Good morning, ladies and gentlemen, and welcome to the North American Construction Group Earnings Call for the Fourth Quarter and Year-Ending December 31, 2018. [Operator Instructions]. The media may monitor this call in 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 would now like to turn the conference over to David Brunetta, Director of Investor Relations.

Good morning, and good morning to everyone and thank you for joining us. Welcome to the North American Construction Group's 2018 fourth quarter and year end 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 and assumptions. For more information about our results, please refer to our December 31, 2018 management's discussion and analysis, which is available on SEDAR and EDGAR. On today's call, Jason Veenstra, Executive Vice President and CFO, will begin by reviewing our fourth quarter results; Martin Ferron, Chairman and CEO, will then provide his comments on our outlook and strategy. Also with us on the call today are Joe Lambert, President and Chief Operating Officer; Barry Palmer, Senior Vice President of Operations; and Rob Butler, Vice President of Finance. After management's prepared remarks, there will be a question-and-answer session. I now turn the call over to Jason.

Thanks David and good morning everyone. As mentioned, I'll provide a summarized financial overview of Q4 along with some brief commentary on our overall 2018 cash flow and will close with the status of Nuna acquisition and our purchase of the heavy equipment fleet in the middle of Q4. Starting with the financials. Top line revenue for the quarter was $131 million, $49 million higher than 2017. This 60% year-over-year increase is indicative of strong activity in the oil sands was driven by the mine site work at the Millennium, Mildred Lake and Kearl mines. Consistent with the producers' public comments, this performance illustrates their persistent focus on throughput at their operating mines despite the outside noise and market volatility. The $131 million of revenue includes $24 million from the M&A transactions we completed in mid-Q4 which I will touch on later. The comparable Q4 revenue of $107 million represents a substantial increase in revenue of over 30% and reflects the demand we are experiencing in the oil sands. In addition to the consistent production we are witnessing first hand from our customers, several factors contribute to the strong volumes in Q4 when comparing to last year. Number one and most importantly, the contracts stability related to term contracts we announced during 2018 has had a positive and incremental impact on overall work generated. On our contracted sites, the customer visibility and access to our equipment is providing higher utilization as work gets completed outside of the core contracted volumes. Secondly, when compared to 2017, we had and earlier ramp up of our winter works program at the Millennium and Mildred Lake mines. And third, an early stage heavy civil construction project at the Kearl mine has had a material impact on 2018 results. Outside the oil sands, civil construction…

Thanks, Jason, and a very good morning to everyone. As we look back, I will always remember 2018 as a transformational year for us in which we invested in significant growth by M&A activity to complement an already robust organic growth plan. Of the two M&A deals, we announced during the year, did not close until very late in the period, they did not contribute much in the way of EBITDA, to what was another stellar year of financial improvement. For the full year, we grew revenue and EBITDA by 40% and 61%, respectively, against stated targets of 15% for both, the follow-on from 37% and 18% growth in these measures during 2017, therefore the exciting benefits of the two acquisitions will be realized starting in 2019, which will believe will allow us to continue our hopefully impressive record of maintaining strong growth. I will return to this theme, but first I want to highlight other notable achievements of 2018. Firstly, and most importantly we preserved our top-tier record of safety performance, with our total record of injury rate again coming in, well below 0.5. As the management of safety hazards is a crucial aspect of achieving overall operational excellence, I'm very pleased with our performance. Second, we further improved our profitability with basic earnings per share coming in at $0.61 a share. This number was much nearer $1 a share before the mark-to-market accounted for our liability based deferred stock based compensation and the one-off M&A related expenses that Jason took us through. Third, the construction of our new heavy equipment maintenance and office facility here in Edmonton, was completed ahead of time and on-budget, such that we moved in during November. Fourth, we build our backlog of contracted work to over $1.2 billion, from less than $0.1 billion…

Thank you. [Operator Instructions] Your first question comes from Yuri Lynk with Canaccord Genuity. Your line is open.

Martin, how is the acquired Aecon gear been relative to your initial expectations in terms of you know how it's performed, productivity and maintenance – or I guess the maintenance CapEx is unchanged, but because it's been pretty well as expected?

We knew we'd have to spend a significant sum of $20 million catching up on maintenance and repair. I think it's fair to say that the equipment was in worse condition than we expected. But we still think the $20 million we know will cover this situation.

And does that impact the – I think you had targeted previously, correct me if I'm wrong about $30 million of external maintenance revenue at the new facility. Does that have any bearing on that number?

Yeah, the $30 million target is one that will take us a couple of years, maybe three years to achieve and we're in the middle of trying to balance our internal need for maintenance right now with external work. There is a lot of external work opportunity. But also plenty of internal need, so the balance is quite tricky, but we're managing it well, so that's the status there, Yuri.

Shifting gears, interesting press release at the end of last year on the option to acquire some ultra-class trucks which you've never used before. What's the thinking behind that and then what would you be using those trucks for?

