Good morning, ladies and gentlemen. Welcome to the North American Construction Group Earnings Call. At this time, all participants are in a listen-only mode. Following the management's prepared remarks, there will be an opportunity for analysts, shareholders, and bondholders to ask questions. 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 the participant's permission. The company wishes to confirm that today's comments contain forward-looking information and that actual results could differ materially from a conclusion, forecast or projection contained in that forward-looking information. Certain material factors or assumptions were applied in drawing conclusions or in making forecasts 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 discussion and analysis, which is available on SEDAR and EDGAR as well as the company's website at nacg.ca. I will now turn the conference over to Joe Lambert, President and CEO. Please go ahead.

Thanks, Joanna. Good morning, everyone, and thanks for joining our call today. I'm going to start with some of our high-level operational performance metrics, do a brief look back as we recently celebrated our 70th year in business, and then delve into our competitive advantages and barriers to entry before handing it over to Jason for a brief financial overview. And then I will conclude with the operational priorities, bid pipeline, updated outlook for 2023 and our capital allocation before taking your questions. On Slide 3, I'll start with a safety update. Our trailing 12-month total recordable rate of 0.36 represents a significant improvement from last year and the Q1 rate of 0.30 matches our Q4 best last year. The 0.36 achieved gets us back below our industry-leading target frequency of 0.5, and we'll be focusing our efforts in 2023 on continuing improvements. I often refer to us as a safe, low-cost contractor, and I'm happy to report that on the safety front, we have made significant improvements, and we will always work towards our model of everyone gets home safe. On Slide 4, in commemoration of our 70th anniversary, I wanted to give a brief overview of how and where the business has changed and grown. We have worked in many sites that operate for decades and perform services throughout their lives, such as initial access and development through the final reclamation. We have continually operated in roads and infrastructure since the 1950s, oil sands since the 1970s, the Canadian resource industry since the '80s, and the northern diamond mines, including building the ice road use for access since the 1990s. With decades of experience behind us, we have grown and diversified our business and now have locations in not only Canada, but also the U.S. and Australia. We…

Thanks, Joe. Good morning, everyone. Based on conversations we've had with this audience, we've shortened up the financial commentary this quarter, so you'll notice my comments are brief. We really had no unusual items in the quarter outside of the large timing impacts on free cash, and therefore, brief financial commentary seems appropriate. Starting on Slide 11, combined revenue of $321 million just beat Q4 2022, which was the highest level of revenue this company has ever had in a quarter. Return on invested capital of 14.3% is the highest return ever as well as trailing 12-month EBIT of $132 million was generated on relatively stable invested capital. On a total combined basis, revenue was 35% ahead of Q1 2022. Reported revenue, primarily generated by our core heavy equipment fleet, was up 37% quarter-over-quarter, with the driver of this increase being equitable contributions from adjusted equipment and unit rates as well as improved equipment utilization. Equipment operating hours were up over 20% in the quarter as stable operational and maintenance headcount yielded utilization of 79%, which was significantly higher than the Q1 2022 metric of 65%. ML Northern, acquired on October 1, provided another full quarter of fuel and lube delivery, and has had an excellent first six months with us. Our share of revenue generated in Q1 2023 by joint ventures was $78 million compared to $60 million last year. Nuna Group of Companies had another solid quarter of activity at the gold mine in Northern Ontario and the core business has operated at better than historical levels. In addition, revenue benefited from the continued growth of top-line revenue from rebuilt haul trucks as well as purchased excavators owned directly by our joint venture with Mikisew, and the increasingly important impact of the joint ventures dedicated to the Fargo-Moorhead…

