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.

Thanks, Joanna. Good morning, everyone, and thanks for joining our call today. Today's call is clearly different than ones in the past, given the share repurchase agreement we signed yesterday, and we fully expect the majority of the discussion to involve the transformational acquisition of MacKellar Group. Therefore, we’ll do things a bit different this morning. I have asked Jason to summarize our Q2 performance and then I'll jump right into the commentary and context on MacKellar. At the end of the prepared remarks, we are happy to address Q&A on either Q2 or MacKellar. With that, I will hand it over to Jason.

Thanks, Joe. And good morning everyone. As mentioned, the focus on MacKellar, the quarterly comments this morning will be brief. On Slide 3, as a standard practice here we start with safety and everyone gets home safe commitment. Our trailing 12-month recordable rate is now at 0.27 and represents a significant improvement from last year, which ended above our company target. We are primarily focused on leading indicator initiatives with several outlined on the slide, but are encouraged by the lagging indicator trend. On Slide 4, you'll see two things. One, 61% was the highest utilization we've ever had in a second quarter; but two and probably more noticeable, the month of June was well below expectation. April and May benefited from the strong momentum carried from Q1, an average 70%, which was very encouraging. However, the surprisingly wet weather in June and a required mobilization of equipment into Fort Hills drove utilization in that month to below 50%, a level we haven't seen since mid-2020. High demand remains for our heavy equipment, and we expect this throughout 2023 and into 2024. We likewise expect our maintenance teams to continue their strong work and correlated improvements in the mechanical availability of our fleet. We remain on track with our utilization goals to be in the targeted range of 75% to 85% on an annual basis with the trailing 12-month average now at 70% compared to the 65% we posted in 2022. Moving to the financials, Slide 6, combined revenue of $277 million represented the highest level of revenue this company has ever had in a Q2 and correlated to the typical impacts that the spring season has on equipment utilization in the oil sands. Return on invested capital of 15.3% is the highest we've ever achieved and surpassed the company…

Thanks Jason. As a company, NACG has always been very selective in how we use our capital. And when it comes to our M&A, we have been determined but patient in selecting the right businesses, people, geography, and markets to enter. That is why today I am extremely excited to announce our largest acquisition to date, the MacKellar Group. This transformative transaction is a culmination of thorough operational and cultural diligence over the course of multiple years and a deal that makes clear strategic sense. We believe this transaction is financially compelling and more accretive to our shareholders in any other use of capital. I hope at the end of this presentation, all participants will agree that this transaction fulfills our stated objectives and provides a meaningful step change in our project execution capabilities and growth profile. In this slide deck, I will present and discuss a high level review of MacKellar and the financial highlights of this transaction followed by review of how this acquisition fits our corporate strategy for growth and diversification and ending with a few slides on our next steps and outlook for 2023 and 2024, before taking any questions you may have. On Slide 4, founded in 1966 by Alastair MacKellar, a heavy equipment mechanic or fitter in Australian terminology, the MacKellar Group has grown to over 450 pieces of heavy equipment operating on more than 15 projects with more than 1000 employees, of which over 375 are highly skilled maintenance personnel operating in a system focused on safety and innovative ways to lower equipment costs and extend asset lives. As a leading provider of heavy earthwork solutions to mining and civil sectors, MacKellar provides a meaningful entry into Australia at a time where every equipment is in peak demand. Moving on to Slide 5,…

Thank you. [Operator Instructions] Your first question comes from Aaron MacNeil with TD Cowen. Please go ahead.

Hey, morning all. Thanks for taking my questions. As it relates to MacKellar, if you look across the 15 projects, can you give us a sense of what the remaining mine lives are? And if there's any history of re-contracting, I guess I'm trying to like think about it in the same way that you talk about your oil sands contracts and maybe you could also differentiate between met coal and thermal coal, if that's possible?

Yes. I would say it's extremely similar Aaron, that, that they're long live resources. So in Western Australia is predominantly gold and iron ore. Gold fluctuates highly in the mine life, and iron ore is generally extremely long mine life. And then their – their major operations in Queensland are split between thermal and metallurgical coal and those mines, some have already been around similar to oil sands for 50 years, but they all have very extensive mine lives, I'd say in the 10 to 40-year range.

And in terms of re-contracting they've been around since 1966 or like have they had the same contracts that have been?

Yes. Many of their customers especially in Queensland have been customers continuously for multiple decades and we can certainly highlight this a lot more in future decks.

Yes. No, I understand. I think you've made it pretty clear that debt reduction will be the priority at least in the near-term, but how are you thinking about capital allocation more holistically? Like will the focus be to reduce debt further? Does MacKellar open up opportunities to further consolidate in Australia and that's something you are interested in, like how does that rank against the NCIB and the dividend? And just maybe give us a sense of where your head's at with this acquisition and what capital allocation may look like?

Yes. I think Aaron, we're always evaluating at any point in time with – with share price, M&A opportunities, debt repayment. I mean, debt certainly becomes more attractive – more attractive as interest rates keep going up and certainly it has the lowest risk of any. But we're always comparing and evaluating risk versus reward. Even after this we have a significant amount of liquidity even after this deal and – and certainly by the end of 2024 at 1.5 times we have a significant liquidity to do other things if they – if they're there.

Got it. Thanks guys. I'll turn it over.

Thanks Aaron.

Your next question comes from Kevin Gainey with Thompson Davis. Please go ahead.

Hey guys, congrats on the quarter and thanks for taking my questions. I think I have one for you first, Joe. You kind of talked about it a little in the prepared, the mechanical capabilities of MacKellar. Maybe if you could go in some of the similarities or differences?

Yes. I guess the biggest similarity is they're extremely focused on maintenance efficient innovation, which is very much what we do. I'd say we do a lot of our component remanufacturing in-house or with partnerships. They do the same. When I – when I talk about sharing of best practices, what I really mean is that there's a lot of those things we do and they do the same, but they're a lot of a little different. I'll use a dozer track frame as an example. We rebuild the track frame, which is kind of the middle piece of it and they rebuild tracks, which is obviously what, think of it as the rim of the wheel and the tire, the wheel. And – but we don't do each other's activities and we'll be able to evaluate those remanufacturing options and see if we can bring them in-house at each other's place and continue to drive those costs down. So they're a very maintenance focused. The founder was a mechanic and very maintenance focused group as we are and we understand as they do that the biggest driver of our cost is equipment and as much as that as we can control and drive down is – is going to increase our competitiveness or our margins.

That sounds good. And maybe for Jason, if you could maybe talk about the seasonality of MacKellar from a revenue standpoint, and then also more modeling based, maybe the interest expense run rate that you're thinking post transaction?

Yes. Thankfully MacKellar is actually very flat from a seasonal perspective. So our midpoint for next year is kind of the 145 EBITDA run rate. And when we look at that, even for how they're performing this year it is very consistent quarter-over-quarter. They have a little bit of weather issues in – in December and January, but nothing like we experienced in the Canadian oil sand. So it should really help for quarter-over-quarter volatility in our results. So that's – that's kind of the easy question to answer. And as far as a run rate, our $1.25 [ph] midpoint for EPS in our ranges assumes a 7.5% interest rate, which is a combination of the vendor take back financing. The equipment leases we hope to have in place as well as the revolver which is currently tracking in kind of the high-7s from an interest rate perspective, but 7.5% is a good base case. And we hope – we hope to beat that with – with primarily with equipment financing, which is quite competitive.

Perfect. I'll hop back in queue.

Thank you.

Your next question comes from Tim Monachello with ATB Capital Markets. Please go ahead.

Hey, good morning everyone.

Good morning, Tim.

Just a few questions on the acquisition and so starting with the Australian competitive landscape, and I know Joe, you've worked in Australia before. I'm wondering if you can maybe parallel the competitive advantages that MacKellar might have in the Australian market versus how you guys are positioned in the Canadian market. Obviously you have a very strong competitive positioning in oil sands. I think that the Australian market's a little bit more fragmented and perhaps more competitive, but it looks like MacKellar still has pretty strong profitability and margin. So I'm just wondering if you can lay that out for me?

Yes. I'd say it's extremely similar to ours. I mean, the Australian contract mining in earthworks marketplace is big. It's much more prevalent for mine sites to contract than in North America. But with that there's – there's more competitors, both public and private. But the focus there similar to us is the way you maintain consistency in that marketplace is to be the low cost provider and focus on safety. And they're in-housing of maintenance be it the component remanufacturing or second life rebuilds of equipment, which they've likewise been doing for many years now. It is very, very much where we focus because that's the biggest driver of cost and we'll certainly look for other areas of operational efficiency, but that – that's what drives their competitiveness. And it's what we'll use similar to what we've done in our core oil sands business to diversify and get into other areas is we'll look to do the same thing with MacKellar and using that low cost such that you can go out and diversify without losing margin.

Is there evidence that MacKellar is the low-cost provider, at least one of the lowest cost providers in the market in Australia?

I don't – I don't think we have as definitive evidence as we've had in oil sands where we've had clear timeframes such as during COVID and when we were the only ones operating and during some tenders that were done kind of reverse auctions. So we don't have that kind of clarity, I would say. But just looking at what they do and how they do it, and the cost savings versus external vendors, we certainly believe they're there or very close.

Okay. And then I know that in future iterations of your presentation you'll wrap in MacKellar, but there's a couple things that I'm curious about. One is the bid pipeline that MacKellar might have in Australia. How does that look compared to the NACG bid book?

There's quite a few projects in there. I don't know how it compares historically. I guess really their biggest issue, Tim, is their – their fleets almost fully consumed. So it's more having the assets to do the work than having the work to bid on. So there's plenty of work in bid pipelines occurring especially in Western Australia with their Western Plant Hire Group. And we're going to look to see whether we can – we can utilize some of our underutilized assets from oil sands and give them some support in extremely strong demand environment that they're in. So the bid pipeline is strong. I can't give you a comparator because I don't know it off the top of my head. But the limiting factor on that bidding is more the amount of equipment they have and the high demand they already have.

Okay. Got it. That kind of gets into my next question, so I was going to ask about that. Do you think that the smaller end of your fleet in the Canadian market is suitable for some of the demand profile in Australia?

Absolutely, especially the Western Australia rental market. So our 100, 150 ton trucks that are underutilized in oil sands that we've been moving into other regions and bidding into other regions are highly utilized in Western Australia rental market.

Okay. Do you think that there's a high likelihood then that you're going to have to grow the fleet organically as well in Australia?

I don't know that offhand. I think there'll be an opportunity and I think we'll evaluate that kind of growth capital with – with just like we do the rest of our capital allocation as far as what's the risk and reward and opportunity within it. I think that Western Australian Rental Market will be able to feed from underutilized fleet, but there's certainly some big gear and some long-term mining contracts that would require growth assets and we'll – we would evaluate those and those opportunities just like we do anywhere else in our capital allocation.

Okay. And then last one for me. Is there anything in the MacKellar contract book that's coming up for renewal over the next maybe two years that is meaningful that you'll have to replace?

Not significantly. I think you can see by that backlog number that they're – they're kind of booked for four odd years. There's different contracts of course, but they certainly have long-term contracts with good escalation clauses and coverage for inflation. Even in the rental side they're long-term rentals. So I don't see there'll be a bit of churn in the two years, but it'll be a small portion of the overall work.

Okay. That's really helpful. Thanks a lot guys and congrats on the deal.

Alright, thanks Tim.

[Operator Instructions] Your next question comes from Maxim Sytchev with National Bank. Please go ahead.

Hi, good morning gentlemen.

Good morning, Max.

Joe, two questions for me, if I may. The first one, I was wondering if you don't mind maybe commenting about sort of eventual infrastructure spending opportunity as I believe Australia right now is going through a pretty significant investment cycle. Yes, maybe that's – that's the first one if you can provide me color there? Thanks.

Yes. I do think, like, first of all like right now MacKellar isn't involved in any major infrastructure works. It's all mining contracts and rentals. I absolutely see great opportunity there. In particular our partner in Fargo-Moorhead, the company we partner with there is also, I believe either the Number 1 or Number 2 contractor in infrastructure in Australia. And we certainly think there's an opportunity where Australian infrastructure projects that have significant amount of earthworks that we'd be invited in especially from our partners in Fargo to bid on those works. So I think that's an expansion and diversification opportunity that, that we'll have for MacKellar in the future.

Okay. Excellent. Thank you. And my follow up is, is for Jason, if I may. Caution to think about the free capsule conversion given the slightly younger age of equipment; yes any color there would be helpful? Thank you.

Yes. It's a direct correlation to a higher conversion ratio. So we've been in that 30% range, trying to inch up to 35%. MacKellar's nicely in the 40% free cash flow conversion range even with pretty heavy interest next year. So yes, as Joe mentioned in his prepared remarks, the sustaining capital range we gave for MacKellar next year it's a pretty wide range as we get to know their equipment we'll, we'll fine tune that. We think there's a little bit of upside there to get even north of 40% conversion ratio, so definitely some good free cash flow potential over the next couple of years with this newer fleet.

Okay. Excellent. That's it for me gentlemen. Thank you so much and congrats on the deal.

Thanks.

Thanks Max.

This concludes the Q&A Section of the call. And I will pass the call over to Joe Lambert, President and CEO for closing comments.

Thanks and thanks everyone for joining us today. We look forward to providing next update either upon closing of this transaction or our Q3 results.

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