They are very useful for earthmoving activities especially all of them a little. So, once we got the opportunity to exercise that right, we looked at our need for a fleet given the tremendous workload that we see and we believe that with need for more assets beyond what we picked up for the earlier acquisition. So, we were glad to take some other – what turns out of be a reasonable price we believe.

That's it from me. I'll hop back in the queue. Congratulations on a good quarter.

Your next question comes from Maxim Sytchev with National Bank Financial. Your line is open.

Martin, I was wondering if you don't mind just quantifying what was the EBITDA contribution for the acquired assets in Q4 if it's possible? Because I think you said it was de minimis, right?

De minimis is the right word less than a million dollars.

Okay, so it was all organic. Excellent. And then do you mind maybe, because I think it's right about now where you are getting visibility on summer construction work, Martin, do you mind maybe just commenting on how that's shaping up?

Oh, really well, especially, we bat on the Fort Hills mine sites and just trying good activity schedule there. Also you know Syncrude have got a major expansion project (MIS) which we'll be bidding on, so it's shaping up really well even during in late February.

Okay, and then I think in the past we talked a little bit about the LNG optionality for you guys just trying to think how is the bidding environment for that particular project going right now?

We don't believe we'll be participating in that Max for a couple of reasons, one is that we're too busy doing the other things that make us good margin. And second, we don't think we have much of a change if we did bid it. So, we'll save our ammunition for other things that we believe will serve us better.

Okay, I guess is it a question of just how competitive the environment in that marketplace?

Yeah, I think that project is one a lot of companies want to get their name on. We'd like to get our name there too, but at a decent margin and I don't think the two things are probably achievable.

Okay that makes sense. And then, do you mind maybe commenting on Nuna now that you have it under your belt in terms of initial impressions and you know the ability to obviously capitalize that business potentially better and how much of an opportunity that could be down the line for you guys?

We're really impressed. We closed the deal. It was a quiet time for them. So, we've had the opportunity to spend some time visiting them and really again to totally understand the business. I think we got some really super bidding opportunities which we can help them with. There is one in particular that we're bidding together. So, in the past they didn't have access to heavy fleet, so now they do and I think that's going to open up some great opportunities for them that they couldn't pursue previously.

Okay, that's helpful. And maybe last question for me, I mean obviously very pleased to see the share price kind of aligning with the prospects. And now that you have a bit of better multiple, how does that enter your thinking around you know incremental M&A whether its tuck-in or something bigger. I mean I understand that obviously your priority is to deliver, but if – how do you square the EBITDA multiple environment right now for you?

You know me Maxim, I'm shy about talking about the stock price so – when the Annual Letter comes out, that we'll share this afternoon, I'll have some commentary in there on it. So, while the EBITDA multiple has risen a little bit, it's still well below peers. Plus the earnings multiple is around 9, right? To me that seems more like an EBITDA – earnings multiple, so we still think – we think there's a bit [indiscernible] in the stock price. If that doesn't occur, we'll always be looking at allocation of capital as we've done in the past. We've committed to latter, but wouldn't hurt my feelings if we spun a bit more money buying some more share, as if we got the opportunity. So, it will always be a balance, but we'll address that carefully.

Okay. That's very helpful. Thank you very much. That's it from me.

Thanks Max.

Your next question comes from Devin Schilling with PI Financial. Your line is open.

Hi guys. Congrats on another great year here.

Thank you, Devin.

Question here on your integration and just kind of maybe give a bit of timeline on how long do you think it will be to have everything fully integrated? And should we kind of expecting higher equipment costs over this period?

In my prepared remarks, you know with this acquisition of the heavy fleet, I mentioned that we closed the deal. We funded the deal on November 23, on boarded 450 people and took possession of 180 odd assets and we had them operational in three days, right. So that's just staggering performance by our operating team. Obviously, we've got to spend a bit of money to bringing the fleet up to our operational standards. So that will take a bit of time of several months. We'll contribute to incremental EBITDA on 2020, so that integration went extremely well because it was mainly an asset deal with a lot of operating personnel in the field. Then the Nuna acquisition, the integration is ongoing. The biggest task in front of us is to bring them on to our enterprise system, which will ease our reporting. And we don't schedule to get that done within a two to three months here. So that's the comment we have on that. Does that answers your question, Devin?

Yeah. No, that's helpful. And I guess if we look at you guy's – try and get debt reduction here, are you guys still looking at $50 million straight line or is this going to be more from a and market spend weighted, do you guys have color there?

We'd like to keep some flexibility there, right, so we set $150 million over three years. You know going back to Maxim's question, could be that we might spend a little bit of money this year on share buyback for example, right, so over $150 million is over the three years.

Okay, perfect, Martin. That's it for me and congrats on another great quarter guys.

Thank you, Devin.

Your next question comes from Ben Cherniavsky with Raymond James. Your line is open.

Good morning, guys. Most of my questions have been answered. I just thought maybe – I thought you can give just a little more clarity on the SG&A line. How much in dollars were the sort of headwinds that you noted? Because I think as you recognized that was – it never seemed a little higher than we would have expected, just given the leverage in revenue or can you just walk through that in little more detail?