Thanks, Jason. Looking at Slide 17, this slide summarizes our priorities for 2023. Our priorities for the year are unchanged and we remain focused on our safety, execution efficiency, winning tenders and building up our backlog, and continuing to grow our skilled trades workforce. Slide 18 highlights the continuing strong demand in active project tenders. No projects were lost in Q1 and we added about $400 million in new tenders, about half of which is outside of oil sands and roughly matches our current diversification. One big item of note is that earlier in the week, we had our first client meeting and update on the large regional oil sands tender. We continue to expect to win our fair share of the large red dot regional oil sands tender and look forward to putting together a compelling low-cost tender package for our clients' consideration. A couple of other items to note. We believe Nuna will have their fleet fully committed for the year with anticipated awards in Q2. We also believe we have a good chance of being awarded an approximate $75 million over five-year scope for fueling and servicing of an oil sands customer's equipment fleet. If successful, this award would represent our first major tender of our newly acquired ML Northern equipment servicing business working under our Mikisew partnership, and we believe we will see one or two more tenders like this over the next six to 12 months. On Slide 19, our backlog sits at $1.1 billion and provides consistency that allows for planning and efficiency of our workforce and our fleet. What I continue to believe is a key takeaway on this slide is that our backlog is roughly proportionate to our diversification target, demonstrating both confidence and sustainability of our diversification efforts. Lastly on backlog,…

Thank you. [Operator Instructions] First question comes from Tim Monachello at ATB Capital Markets. Please go ahead.

Hey, good morning, everyone.

Good morning, Tim.

Good morning, Tim.

So, first question, I just -- I was interested to hear that you're basically backfilling that Nuna contract with Cote coming off in Q2. Can you speak to I guess the level of confidence that you'll fill that backlog for the back half of the year and what you're including in guidance related to that?

Yes. I believe what we have in there right now, Tim, is similar to what we had before regarding our own fleet that's in that job. Nuna would be projecting their fleet to be working somewhere else. So, that fleet at that mine, I'm hopefully not confusing this too much, but that fleet is split into three different segments of -- there's a Nuna-owned fleet that is being put in there, there's a North American fleet that's put in there, and then there's a joint venture fleet. And our fleet is still predicted and planned to come back into oil sands and have lower utilization, so there's still some upside from our side of that. We believe Nuna has engaged that fleet in other opportunities in what's showing up. We do have several areas on our bid pipeline that we think have opportunities for the fleet that we put in, which is the larger portion of that fleet being put into work, but it hasn't been awarded yet.

Okay. So about a third of the fleet that's at Cote right now still has -- is expected to fall in utilization as it comes back to the oil sands. Is that correct?

Yes, it's not a huge chunk. It's probably -- I think there's 25 or 30 pieces of equipment in there that are North American.

Okay. But incrementally, positive outlook for the fleet compared to what you would have been talking about with the Q4 results?

On the Nuna side, ours would be unchanged.

On the Nuna side.

Yeah.

Yeah. Okay. Got it. Okay. I appreciate it. And then I appreciate the detail that you had on the multi-site contract that you're negotiating in the oil sands. Your customer just announced a big acquisition of one of its partners in the oil sands today. I'm wondering if there's any initial implications from that deal, if that might change the scope of work or have any other implications that I'm not thinking about for NOA?

You'd have to be -- I don't think it will. I think they're just buying the interest of one of their partners, if that's what you're referring to. But we were presented with -- we'll have the actual scope of the RFP. We were just given a brief outline of timing and intentions this week. We'll have the scope and the volumes I believe in two-odd weeks, but we don't think they will be a significant change from previous, based on the volume of work that we are looking at.

And can you remind what you think the timing of that award will be? Because if I'm not mistaken, those existing contracts roll off at the end of the year, right?

Yes. They're expected to award at the very end of October.

Okay.

That's what we were told this week.

Okay. Great. And then I was just curious if you could speak a little bit about the incremental growth CapEx that you have in the guidance. And is that related at all to the five-year fueling contract that you've been talking about a little bit?

Yes, that's exactly what it is. So, we have strong expectations, strong enough such that we forecasted that growth capital in there.

And what would the return profile look like for that type of investment?

Do you have that, Jason?

It passes our normal hurdle rates, Tim. 20% IRR, three to four-year payback sort of timeframe with -- these are longer life assets, but yes, very strong economics.

The fueling and servicing contracts are much lower capital intensity than our overburden and big truck works would be, Tim.

Great. So like the $5 million to $10 million of investment, is that basically to build the fleet so that you have enough equipment to service the contract?

Yes, we have some already, but it would be topping that up. And there's some specialty items in the scope that we didn't have.

Is that with an existing client?

Yes. And we believe there are two more that will look very much like it coming in the next six to 12 months.

Okay, very interesting. All right. I appreciate all the details, guys. Nice quarter. I'll turn it back.

