Good morning, ladies and gentlemen. Welcome to the North American Construction Group Earnings Call for the Second Quarter Ending June 30, 2019 [Operator instructions].This company wishes to confirm that today's comments contain forward-looking information and that actual results could differ materially from the conclusion, forecast or projection contained in that forward-looking information. Certain material factors or assumptions were applied in drawing conclusions or in making forecast 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 decisions and analysis, which is available on SEDAR and EDGAR as well as the company's website at www.nacg.ca.I'll now turn your conference over to Martin Ferron, Chairman and CEO.

Thanks, Natalie, and very warm welcome to everyone. I would like to start this call by stating emphatically that I could not be happier with the way things are going at NACG. Despite all the headwinds blowing at us by the macro environments, we keep finding ways to improve our performance, even in the toughest of overall industry times. Just imagine, what we will be able to do when these headwinds finally abate. In terms of proceedings today, we're going to change things up by covering a purpose-made deck of slides for the quarter that better illustrate and numerate our current performance and outlook than mere scripted words. In particular, we are growing at such a strong pace that we feel it is very important to keep our honest investors fully up-to-date on the trajectory of this growth. The slide deck can be found at www.nacg.ca/presentations.We're going to start off on Slide 2, which provides the business update, and I feel that it is only right and fitting that Joe Lambert, our President and Chief Operating Officer, who is the main driving force behind our terrific operational execution and the brains behind many of our equipment-based growth initiatives to take us through that and Slide 3.Then Jason Veenstra, our CFO and coal industry guru is going to talk through Slide 4 to 7, which show mainly our Q2 financial performance. Finally, I will talk about our outlook and current thinking on capital allocation with the help of Slides 8 to 10 before the usual Q&A session. So over to you, Joe.

Thanks, Martin. I'm a little biased, but I think I get the best job on the call on adding some color to our robust business update on Page 2 of the presentation, starting at the top of the financial performance. Jason will provide all the financial details later on, but the one point I wanted to make is that our strong financial performance was especially pleasing as our projections were seen as optimistic by many. On the safety front, we were likewise pleased to maintain our industry-leading results despite having to integrate over 400 new employees into our safety culture. You can see more details of our safety performance on the following Page 3 of this presentation.Moving on to third bullet. What I'd like to highlight is that the above safety and financial results were positively influenced by the long-term contracts awarded over the last two years. These contracts provided improved planning and scheduling of work, which subsequently allows better planning of people and equipment repairs. Consistent work and good planning mutually benefit us and our customers with better safety and costs.On the fourth bullet of note is that Nuna continues to produce as planned and Q3 is their peak activity. Also of note is that Nuna has a major contract for northern operation in late tender stage, and we have seen an uptick on our existing work on site, which gives us a bit of an optimism of being awarded this larger tendered scope. So stay tuned for what we believe will be an impressive second half of the year from Nuna.The fifth bullet relates directly to the two items below in the sixth and seventh. On the sixth, we have received 25 of the 31 ultra-class trucks so far this year, with 24 being fully utilized and one…

Thanks, Joe. Good morning, everyone. As mentioned, I'll take us through Slide 4 to 7, which provide a high-level summary of our financials. Starting with the top line on Slide 4. Revenue for the quarter of $177 million was $97 million above 2018, but generally consistent with Q1. A recurring theme you'll notice in our posted results this quarter is the more uniform demand this year as opposed to a more seasonal business in 2018 and revenue illustrates this best. If we look at 2018, the decrease from Q1 to Q2 was approximately 30%, while the corresponding change to this year, in 2019, was less than 4%, essentially flat.The year-over-year growth of 123% is mostly due to the fleet we acquired in Q4 2018, which provided new work at the Fort Hills and Aurora mines as well as significant incremental work at the Millennium mine. Organic scope and volume growth was also significant at the Kearl mine, as we have expanded our scope and presence at that mine site. Our share of revenue from the Nuna group of companies became more significant in the quarter as Nuna's busy season began in mid-June. Including the equity accounted portion of nearly $6 million, Nuna revenue of $17 million in the quarter was an encouraging start to what we see as a strong Q3 in Northern Canada.Lastly, on revenue, steady increases in our external maintenance services here in our new facility as well as increases in the Dene North joint venture were offset by year-over-year decreases from the Highland Valley Copper and Fording River mines in BC. Gross profit for the quarter was $23.5 million and 13.3% margin, up from a gross profit of $9.7 million and a 12.1% margin last year.The higher gross numbers this quarter were, of course, a function of…

Thank you, Jason. I will now turn to the slide on Slide 8 to talk about our outlook for the remainder of 2019-2020. Our initial projection for 2019, EBITDA was $160 million, with 50% equally occurring in each half of the year. After the better-than-expected Q2 outcome, we are currently at $89 million of EBITDA for the first half of the year. So now we introduced a range of $175 million to $190 million for the full year, which we will tighten up after Q3. This leads to a 10% to 20% improvement in the initial number and a $1.60 to $1.90 range for our adjusted EPS.Total CapEx spend for the year will now be in the range of $155 million to $170 million with additional capital expended on growth and to maintain the performance of the recently acquired ultra-class truck fleet. We bought a large new shovel in Australia, that Joe mentioned, to complement the fleet, and it is important to note that while the upfront cost of the fleet was reasonable, the annual sustaining capital will be around $15 million.When the fleet is fully in our hands and up and running, we can earn around $30 million of incremental annual EBITDA with it, though. The CapEx spending plan has been front-end loaded, as Jason mentioned, leading to a second half free cash flow of up to $50 million, which will cover the growth capital plan and modest deleveraging.Moving now to 2020. Based on our backlog, other expected work and 2019 growth CapEx, we put our initial EBITDA and adjusted EPS ranges of $190 million to $215 million and $1.90 to $2.30, respectively, which really impress me as I announce them. Sustaining capital will be lower, as we'll not have the one-off spend on the fleet board from a…

[Operator Instructions] And our first question comes from the line of Yuri Lynk with Canaccord.

Nice quarter. In the slide deck and I think in the MD&A, you mentioned a step change in, I guess, in the current results and also in 2020. Maybe a little more color on what's driving that? Is that incremental demand from your oil sands customers? And if so, is any of that on the construction side? Is it more opportunities like the coal opportunity that you mentioned in the quarter. Just some more color on where that growth is coming from?

Yes, I think our outlook for 2019 and 2020, Yuri, is based on what we're seeing in the oil sands and from Nuna. So very little incremental from the coal industry at this point, although we see that as an exciting opportunity going forward. So yes, we're seeing increased demand from our customers. Obviously, we've added a lot to the fleet. We're able to plan the work better now to do the work when we want to, which is really all Q2 as you see. So just being in control of our own operational destiny makes a big difference. So all of the things you mentioned, except the coal opportunity, has gone into that outlook mix.

Is the nature of your work for your customers, the nature of the activities you're performing, is that evolving at all? And I asked that question because you're making quick use of ultra-class trucks, which you never had in the fleet before. So I'm wondering if your customer base, are offloading more of the mining or the earthworks than they did before to you.

Certainly, on the overburden side, I think one of our stated long-term objectives is maybe to get into [indiscernible] at some point. Obviously, the customers do that themselves right now. But I think they're testing us with both the operation and maintenance of these ultra-class trucks to see if we can perform as well with those as we do with the smaller equipment. So it's going to be an interesting few years in that transition.

And our next question comes from the line of Ben Cherniavsky of Raymond James.

I just want to clarify a comment or ask you about a comment in the MD&A about the construction of a new component rebuild facility. Can you -- that is in addition to the service base you've already established. Is that a new facility that you're building there? Can you elaborate on that?

Yes. So you might recall, Ben, that when we pushed the button on the investment on the new facility, it was prior to the acquisition of the competitive fleet, right? So we had a certain demand in mind for that facility. And we've seen that demand both from internal efforts and from external needs grow dramatically. So we felt -- we take the opportunity to buy some adjacent land that might be snapped up by others eventually to grow our footprint for that type of external maintenance activity and to particularly handle components, which we're seeing in all the truck frames, which we're seeing a tremendous demand for. But the new place will also serve as a staging point for Nuna, for example, and some other suppliers. So it's got a multi-use purpose.

So that will take you a little deeper into the aftermarket activity, presumably, expanding your capabilities there?

Yes, exactly. We see tremendous opportunity. You can see in the commentary that we've picked up work for customers, both inside and outside the oil sands. There's just a lot of interest in our capability. People are excited about how an asset is option now to do some of that maintenance, which is great.

Do you, have you had competitors knocking on your door saying we'd like you to fix our fleet?

We do some work for some rental companies. So that's about the extent of it so far on the competitive side.

And then in addition, like growing that business, do you see any need to invest further capital in facilities? Or would you consider acquisitions of companies that have those kind of facilities or capabilities? Or is this, should this be between this and the existing facility that you've just opened? Will this sort of satisfy the needs you have for the next short to medium term?

Yes, I think the second one there. We also suggest to build a new main facility. We're in the process on the second one. So let's see if those facilities meet our objectives. We're confident they will, but I think it's wise to prove that out.

So it would be unlikely that you would do an acquisition in that area until you prove that out, at least?

Yes, it's kind of difficult to do any acquisition when you're trading at 6x EPS. So how can you be accretive on that basis.

Fair enough. And just to clarify another part of the story here is on the deleveraging. I'm trying to, like you've stuck to the deleveraging target from 2019 to '21, but it looks like it's pushed out to the back half of that, because I don't see how 2019, based on the guidance you've given, would involve any deleveraging this year or traction on $1 million to $2 million based on the math I see here in the guidance.

Yes, the word I use is modest, and I guess, $1 million to $2 million is modest, but you can see the capacity we have with deleveraging in 2020. 2021 should be at least similar. We could achieve our targets in those years.

And our next question comes from the line of Daine Biluk of CIBC.

So I guess, to get started, Q2 had a pretty healthy amount of construction-related work. I mean I guess, could you just share what was that related to? And then how much of that do you expect to spill over into Q3? Or is that more kind of ring-fenced to Q2?

Most of it, Daine, was related to one of the legacy contracts we inherited at Fort Hills. So it didn't come with a tremendous margin for the reasons we've gone through now, today and previously. So it's not going to spill far into Q3. In fact, we should be done with it by the end of August, I believe. So after that you'll see smaller construction work, $1 million to $5 million, $10 million projects, you've seen us do in the last couple of years.

And Daine, I'll add, Nuna gets added as construction revenue as well. So we had a better quarter-over-quarter Nuna. So that impacts that construction line item as well.

Moving over to the award in Wyoming, not to try to -- not that I'm trying to pry too much detail, but is there any strict goal post you can share on expected duration and financial impact of that award?

Yes, I could take that one. There is some band of length of term there. We see 2 phases of that coal mine similar to the mines here in Alberta, reclamation has a long tail, and we fully expect to be quite involved in the reclamation of that as well. So we're talking 10-plus years, whether it's mining coal or in reclamation fees. So should things go well, we see ourselves at this mine for a long time.

And then I think if we were to dive into a little bit on the management contract aspect of it, do you see that being kind of a new opportunity for the company? And is there a lot of other mines that you could see getting these management contracts on if this Wyoming one proves out and shows that everything goes well?

Yes, we do see it as an opportunity. It's quite a unique one. It takes people a bit to talk them through. A lot of these power producer mines that feed power plants will be phased out in the medium to long term. And these blue-chip power producers are looking for companies that they can trust to operate these mines. And we feel like our track record, our low-cost culture and our impressive resume that we're able to kind of show these power producers that puts us in a pretty good spot for some of these opportunities. There's a lot of them in the U.S. and there are some here in Alberta as well. So we'll be keeping our eye out for more. And we do feel there's a good growth opportunity there.

And then last one for me and a bit of a follow-up on the new component rebuild facility you guys are adding. With you guys adding that, does that change -- I mean, previously you've talked about a $30 million annual run rate revenue for the third-party R&M business that you were looking to eventually get to. Do you see that increasing at all? Or is that still kind of holding firm at this stage?

Well, it will increase. We wouldn't invest in a $10 million in a new additional facility without some expectation of incremental EBITDA, but the $30 million was kind of a two to three year objective, and we'll just stick with that for the time being. We'll update maybe next quarter.

And you said the facility cost was $10 million. Did I hear that correct?

Yes.

That answers everything for me. Congrats on a great quarter, guys.

And our next question comes from the line of Maxim Sytchev of National Bank Financial.

Martin, just wanted to ask you on the comments you made around some of the oil sands players right now looking potentially at giving you a chance to hold the ore as well. Are there any tidbits you can share with us in terms of why there is that shift in mentality? Is it capital discipline on their side? Or what's the driving force? And maybe any potential time lines you can contemplate in terms of when you could get a shot to actually do that?

Yes. I'd say, