Earnings Labs

North American Construction Group Ltd. (NOA)

Q2 2016 Earnings Call· Sun, Aug 7, 2016

$14.40

-0.76%

Key Takeaways · AI generated
AI summary not yet generated for this transcript. Generation in progress for older transcripts; check back soon, or browse the full transcript below.
Transcript

Operator

Operator

Good morning, ladies and gentlemen. Welcome to North American Energy Partners Earnings Call for the Second Quarter ended June 30th, 2016. At this time, all participants are in a listen-only mode. Following management's prepared remarks, there will be an opportunity for analysts, shareholders and bondholders to ask questions. The media may monitor this call in a listen-only mode. They are free to quote any member of management, but they are asked not to quote remarks from any other participant without that participant's permission. I advise participants that this call is also being webcast concurrently on the company's website at nacg.ca. I'll now turn the conference over to David Brunetta, Director of Investor Relations at North American Energy Partners Incorporated. Please go ahead, sir.

David Brunetta

Management

Thanks, Blair. Good morning to everyone and thank you joining us. Welcome to the North American Energy Partners 2016 second quarter conference call. I would like to remind everyone that today's comments contain forward-looking information. Additionally, our actual results may differ materially from expected results because of various risk factors, uncertainties and assumption. During this call any reference by management to EBITDA indicates consolidated EBITDA as defined in our financial statements and earnings release. For more information about our results, please refer to our June 30, 2016 management's discussion and analysis which is available on SEDAR and EDGAR. On today call, Rob Butler, VP of Finance will first review our second quarter results. Martin Ferron, President and CEO; will then provide his comments on our strategy and outlook. After management's prepared section, there will be a question-and-answer session. I will now turn the call over to Rob.

Rob Butler

Management

Thank you, David. Good morning, everyone. Let's now review your consolidated results for the second quarter ended June 30, 2016 compared to the quarter ended June 30, 2015. It was this time last quarter that we talked about the Northern Alberta wildfire in the May 3 evacuation of the town of Fort McMurray. At that time our focus was ensuring that all employees were evacuated safely. The severity of this disaster was only just becoming clear. The wildfire consumed roughly 590,000 hectares of forest, spanning across Alberta and into Saskatchewan, destroying more than 2,400 homes and buildings in its path. Also with wildfire most our sand producers curtailed operations or initiated a shutdown of their site and processing operations. We began our return to work at the Kearl mine within two weeks as this mine was furthest from the effects of the wildfire and access was by air. Our return to work at mine sites closer to Fort McMurray was delayed to near the end of the quarter, as road access remained restricted while the provincial government focused on coordinating the return of Fort McMurray residents. We did not suffer any significant property equipment damage as a result to the wild fire. However we are in discussions with our insurance providers regarding coverage for cost incurred during the shutdown. Our second quarter results did not include any anticipated benefits from our insurance coverage. With the evacuation of varying dates that we are able to return to work, our revenue for the second quarter was $24.2 million, significantly than the $64.4 million we performed last year. We continue to see our summer mine support activities at our customer site ramping up at slower than expected levels as our customers focus on restarting their operations. Prior year activity included continuing work on…

Martin Ferron

President and CEO

Thank you. And good morning to everyone. As Rob just explained the devastating wildfire as it swept through the Wood Buffalo area was a dominant factor during the quarter. We were expecting a slow period due to spring break-up and the enduring cyclical down turn in the oil price and that were customer spending. However the fire added a whole new degree of difficulty to already tough times and yet we still manage to post positive EBITDA. This was achieved despite virtually no activity on two of our three busiest work sites for two thirds of the quarter. I am very pleased and proud of the way we handled the extreme adversity of the quarter. We proactively enable evacuation of our personal and their families in the region and thankfully all are safe and we suffered only minor equipment damage. We then stepped up and made discretionary disaster release payment worth of thousand dollars to around 500 affected few personal, union and non-union and covered the income tax burden on that. Our hourly employees already hard hit by the oil industry downturn, we're very appreciative with this move. And we'll return the favor many [indiscernible] future hard work and commitment. The positive EBITDA was then produced by making a very best from the little work we had while switching off as much indirect cost as possible. We will close our corporate office down for two weeks providing staff two week off and return for the userfication [ph] allowance for the rest close here. Our work execution continues to be first rate as evidenced further receive by second major safety role this year, this time from the Alberta mine safety association. Despite of the fires we are $4.7 million of EBITDA, ahead of the level achieved that this time last year.…

Operator

Operator

Thank you. [Operator Instructions] The first question comes from the line of Ben Cherniavsky from Raymond James. Your line is open.

Ben Cherniavsky

Analyst · Raymond James. Your line is open

Hi guys, good work in a tough situation. I am wondering just if you could comment a little bit on some of the in-sourcing that’s being going on in the oil sands [indiscernible] in their quarter they've seen in the maintenance business I recognize you guys are accustomed more to customer – comparable. But just wondering if you are seeing a similar situation in the actual reports to the oil sands that companies are in sourcing and whether or not you are doing your on in sourcing on the maintenance business and your fleet as well?

Martin Ferron

President and CEO

I wouldn’t say that we are noticing an increasing in sourcing Benefit. I think we did notice during the quarter was that while we away from size, obviously the customers if they had any spare resource used that to do things, that perhaps we would normally have done. But I think that’s just normal behavior in the circumstances. So we are not seeing reduced opportunities from increasing sourcing going forward.