Ben, Jason here. A little over $1 million was in that G&A and that's what gets us back to that 5% run rate outside of the stock based. And really that was around some of the overheads required on that quick transition with Aecon as well as legal and consulting fees, so that sort of order of magnitude for Q4.

So it was mostly the Aecon transaction or taking your remarks you said something about Nuna as well coming onboarding with Nuna that had impact of G&A.

There is no onboarding cost for Nuna. But there was just legal and accounting fees associated with that transaction, so that's in the $1 million.

Okay. So $1 million sort of an all-in number for transactional costs in M&A?

That's right.

Okay. That's helpful. Thanks very much.

Thanks Ben.

[Operator Instructions] Your next question comes from Richard Dearnley with Longport Partners. Your line is open.

Good morning. The Aecon assets when they transferred to you, what was their utilization as you all would measure?

Richard, to be honest with you, we didn't even look at that. It was an asset transaction that we just had in mind what we could achieve with the assets. This really didn't interest us. So we didn't look at it.

I see. And I take it that you would classify them as heavily used?

Yeah. I guess that's a reasonable description.

And you said the EBITDA contribution was less than $1 million. What was the revenue contribution in the fourth quarter?

Well, we mentioned in the prepared remarks $24 million from the additional fleet as well as the Nuna, vast majority of that was the additional fleet. So in the $20 million range and as was mentioned profitability in those five weeks was very low given just the onboarding impact. We turned it over very quickly, but their courses going to be profitability impacts when you bring on a fleet of that size. So that's why such a low EBITDA margin in those five weeks.

And run rate interest rate expense as you stand on the ground now for 2019?

Yeah. We've indicated in our comments around 5%, a little less than that. In our IR deck on our website as well, you'll see it there that that does have the benefit of 0% vendor financing in there, but as an enterprise we are under 5%.

And it sounds like the maintenance facility needs expanding already?

Well, we are certainly super busy right now. So it wouldn't be out of the question that will happen at some point. We've got a lot more assets now when we decided to build a facility and the demand of external services is much, much higher, so it could be.

Good. Thank you. Great year.

Thank you, Richard.

Your next question comes from Yuri Lynk with Canaccord Genuity. Your line is open.

Hi, Martin. Can we just go back on the CapEx for the year? I want to make sure I got written down here $90 million sustaining which includes $20 million on the Aecon assets, is that right?

Yeah. Plus that is sustaining, but really it will drive EBITDA improvement in 2020 right, as we get more utilization of the assets, but for sake of argument, I'd still call it sustaining.

Okay. So that would imply you know sustaining CapEx going forward would be less than $90 million, I guess?

Yeah.

And I know you want to maintain some flexibility especially to buy back shares and whatnot, but I mean what should I be modeling this year for growth CapEx?

I would say around $20 million – another $20 million.

Okay. And then there was a quick mention about Nuna potentially having some of its results via an equity pick up. Can we just get some details on that and how we should be modeling Nuna?

Yeah. I can take that one, Yuri. So we picked up an interesting about 20 entities within the Nuna Group of companies. And from a top-line perspective about 15% of those we don't have a controlling interest in essentially, and therefore need to be reported through that equity earnings line. And we feel in Q1 when we have some more substantive results from Nuna and the noise gone on that would be able to walk people through, but the majority will come through just regularly proportionately consolidated. Our ownership stake shown in revenue and all of the line items, but a small portion you'll see come through equity earnings.

And your envision grossing that small portion up to EBITDA or it's still to be decided? I mean, when you report your adjusted EBITDA, would you be grossing that up?

Yeah. We'll be looking to include that in adjusted EBITDA.

Just trying to make my modeling life easier.

Yeah. I know.

Okay. That's it from me guys. Thanks.

Thanks a lot.

Your next question comes from Glenn Primack with TPG Capital. Your line is open.

Good morning, Martin.

Good morning, Glenn.

I'm looking forward to reading the letter. Give us a targeted goal for your ROE or return on capital?

As high as possible. We benchmark it. As I mentioned ROE is going to be over 20% if we hit our numbers. So that's a pretty solid number right there. I like to get a return on capital up to the same level right. So above 20% for both would be quite an achievement.

Yeah, because that should drive your multiple as well. I mean you guys done a phenomenal job with your team. Most of my questions have been answered. But on the maintenance side, give a cost advantage over the dealer group that are our in the region?

We believe we do especially with our shop here in Edmonton. The cost of doing business here is a lot less than in Fort McMurray. Personnel costs are lower. Yeah. I think we certainly do have an advantage.

Okay. Because the five-year payback on slide seems kind of conservative then?

Well, we're always conservative, Glenn.

Okay. Just the slides in general, I mean it's the first time I've seen them on a conference call that's transformational as well. What was the debt reduction goal again by 2021?

$150 million.

Okay. Great. That's it. Looking forward to reading the shareholder letter. Thank you.

Thanks a lot, Glenn.

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

Okay. Thanks for joining us today. We look forward to talking to you again in the near future. All the best.

This concludes the North American Construction Group Conference Call. You may now disconnect.