quarter of 2019 related to a change in estimate. We determined that it was preferable to collect the immediately available proceeds now rather than deferring collection of proceeds to fund the claim through to its ultimate resolution, which could have been as late as the fourth quarter of 2021.

As you know, we also successfully completed the refinancing of our $80.5 million convertible debentures that were due at the end of 2019. With significant shareholder approval, we secured a new $70 million convertible debenture with a reputable and sophisticated portfolio manager in Canso Investment Council Ltd. Additionally, our Board and management determined that a suspension of the dividend was prudent to strengthen our balance sheet and reallocate capital to support our operations.

Within operations, we continue to take actions to restructure our organization to create a leaner, more vertically integrated organization with direct lines of communications to operations and customers. As I stated last quarter, we are creating a flatter organizational structure with operational leaders now reporting directly to me. Effectively, we're bringing management closer to operations and customers. Our goal remains to create a stronger foundation from which we can execute on our ongoing sector and diversification strategies and be able to deliver value to all of our stakeholders.

Turning to our overview of the 2019 year on Slide 4. Let me start by noting that in the fourth quarter, we recorded a noncash write-down of goodwill as well as the project settlement claim adjustment I referenced earlier. Combined, these significantly impacted our reported results, and Dean will provide further details in his comments. Despite the challenging market conditions in 2019, we continued to progress the business. I'm pleased to report we secured $860 million of new project awards during the year and closed the year with a healthy backlog of $1.5 billion.

I want to highlight that while we reported $21.6 million of adjusted EBITDA in 2019, this was impacted by the $14.3 million project claim settlement adjustment. Excluding this adjustment, we would have delivered almost $36 million of adjusted EBITDA in 2019, which would have been ahead of analyst consensus for the year.

Our Industrial Group -- looking at the activity in our operating groups. Our Industrial Group grew fourth quarter revenue by 19% year-over-year as we benefited from the addition of the Tartan operations in oil sands sites requiring maintenance support longer into the 2019 holiday season. Excluding the $14.3 million project claim, revenues would have been up 40% in the quarter. Subsequent to year-end, the Industrial Group was awarded a 7-year contract valued at an estimated $400 million to provide MRO services to an existing oil sands customer in Alberta. This contract represents an increase in the scope of services over those we've previously supplied to this customer, highlighting the strategic value of the Tartan acquisition.

In our Building Group, we secured over $430 million in project awards in 2019. These awards include a retail distribution warehouse in British Columbia, multiple retirement residences in Alberta, a fire hall in Ontario, a private sector light industrial facility and a construction management award to build a new student residence at a post-secondary institution in Ontario.

And the Commercial Systems Group achieved significantly higher adjusted EBITDA and adjusted EBITDA margin as project execution continued to improve.

With that, I'll now turn the call over to Dean. Dean?

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Dean R. Beacon, Stuart Olson Inc. - Executive VP & CFO [4]

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Thanks, David. Good morning, everyone. I'll start with a quick overview of our fourth quarter consolidated results, which you can see on Slide 5.

As David mentioned, we recorded an impairment loss in an Industrial Group project claim dispute settlement, which is an adjustment in the fourth quarter of 2019. In terms of the impairment, we recorded $142.2 million loss primarily due to $140.7 million noncash write-down of goodwill as part of our required annual test. The remainder of the loss related to impaired right-of-use assets recognized as part of a restructuring and optimization of our use of facilities. I want to stress that we do not expect the noncash goodwill write-down to have an impact on future operations, our liquidity, cash flows from operating activities or our ability to meet financial covenants.

We reported consolidated contract revenue of $225.8 million in the fourth quarter, which was similar to the same period last year. This was primarily driven by a 19.2% revenue increase from the Industrial Group and a 6.2% increase from the Commercial Systems Group offset by a 14.4% revenue decrease from the Buildings Group.

Fourth quarter adjusted EBITDA was a loss of $4.6 million compared to an adjusted EBITDA of $7.2 million last year. This was driven primarily by a $14.3 million decrease in adjusted EBITDA from the Industrial Group as a result of the settlement of the project dispute. This was partially offset by a $2.5 million increase from the Commercial Systems Group.

On the bottom line, we recorded a fourth quarter consolidated net loss of $156.3 million or a diluted loss per share of $5.55. This compares to a net loss of $1.3 million or a diluted loss per share of $0.05 in the same period last year. The decrease in after-tax earnings primarily reflects the impairment loss of $142.2 million recognized in the fourth quarter of 2019 as well as the settlement of the Industrial Group project dispute and a year-over-year increase in restructuring costs.

In terms of the segmented fourth quarter results from our 3 operating groups, I would ask you to look to Slide 6.

Turning to the results for full year 2019, you can look to Slide 7. We generated consolidated contract revenue of $929.2 million as compared to $966.4 million in 2018. While the Commercial Systems Group increased revenue by 2.3%, this was offset by a 6.6% decrease in revenue from the Buildings Group and a 7.9% decrease from the Industrial Group.

We reported adjusted EBITDA of $21.6 million, a 40.2% decrease from $36.1 million in 2018. This primarily reflects the negative $14.3 million settlement of the project dispute partially offset by the benefit to adjusted EBITDA of the adoption of IFRS 16 in 2019. Adjusted EBITDA margin was 2.3% as compared to 3.7% in 2018.

We recognized a consolidated net loss of $163.1 million or diluted loss per share of $5.82 for the year ended December 31, 2019 as compared to net earnings of $5.4 million or diluted earnings per share of $0.19 in 2018. The change in after-tax earnings is primarily due to the combination of the settlement of the Industrial Group project dispute, the impairment loss, an increase in interest costs associated with the higher-than-average drawn balance on our credit facility in 2019 as well as the year-over-year increase in restructuring, investing and onetime costs.

In terms of segmented results for the full year 2019 from our 3 operating groups, I would ask you to look to Slide 8.

If we turn to Slide 9, we have set out key balance sheet and cash flow metrics. The change in our LTM adjusted free cash flow is due to the lower net earnings year-over-year. This primarily reflects the change in accounting related to the settlement of the project dispute, a year-over-year increase in costs related to restructuring, investing and other onetime activities and an increase in interest paid associated with the higher revolving credit facility average balance.

Our cash balance at year-end was $8.2 million and this includes a $3.3 million of restricted cash. Excluding the restricted cash balance, our cash and cash equivalents at December 31 would have been $4.9 million, and we had additional borrowing capacity of $38.6 million, providing us with a combined available liquidity of $43.5 million.

Our net long-term indebtedness to adjusted EBITDA ratio was 5.8x on a pro forma basis. This year-over-year change primarily reflects a reduction in LTM adjusted EBITDA due to the Industrial Group project dispute segment, an increase in long-term indebtedness related to higher credit facility balance and the impact of lease liabilities recognized under IFRS 16, along with a decrease in cash on hand as at December 31, 2019.

I would now like to turn the call back to David.

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David J. LeMay, Stuart Olson Inc. - President, CEO & Director [5]

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Thanks, Dean. In light of the unprecedented global challenges of the COVID-19 pandemic and historic decline in oil prices, we are deferring commentary on our 2020 outlook as it would be irresponsible to attempt to predict the impacts it will have on the overall economy and us specifically. We expect to be in a better position to provide 2020 outlook commentary with the release of our first quarter 2020 results.

Turning to Slide #10. Our backlog is a healthy $1.5 billion. As I referenced earlier, we've added over $850 million of new projects to backlog in 2019. We continue to see a strong pipeline of MRO and project opportunities, which will support our backlog going forward, with the potential to reach record backlog in 2020.

Slide 11 looks more closely at the opportunities we're pursuing across our business groups. While the Industrial Group is experiencing project deferrals, we see approximately $640 million in industrial MRO and general contracting projects that span many sectors, including the alternative energy, midstream, mining, agricultural, food processing and petrochemical sectors. In the longer term, we will continue to see significant opportunities for our Industrial business to be part of the LNG project in British Columbia.

The Buildings Group has an estimated project pipeline of opportunities of $1.1 billion. These opportunities include some larger projects in British Columbia and Ontario. We are also selectively expanding our pursuit projects as a design-build contractor.

Our Commercial Systems Group has been focused on expanding its reach in both its existing markets in Western Canada as well as our newly expanded reach into Ontario. We currently have a project pipeline of approximately $550 million.

We continue to see great opportunities and partnerships going forward and continue to pursue a number of these strategic opportunities across our businesses. Looking at potential partnerships ahead, we see contract values totaling in excess of $700 million across all of our groups.

In summary, despite the market challenges, our diverse project pipeline remains very strong and combined with a healthy backlog and the decisive actions we are continuing to take to strengthen our business will better position us to pursue our growth and diversification strategies.

I will now turn the presentation back to Hugh. Hugh?

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Hugh Harley, Stuart Olson Inc. - IR Officer [6]

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Thank you, David. Sylvia, could you please provide the instructions for the question-and-answer session again?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question will be from Chris Murray at AltaCorp Capital.

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Christopher Allan Murray, AltaCorp Capital Inc., Research Division - MD of Institutional Equity Research for Diversified Industries & Senior Analyst [2]

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Just, Dean, maybe we can start with you a little bit. Leverage at 5.8x, but I think the credit facility leverage, if I read this correctly, significantly lower at roughly 2.65x. Can you just make sure that we can understand the moving parts of how that leverage ratio gets created? And I think you also may have some adjustments in that. And how does the $22 million of cash payments, how does that play into it? Just so we know kind of what your real liquidity might be over the next few months.

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Dean R. Beacon, Stuart Olson Inc. - Executive VP & CFO [3]

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Yes. Well, I think the 5.8x, of course, the big component of that would be the reduction in the EBITDA number that would be used for that calculation, right? I think if you take a look at that, we had $70 million of converts, we had probably -- or not probably, we had about $8 million of leases that would be included in that, and then $56 million of drawn bank facility, which is not abnormal for us. But I think the difference is, is that number would have been over the $21.6 million EBITDA, which, of course, has been affected by the $14.3 million, right? And then under our bank facility, of course, we get to normalize some of these components out of it. And the bank facility debt-to-EBITDA coverage on that, of course, doesn't include the convertible debentures in there, so you would see a much different calculation there. The $22 million -- sorry, Chris, I think your question was...

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Christopher Allan Murray, AltaCorp Capital Inc., Research Division - MD of Institutional Equity Research for Diversified Industries & Senior Analyst [4]

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Yes. I think David mentioned that he -- that you should actually receive the cash towards the end of this month. So just a few days left in the month. I assume that just goes straight into the revolver just to give you additional capacity. So is it fair to think that what was, call it, $40 million-ish of capacity kind of steps up to $60 million something?

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Dean R. Beacon, Stuart Olson Inc. - Executive VP & CFO [5]

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Yes. I think that's the right way to look at it. I mean depending on the timing of when we get that money in, it might be held as cash over the quarter end. But yes, the reality of it is it will be used to -- as liquidity as we go forward.

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Christopher Allan Murray, AltaCorp Capital Inc., Research Division - MD of Institutional Equity Research for Diversified Industries & Senior Analyst [6]

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All right. Fair enough. And then just on the adjustments, particularly the -- I would assume the goodwill write-down, there's no tax impacts. The $14.3 million charge, will that -- is that a taxable event? And should we like -- if we're trying to normalize an EPS number, how will we think about it?

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Dean R. Beacon, Stuart Olson Inc. - Executive VP & CFO [7]

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No. There's no tax impact at this point.

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Christopher Allan Murray, AltaCorp Capital Inc., Research Division - MD of Institutional Equity Research for Diversified Industries & Senior Analyst [8]

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Okay. So it'd just be straight. And to be clear, that -- the entire $14.3 million is recognized in the adjusted EBITDA then? There's no -- it's just straight into contract incoming and straight down, right?

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Dean R. Beacon, Stuart Olson Inc. - Executive VP & CFO [9]

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That's right. And that was recognized in 2019 as part of the strategy that was started at that point.

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Christopher Allan Murray, AltaCorp Capital Inc., Research Division - MD of Institutional Equity Research for Diversified Industries & Senior Analyst [10]

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Okay. And if I can, just on that project, without getting into names, that project was -- you guys were active in that project over what time periods?

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David J. LeMay, Stuart Olson Inc. - President, CEO & Director [11]

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So it would've been completed in 2018, Chris.

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Christopher Allan Murray, AltaCorp Capital Inc., Research Division - MD of Institutional Equity Research for Diversified Industries & Senior Analyst [12]

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Okay. So this is -- this really is very much a prior period type event that we left it there. Okay, great. My other question, David, I know you don't want to get into guidance, and that's fair given how things are moving around. But when we look at your backlog today, fairly healthy backlog, plus the new MRO awards and new contract awards. What should we think about your backlog, basically, burn over the next, call it, 12 months or over 2020 at this point that you have planned anyway?

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David J. LeMay, Stuart Olson Inc. - President, CEO & Director [13]

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Yes. So I actually don't have that number. You might answer, Chris, but we can certainly get it back to you because we have talked about that before. Typically, at this kind of level, we'd be looking to -- I hate to even quote a number, but it's -- as a percentage of what we call procure-and-execute work because I think that's where you're going, is kind of what's left of procure and execute, it's actually a lower percentage this year than it was last year. So we're quite comfortable. If you look at how we book-to-build last year, is $850 million. But really, that's a flat book-to-bill for us because if you think of -- flat to slightly up. If you think of how those MRO contracts work off, the Suncor contract alone would have worked off over $100 million, and we wouldn't have the opportunity to replenish that until we renew those contracts, which a number of them are in process. So the $850 million is kind of flat. And we expect that prior to the current events, certainly, the percentage of procure-and-execute work was less this year than we had budgeted for last year. So overall, a less risky revenue year. Certainly, the current conditions are putting some of those estimates in flux.

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Operator [14]

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Next question will be from Frederic Bastien at Raymond James.

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Frederic Bastien, Raymond James Ltd., Research Division - MD & Equity Research Analyst [15]

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I appreciate that the COVID-19 picture changes daily, but can you provide a status on your key projects? Just wondering if they're continuing unabated or whether you're seeing some slowdown? And are you managing the projects differently right now?

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David J. LeMay, Stuart Olson Inc. - President, CEO & Director [16]

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Yes. So certainly, we're seeing productivity impacts on those sites. Now it's early days, of course. I think last week was a bit of a milestone period for the construction industry period. And it took a couple of days to sort of resonate and for people to understand just how serious all of this needs to be taken, the precautions that need to be put in. I think of all the things that the industry has scrambled to do across Canada, the provinces are treating these things a bit differently. We don't have a standard -- I want to be careful exactly how I put that, but it's not broadly a standard approach to the construction industry. Although most provinces, and if you look to the U.S. model, have deemed construction an essential service, so our projects continue. We've definitely had some concerns on sites. We're doing all of the best practices, staggering lunch breaks, increasing facilities, increasing the number of wash cars and other on site to make sure that we ensure all the necessary social distancing, hand sanitizers, that -- all the things that mitigate the risk. We're in the construction business. We're mitigating risk all the time. Our people are very well trained and confident in the procedures that they put in place. Although this -- the COVID-19 situation is, as we've said, a bit unprecedented, but we're following all of the precautions put out by the health officials across the different geographies. And I would say in the last kind of 10, 12 days, we have had some impacts, but generally, the sites are moving along. We, with our national associations, are -- do want the construction sector to continue as long as we can continue to make people safe. So we're continuing that.

On the Industrial side of the business, we are seeing some pullback related to COVID. And we have had -- we have demobilized some sites, and it's in -- it's obviously to create the necessary capacity in the accommodation space and all of those other challenges working in remote locations. So we've seen some impacts there. But really, we're just getting through it, Frederic. And what I will say is that the industry has really pulled together well, is making all the right decisions around the safety of individuals and stakeholders as best we can with the information we have today, and we're continuing to manage. But the projects are continuing. We have had some smaller projects deferred because of the situation. But at this point, none of the major projects, other than some Industrial projects that have manned down, have we seen any other impact.

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Frederic Bastien, Raymond James Ltd., Research Division - MD & Equity Research Analyst [17]

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Okay. My -- and my second question relates to the Industrial side. Do you have any projects that may be at risk of getting canceled if we continue to be in a $25 oil environment for an extended period?

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David J. LeMay, Stuart Olson Inc. - President, CEO & Director [18]

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Yes. So we have very little exposure to what I'd call greenfield capital. It would be less than 15% of our oil and gas work. So those -- that exposure -- those are really the projects that have been sort of de-mob-ed due to COVID today. And it's a pretty -- it's a small amount, so a subset. The MRO piece is -- because we have general contracting and we have MRO in our Industrial business, there's about 15% that's really oil and gas greenfield projects. So what we're understanding is they're going to complete those projects even amidst the capital pullbacks that we've seen. But largely, our MRO business is tied to turnarounds, maintenance and other. Certainly, we're going to see some timing impacts. That's definitive that that's going to happen due to COVID. But as we sit today and the communications we're having with our customers, some of the activities, even turnaround activities, are continuing to be scheduled and continuing to be executed in the same timing that they were planned. But we have seen some pushed into summer, and of, course, we'll see what that looks like. But if you think about the functionality of those turnarounds, there is some work there that has to be done. And if you look at the early reports on what would be deemed essential services in Alberta, my suspicion is that the oil and gas work is going to be deemed essential, just given the track record across provinces and other geographies for that matter.

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Operator [19]

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Next question will be from Maxim Sytchev at National Bank Financial.

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Maxim Sytchev, National Bank Financial, Inc., Research Division - MD & AEC-Sector Analyst [20]

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David, I was wondering if it's possible to provide any update in terms of how you think about the asset base if some dispositions are being considered right now, especially on the industrial side. I mean I appreciate, obviously, the dislocation due to COVID, but the WTI and given where it is right now, what is the commitment to be in the space? And how does the Board and yourself are thinking about this end market exposure?

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David J. LeMay, Stuart Olson Inc. - President, CEO & Director [21]

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Yes. Max, we look at the right ways to create value for our business and the shareholders all the time. There's some strong contracts in there. We've got some strong opportunities in that space. If you think of the -- one of the largest contracts this company has executed on was a $500 million 5-year MSA for a very good client, a long-term client out of Fort McMurray. That contract is currently under renegotiation for us today, and it's not a -- it's a renegotiation. So -- and we think that we're well positioned to re-up that contract, which would be a major adder to backlog. There's a number of other opportunities across the space with other providers. So when we talked about a strong opportunity funnel, there are a number of MRO contracts that we're currently working on. If they're to come to fruition, I did mention that there's an opportunity potentially for the business to get to record backlog. That space, in particular, will give us that opportunity.

So although we're looking at $25 oil, this is the kind of work that continues. And if we look back at the challenges we've had over the last 5 years, whether it's been -- well, even go back further, 2008, '09, whether it's '14, '15 or the fires in '16, these were the kinds of projects that continued to attract capital. It's the maintenance spend. So we don't have, I would say, the more broadly concerned view of that business that maybe is associated with the oil and gas $25 oil environment. Certainly, is it going to be impacting $25 oil, it's going to impact everybody, and it's going to impact not just the province of Alberta. So of course, we're hopeful that, that improves over the medium to longer term. But even in the current situation, those -- that spend continues. We'll see customers pull back on, I would say, nonessential spending, but we still think that's a strong business. So we evaluate all of our assets all the time. It's all part of our strategic planning process, and the Board is always evaluating options as part of their fiduciary obligation.

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Maxim Sytchev, National Bank Financial, Inc., Research Division - MD & AEC-Sector Analyst [22]

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All right. And just, I guess, when some of your presumably largest clients are cutting CapEx by like 35%, and it's kind of across the board in terms of greenfield and OpEx, I'm just surprised by the comment around being able to get to kind of all-time high backlog. I'm just wondering what are you guys seeing that would not correlate directionally to those numbers.

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David J. LeMay, Stuart Olson Inc. - President, CEO & Director [23]

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Yes. And Max, it's really about client-specific opportunities. I've been through this enough that there's -- the reason we're making the comment is because we're midstream negotiations. The -- obviously, the current environment could defer some of those decisions. And for us, it would just be a timing issue. We've been on some of these sites for decades. We expect to be on them for decades to come. So the spend certainly will go up and down with the dynamic that you're referring to and the pull back in spend. But if you think of where the larger concentration of that spend is, it is on OpEx, and the cuts are less on the spend that we're contracted to execute on. So it's not that we're not going to be impacted, we will be, if this environment continues, of course. But that work still has to get done. Those long-term contracts are currently being negotiated. And so as long as that comes to fruition, that's what gives us the opportunity to secure very significant backlog. I mean if you just look at what that -- back to '16 when we originally negotiated the contract, it was $500 million. We've since secured a broader scope profile. So what that number would be once we -- if we renegotiate this year can certainly add to the $400 million that we've already booked on the other major customer in the oil sands. So we're -- it's -- just looking at those direct opportunities, it's not about opportunities that aren't on the table today, they're actually on the table, and those 2 alone would almost bring us to record backlog. And it's just a function of timing, Max. It's not really representative of an uptick market, but it's a representative of our position in that market and the timing of those MSAs.

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Maxim Sytchev, National Bank Financial, Inc., Research Division - MD & AEC-Sector Analyst [24]

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And what about the pricing concessions that I presume the clients will be requiring from you guys?

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David J. LeMay, Stuart Olson Inc. - President, CEO & Director [25]

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Yes. We -- they're still at sort of the current levels. What we've been very much focused on, you've heard me say it before, is about the value initiatives. If you look at the major clients in the oil sands, like Suncor, and you look at Suncor 4.0, that's what they talk about. They talk about providing or awarding suppliers on value-based contracts. So we continue to perform extremely well, top tier, maybe even, we would like to say, #1 in that space. We have a value initiatives program that demonstrates to our owners the value that we bring. We're moving away from competing on margin. Margin is table stakes, but it's consistent with our historical levels in that space.

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Maxim Sytchev, National Bank Financial, Inc., Research Division - MD & AEC-Sector Analyst [26]

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Okay. That's helpful. And last question. Just in terms of -- obviously, you've been addressing the SG&A pretty aggressively over the last couple of years. Is there additional room to drive incremental efficiencies out of there? Any comments, please?

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David J. LeMay, Stuart Olson Inc. - President, CEO & Director [27]

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Yes. Well, certainly, we're looking at that all the time. Necessity is the motherhood of innovation, so we're -- we've certainly been on it. We think there's some. However, I would say, Max, that as you're looking at SG&A, some of the offset of that would be as we go through and we think about kind of performance compensation and how that's played out the last few years. If we're to make our expected numbers this year, depending how that plays out, that could also be an increase to SG&A, given that it was flat for this year.

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Maxim Sytchev, National Bank Financial, Inc., Research Division - MD & AEC-Sector Analyst [28]

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Okay. And then actually, maybe -- sorry, last question for Dean then. In terms of noncash working capital, if you do get that inflection point on the Industrial side, don't you usually consume more working capital as you kind of ramp up? Just trying to get a better sense in terms of that flex throughout the year, if it's possible.

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Dean R. Beacon, Stuart Olson Inc. - Executive VP & CFO [29]

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Yes. Typically, you're right, as we see the increase in these -- especially the turnarounds this year, you would see kind of a near-term increase in working capital. It's certainly something that we've budgeted for. And as you've seen through our work with our -- through our bank amendments in that, we've increased our access to liquidity to support that business. So there's no concerns on that component. And I think on the other side, depending on what happens with this business, going through, as things are deferred, we wouldn't have that additional working capital need. It would be spread out a little bit more over the year. So I think we're a little bit more balanced, Max, as we go through.

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Operator [30]

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(Operator Instructions) And your next question will be from Michael Tupholme at TD Securities.

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Michael Tupholme, TD Securities Equity Research - Research Analyst [31]

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Just a clarification to start off. With respect to the $14.3 million project dispute charge, did that actually flow through revenue in the fourth quarter as well?

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David J. LeMay, Stuart Olson Inc. - President, CEO & Director [32]

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Yes. It did.

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Michael Tupholme, TD Securities Equity Research - Research Analyst [33]

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Okay. So if we're trying to sort of normalize for that, we should be adding that back to the reported revenue number?

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David J. LeMay, Stuart Olson Inc. - President, CEO & Director [34]

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That's right.

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Michael Tupholme, TD Securities Equity Research - Research Analyst [35]

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Great. And then just a question -- there was a question earlier about liquidity and discussion around, at year-end, it was close to $38 million of availability on the credit facility, and then there's the $22 million that's supposed to come in as a result of the settlement. With respect to the -- there's also mention of a certain amount that was tied up related to letters of credit. I guess that would also -- should we think about that being added to that total amount as well in terms of liquidity?

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Dean R. Beacon, Stuart Olson Inc. - Executive VP & CFO [36]

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Yes. So I think the LC certainly comes off the capacity of the bank facility within the quarter. So that gives us almost another $10 million of access to liquidity within the quarter. The LC is a performance LC, so it's not a debt LC. So at our covenant calculations at the end of the quarter, you wouldn't see that number in there. But it certainly gives us additional liquidity access within the quarter as we're managing day-to-day cash balances.

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Michael Tupholme, TD Securities Equity Research - Research Analyst [37]

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Right. So when we look at the year-end number, again, which you're suggesting was something, if I remember correctly from the MD&A, something around $38 million of availability on the credit facility. We can add that $9.2 million from that letter of credit.

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Dean R. Beacon, Stuart Olson Inc. - Executive VP & CFO [38]

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No. You can't at the end of -- yes, no, you can't do it at the end of the quarter because, as I said, it's a performance LC, it's not a debt LC. So it's not taken off the number at the end of the quarter for compliance reasons. So when we look about -- when we talk about liquidity there, it was really what was available to be drawn at quarter end, the $38.6 million under the back facility, that wouldn't have had an LC component in it.

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Michael Tupholme, TD Securities Equity Research - Research Analyst [39]

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Okay. All right, perfect. And then I guess just maybe a question for Dave. In reading the release and the MD&A, I mean, understandably, you've suggested that given all of the developments we've seen recently with respect to COVID-19 and oil prices, you're deferring commentary on the 2020 outlook. But at the same time, you have included -- not the regular sort of detail you would provide, but you've certainly made some comments about setting the foundation for growth in revenue and earnings and adjusted EBITDA in 2020. So I'm just trying to reconcile the fact that you're -- on the one hand, you're sort of saying you're deferring commentary, but then you provided those comments. Are you still comfortable with that idea about setting the foundation for that kind of growth? Or should we be looking at that as sort of subject to review?

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David J. LeMay, Stuart Olson Inc. - President, CEO & Director [40]

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Yes. No, I would look at that as subject to review. The broader statement, of course, is we're positioning the business to execute on the growth strategies. The current environment has made that pretty challenging to make some sound forecast. So yes, I would just say that's subject to review.

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Michael Tupholme, TD Securities Equity Research - Research Analyst [41]

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Okay. And you talked earlier about -- or addressed earlier the question about the activity levels on sites and shutdowns of sites. But I'm just wondering, have you had any -- experienced any issues as it relates to access to labor? I guess we've heard some suggestions that for health and safety reasons, some unions have asked for measures to be taken. And if still that happens, maybe there's a labor availability issue on some of these sites, even if they continue to run. Is that something you've seen or can you just talk about?

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David J. LeMay, Stuart Olson Inc. - President, CEO & Director [42]

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Sure. So -- and of course, we're on regular calls with our industry associations and working with all of our peers to make sure that we're sharing best practices. And I'd give the industry a ton of credit. Everybody is just coming forward with all the best things to keep people safe and really working well together. So hats off the whole peer group across the industry. And there certainly has been concerns whether it's some of the subcontractors on-site or the unions themselves or other because, of course, this is a bit unprecedented. So I fully understand the concerns. Where we're focused is following the guidelines that the health authorities have put out. I think once we've been able to demonstrate to our -- the staff on the projects, the subcontractors, the suppliers and other that we've got these in place, that we've taken social distancing seriously, that we've structured the sites to follow those protocols, even the larger sites, that this is an industry that's trained to mitigate risk. And so I think there's no better industry to deal with these kinds of challenges than ones that are extremely well trained, very capable and can understand the risks in front of them and do the right things to mitigate it. So did we have some impacts early? We did. As I stated, that sort of first -- that last Monday and kind of beginning part of next week, there was a lot of uncertainty. As the end of the week came in and this week started, I think our plans were much better communicated. Our messages and our kind of our actions and the things that we were doing were around mitigating, so around the tools to ensure social distancing. I think people got more confidence, and we're seeing less of that today. Do I expect that to continue to have some impact? Of course, I do. What that will be, I'm not sure. And just where this pandemic goes, obviously, none of us are sure. But we're going to continue to support the health authorities. And that goes either way, however they tell us to move, to put people's safety first, that's where we're going to go. So at this point, all the major projects continue. We've been deemed an essential service in Ontario. I suspect if Alberta follows precedent, we'll see that as well. And I suspect the same in BC. We'll see when it happens, but we're continuing to prepare to operate even post the next measures and make sure that we have all the right procedures in place to keep people safe, and that's certainly what we're doing. So at this point, short answer is, Michael, we've seen a bit of interruption, but I think it was more about people understanding the process and systems necessary to go to work, and we've seen less of it now. But time will tell.

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Michael Tupholme, TD Securities Equity Research - Research Analyst [43]

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Okay. That's helpful. And then just finally, recognizing the significant uncertainty that exists right now, so hard to -- understandably hard to comment much on the outlook. But with respect to the amendment to your credit facility, that looks like that was just dated a couple of days ago. So I'm just trying to understand to what extent you have, as best as possible, tried to factor in some of the dynamics that are occurring right now and contingency planning as it relates to what may or may not happen on projects and in end markets as you renegotiate that -- some of the terms on that credit facility.

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Dean R. Beacon, Stuart Olson Inc. - Executive VP & CFO [44]

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Yes. Michael, so I mean, it would have been difficult. You can imagine, as we were starting to come into the new year and started to look at this amendment to the bank facility and more or less normal course business to give us cushion. But we certainly try to put enough flexibility and cushion in there to manage the risk as we go forward. So we would have -- it would have been difficult for us at that point to start to factor in the type of risk that you might be seeing in the market from the pandemic. But again, we always look at these things as giving us enough flexibility to manage the risk going forward. So while we'll never know for sure, at this point, we're pretty confident with what we've got there will give us the pathway to support the business going forward.

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Operator [45]

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And there are no more questions at this time. I will now turn the call back over to Mr. David LeMay, Stuart Olson's CEO, for concluding comments.

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David J. LeMay, Stuart Olson Inc. - President, CEO & Director [46]

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Thanks, Sylvia. As we move further into 2020, we will continue to strengthen our business and respond to the challenging and uncertain market conditions. Our business remains operational as we adhere to guidelines recommendations and protocols set by all levels of government and health officials representing each of our operating regions. We have implemented several measures to ensure we are still effective while doing our part to limit the spread of COVID-19. We are taking all necessary precautions to remain operational and, most importantly, safe.

We have amended our revolving credit facility, bolstered near-term liquidity, reallocated capital to support operations, refinanced our convertible debentures and continue to create a leaner, restructured organization that is even more focused on execution and our customers. We believe the combination of all our actions will provide a stronger foundation from which to execute our growth strategies and deliver value to all of our stakeholders.

With that, I want to thank everyone for joining us today. We appreciate your interest and your questions. Please do not hesitate to contact us if you have follow-up questions. Thank you very much, and please ensure we're all adhering to the social distancing requirements and each doing our part to flatten the curve. Be safe.

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Operator [47]

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Thank you. Ladies and gentlemen, this concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.