Thanks.

Thanks, Tim.

Thank you. Next question comes from Bryan Fast at Raymond James. Please go ahead.

Good morning, guys.

Good morning, Bryan.

I mean, when you look at the cost structure of North American, the improvements you've made over time, which has been very apparent in results. I mean as you look across the business, Joe, where do you see I guess opportunities for further improvements here?

The biggest, most obvious one is utilization, because we're in control of it. And we're in a very unique environment right now, Bryan, where we have extremely high demand and consistent demand. So, it's keeping -- getting the equipment running and then dealing with the maintenance side. We do not believe that 75% to 85% range is at all pipe dream, and obviously, we've been in it for the last six months. That's by far the biggest opportunity within the business that we don't even have to dream about, it's there. I think outside of that, it's that bid pipeline and what we see, especially what we see in increasing demand outside of oil sands. So, we're starting to get more and more opportunities, and we think we'll be able to increase that utilization on the small end of the fleet by moving it outside of oil sands.

Great, that's helpful. And then with ML Northern, I know part of the business for a couple of quarters here, it sounds like things are progressing well and you just provided some good color. But could you frame just how that business has trended relative to your internal expectations?

Well, it's already exceeding, slightly exceeding what we had planned. And then with these potential external maintenance items, it would be far ahead of what we had originally anticipated. We didn't plan for that rapid of growth and opportunities to expand in the external maintenance side.

Okay, that's helpful...

I'm sorry, Bryan, did I cut you off there?

No, all good, Joe. Thank you.

Thank you. [Operator Instructions] Next question comes from Jacob Bout at CIBC. Please go ahead.

Hi. Good morning, Joe and Jason. This is Rahul on for Jacob.

Hey, Rahul.

So, backlog is down, and I understand that's really just due to the timing issue related to a large regional oil sands tender. But outside of that, given the broader macro uncertainty, are you seeing any hesitancy at all from customers for tendering new work, especially outside of the oil sands region?

No, not at all. We're seeing increases in that. Maybe we need to separate out our oil sands backlog from the rest or something, because our oil sands are now getting pretty fairly well aligned to be five-year bumps. And so, you're going to -- we're going to have what we believe is a huge increase this year, and that will drain down over five years and then another one, so it will be very lumpy. Our only -- our other contract in oil sands is only a year separated. It's really the outside which I think we could portray better as showing it's increasing in the opportunities that we have there. But no, we haven't seen any -- we're seeing more projects, especially outside of oil sands and other commodity markets coming through the bid pipeline than we've ever seen.

Okay. And I noticed in the MD&A that the amount of revenue expectation to be generated from existing backlog this year was increased to $593 million from $499 million previously. Just curious what's driving that increase exactly for this year?

Yes, I can take that. It's really just a function of forecasting. We have jobs that go between our time and material scopes and unit rate, and so it can change that proportion. Our top-line revenue estimates haven't really changed, but how it draws down our backlog can change slightly. That can be anywhere between 50% to 60% of backlog and then it gets trued up in Q4. But it's really no impact on the combined revenue estimates we have for the year.

And I think it was on Slide 27 of the presentation deck, it shows that you've been doing a pretty good job steadily increasing the maintenance headcount over the past several quarters. Would you say that you're happy with where you are sitting today from a headcount perspective? And if possible, would you look to replace some of that third-party vendor employee force with your own at some point?

Absolutely, that's exactly the plan. So, we will continue to increase both internally and externally until we maximize our utilization. And then once we hit that, we'll continue to increase our internal workforce and replace higher-cost third parties.

Got it. Okay. Thank you very much. I'll pass it over.

Thanks, Rahul.

Thank you, Rahul.

Thank you. Next question comes from Devin Schilling at PI Financial. Please go ahead.

Hey, guys. Thanks for taking my question this morning here. With Canada making a push into the critical minerals market, can you guys comment on I guess the potential here for NOA to benefit from this growth segment? Like is there anything currently in your bid pipeline relating to this, or are you guys seeing anything on the horizon?

Yes. We have some activity both in Quebec and Nunavut iron ore. I wouldn't necessarily call those critical mineral sites, but just on the overall commodity. And then nickel work in Ontario, open pit mining nickel in Ontario. So, I don't think I've ever seen an open pit nickel mining contract in Ontario since I've been with the company, so I believe that's definitely driven. And we're starting to see some pre-tender stuff in some BC copper, but we haven't actually seen a tender yet.

Okay. Great. No, that's helpful, guys. Maybe if we could just talk about the acquisition landscape out there right now. Obviously, the valuation is looking a little bit better than it has been in the past. Is there anything out there looking interesting right now?

We've had great success to continue to look for some of these small bolt-ons that vertically integrate into our maintenance. Those have been kind of our staple for the last few years with TGI and ML Northern. On the bigger side, we are seeing some opportunities both in North America and in Australia. And yes, they are looking more accretive than in the past, and certainly we'll be digging into them further. And it would just be a competition for capital. Deleveraging at these higher interest rates carries a little more value than it has historically as well. Is this awkward pause on purpose, Devin?

No, that's everything. Thanks, guys.

Oh, no worries.

Thank you. Next question comes from Maxim Sytchev at National Bank Financial. Please go ahead.

Hi, good morning, gentlemen.

Good morning, Max.

Hey, Joe. I was wondering if you don't mind please commenting on the ability to hire, making [indiscernible] right now? And just maybe an update given the fact that you've been increasing the guidance and so forth, if there's also a need to increase the hiring pace? Thanks.

Yes. I think Tim in his previous question, I said that we did have some success in a minor amount of internal mechanics we were able to hire in Q1. But winter is typically our least successful recruiting time, people usually remain in position. So, we hope to build on that in Q2 through Q4 here. Certainly, we've been looking at a lot of different programs, increasing our apprenticeships, continuing to build up our Bench Hand programs which are nonticketed trades in our remanufacturing side. We just added a cylinder rebuild here in the last quarter into our remanufacturing. And both internally and external mechanics we continue to hire. I think we'll see bigger increases on that in Q2 and Q3 going forward, at least we're hoping to do that with our recruitment and retention plans.

Okay. That's very helpful. And then another two-part question in terms of Fargo. I was wondering if you can provide a bit of color in terms of how the execution is progressing there. And maybe a related question to sort of infrastructure outlook in general, if there is any incremental slot diversion type work that might be coming through the pipe, especially in the U.S. over the coming let's call it 12 to 18 months? Thanks.

Execution progress is -- we're only about 10% complete on that job. Our earthworks has gone as planned. They did have a particularly snowy winter, unusual snowy winter, so they have a bit more of a spring runoff than normal. It will be a little softer, muddier conditions. Certainly, nothing we're not used to having worked in oil sands for many years. That would be kind of the near-term operational execution side, but we don't expect any meaningful impact to the overall project. As far as the infrastructure outlook, I believe we see that market is good. Like we haven't seen the bids come yet, but often there's quite a bit of delay between announcing infrastructure spend and when actual designs and bid packages come out later. So, we are anticipating seeing more, but we haven't seen any significant increase as of yet. And I believe there's an opportunity, but it's probably -- I think it's in pre-bid still on a Manitoba kind of hydro project, but other than that -- and we've had our eye on that for a bit, haven't really seen anything else come out yet.

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

Thanks, Max.

Thank you. Next question is a follow-up from Tim Monachello at ATB Capital Markets. Please go ahead.

Hey, thanks, guys. Just a couple of quick follow-ups. Joe, I was wondering if you could have better color or visibility into the summer work programs in the oil sands at this point.

Not a lot. This stuff does get tendered and awarded very last minute. Like we did -- we do have some projects, some reclamation and some haul roads. And like if you look at the bid pipeline, there's about -- you'll see like six of those smaller red dots on that Slide 19 I think it is, or 18 with -- actually, I think it's -- anyway, the bid pipeline one. And of those dots, the two or three smaller ones are those fuel and lube contracts. And then the other ones that aren't the big regional tender are there's a job on some tailing dam work, some atmospheric fine drying, a reclamation project, and a haul road construction. So, the haul road construction is kind of the first major summer one we have, and we haven't heard back on that. And then we are expecting to see some more here in the next couple of weeks. We also do get awarded without tenders some time and material scopes that are just under existing contracts. And we often don't see those until the end of May sometimes. I hope that helps. It hasn't changed significantly, other than we do have some tender visibility going forward now.

Okay. Got it. Are any of those large enough that they would be something in press release if you want?

I wouldn't think so. We pretty much need to be plus $100 million kind of numbers. And generally, those summer type jobs, because they're only -- three to six-month type jobs are usually in the range of $20 million to $70 million. It's just they stack up and they create a lot of good work for the small fleet. The large equipment fleet is already kind of scheduled out and big overburden works.

Okay. Got it. And then just a follow-up for you, Jason, just around your initial comments of there being about $40 million of timing impacts on free cash flow in the quarter. I'm wondering if you can speak a little bit to your expectations for at least the working capital piece of that unwinding over the next couple of quarters?

Yes. We expect it to fully unwind by year-end. I would expect about half of it to unwind in Q2 here, and then the rest in Q4. Q3 is a unique quarter for us with Nuna's ramp-up. They tend to drive some accounts receivable increases through the summer, their busier time. So, yes, we expect a nice working capital turnaround in Q2 and then the remainder in Q4. And it all is contained in our free cash flow expectations.

Okay. And then with regards to those free cash flow expectations, the guidance is up a little bit. You've got a little bit of growth spending, but it looks like there's some wiggle room in there where incremental free cash flow hasn't really been allocated to deleveraging or shareholder activities. What's the preference right now for incremental free cash flow in terms of allocation between those two and perhaps M&A?

It just depends on what we see as opportunities at the time and the returns. We don't -- if the default is going to be deleveraged and then we know what the interest rates, what the value of that is, and we will look at any acquisitions, whether large or small, to how they compete with that.

Makes a lot of sense. Okay. Thank you, guys.

Thank you. Next question comes from Yuri Lynk at Canaccord Genuity. Please go ahead.

Hi, good morning, guys.

Good morning, Yuri.

Good morning, Yuri.

Looking at Slide 8, your operating costs on the Caterpillar 777, fascinating chart. Just wondering if you can speak to your ability now versus anytime in the last 10 years to put more of those savings in your own pocket. I think I might be wrong on this, but I think when the markets were tougher, you had to give a lot of that margin that paid away to your clients. But with rates are rising with inflation, and I'm just wondering if you're able to maybe put a little bit more in your own pocket.

Yes, absolutely, Yuri. I don't think we have the slide in the deck, but I think it's still in the appendix where we show our projected growth in revenue and margins and the margin goes up steeper than the revenue, or the EBITDA, and that's really based on our history. So, over the last 10 years, we've really driven a significant amount of cost out of that equipment side. And I'd say the first five years, we had to give it all away just to maintain our volumes in our market. In the last five years, we've been able to start improving our margins and our profits in our business, and we see that going forward. We believe we're in a position that we are the low-cost, safe low-cost provider now. And as such, we don't think as we save more we have to give that away in price, or at least all of it away. So that's where that -- I think we put in that chart, and don't quote me on it, that there's like 1% to 3% margin improvement over the next three-odd years that we expect, and that's kind of based on our history of what we've done in those fleets.

Okay. And that margin improvement that you referenced there, anything that you got on improved utilization would be in addition to that, right?

Yes, the utilization is just getting more running hours.

Yes. Speaking utilization, do you -- Q2 is always the seasonally weakest quarter, but I know you're doing a good job of evening out the variability between quarters. But do you anticipate falling out of the kind of target range that you've got there on Slide 9 in the second quarter?

Yes, we would. Q4 and Q1 are always our highest quarters as you noted. I think Q2 and Q3, we would expect to be in the high 60%-s, low 70%-s. And then Q4 back into the mid to high 70%-s again. Our forecast right now for the year is to be slightly below that range. And that's why I said if we manage to get into there off the Q2 and Q3, then we'd be kind of a year in advance of when we thought we'd be in it.

Yes, makes sense. Okay, guys. Another great quarter.

Thanks, Yuri. Appreciate it.

Thanks, Yuri.

Thank you. This concludes the Q&A section of the call, and I will pass the call back over to Joe Lambert, President and CEO, for closing comments.

Well, thanks, everyone. I appreciate you joining the call today. Look forward to talking to you next quarter.

Ladies and gentlemen, this concludes the conference call for today. We thank you for participating, and we ask that you please disconnect your lines.