Ben Cherniavsky

Analyst · Raymond James. Your line is open

But your customers are obviously looking for any opportunity to save some money, there is still lot of pressure to - I mean if you are not competitive and helping them in this environment they will take the business away?

Martin Ferron

President and CEO

I think that’s key Benefit, we are trying really hard to be part of the solution in the oil sands, and I think what we've done with our cost structure, certainly on the earth moving side, NIT particular gives us a cost advantage, its even over the customers own resource at some point.

Ben Cherniavsky

Analyst · Raymond James. Your line is open

And have you guys - so have you - I believe you've done some in sourcing with your maintenance fleet is that correct?

Martin Ferron

President and CEO

We do most of our own maintenance now, we have done for quite a while and we believe that’s the way to control the cost to the data.

Ben Cherniavsky

Analyst · Raymond James. Your line is open

You wouldn’t see that changing then in the near future?

Martin Ferron

President and CEO

Absolutely, no.

Ben Cherniavsky

Analyst · Raymond James. Your line is open

And just second question or second sort of theme like of my questions, around the general operating environment and the political climate in Alberta recently there was an increase - move to increase the minimum wage, I recognized you guys - most of your people will be paid well above that. But implications on wage rates and labor negotiations and all those sorts of things, are you - do you see or expect any fallout from that kind of a move?

Martin Ferron

President and CEO

Again I don’t believe so, as you mentioned our wage structure is way above minimum. We've got firm agreements in place with our union going forward and I believe we've got that element of our cost well under control. Obviously the operating environment is super tough I know, it’s tough that I know one any operating environment. But we just continue to find ways to put EBITDA on board and even when we face with another wildfire like we had, we still manage to produce something. So I believe whatever life throws us at we'll continue to perform.

Ben Cherniavsky

Analyst · Raymond James. Your line is open

Okay. Thanks very much.

Martin Ferron

President and CEO

Thank you, Ben.

Operator

Operator

[Operator Instructions] The next question comes from the line of Maxim Sytchev from National Bank Financial. Your line is open. Q –Maxim Sytchev: Hi. Good morning, gentlemen.

Martin Ferron

President and CEO

Hey, Max.

Maxim Sytchev

Analyst · Maxim Sytchev from National Bank Financial

Just a brief question, Martin, you briefly touched on Fort Hills being potential opportunity, obviously as that mine ramps up, I am just wondering if maybe you can comment on that and fully realize it so, potential competitive situation, but maybe in terms of timing when you could see any potential sort of positive delivery fact on that site, is it you know, an early or late 2017 event, just want to get the timing right?

Martin Ferron

President and CEO

Yes, we're still in the middle of negotiating new MSA with the customer mine, so I have to be a little cautious - remarked passed. And that’s been delayed because of the fire too. I think September 1 is the date willing to start hopefully. But we're expecting work to ramp up, I am here too excited for Fort Hill next year and potentially 2018 could be a really busy over there. So that’s way the volumes have been presented to us, if you add that to what we're expecting from the other customers, I think it will make a meaningful difference.

Maxim Sytchev

Analyst · Maxim Sytchev from National Bank Financial

Right. And when you talk about the deferred work in your prepared remarks is this on sort of summer construction side, or is it more in the maintenance side or both and if you could maybe try to quantify this, I know that’s a tough exercise obviously to do?

Martin Ferron

President and CEO

It’s clearly on the construction side of things. A lot of that work is been deferred. But its – even on the earth moving side of things too Max, Reclamation is a particular example. Customers are being - delaying us as far as possible. But we think at a certain point those volumes will come back, even as early as Q4 perhaps. And again that will help us get through this year and have a good start in next. I can't really talk about volumes because we haven’t seen numbers yet, but an increase over what we saw last year I would think.

Maxim Sytchev

Analyst · Maxim Sytchev from National Bank Financial

Right. And just wanted to confirm that when you were talking the back half EBITDA split, its 37, you are right for kind of Q3, Q4?

Martin Ferron

President and CEO

Yes, that’s kind of the way I see it, with Q3 obviously still being impacted by the fire and the downturn more and then Q4 getting back to normal.

Maxim Sytchev

Analyst · Maxim Sytchev from National Bank Financial

Right and then maybe the last question just Martin in terms of revenue diversification and your ability to address the infrastructure opportunities, maybe any incremental color on that end market if possible?

Martin Ferron

President and CEO

Yes, we're targeting project that have high volume, obviously that plays to our strength. We have a more direct import into the project. There were couple in particular, flood remediation projects, one here in Alberta and one in North America, which we're trying very hard. I think we'll be pre-qualifying for the second here in the next quarter, bidding it soon afterwards hopefully. And where the Canadian cost structure in North America and maybe we have reasonable chance for that. We're certainly going to give it good shot and we're talking about our plus $500 million earthworks, program, so would make a meaningful difference to our efforts here.

Maxim Sytchev

Analyst · Maxim Sytchev from National Bank Financial

Okay. Excellent. So that’s it from me. Thank you very much.

Martin Ferron

President and CEO

Thank you, Max.

Operator

Operator

There no further questions at this time. I'll turn the call back over to Mr. Ferron for closing remarks.

Martin Ferron

President and CEO

Well, thanks everybody for joining us today. We look forward to talking to you again in the near future. Thanks.

Operator

Operator

Thank you. This concludes North American Energy Partners conference call. You may now disconnect.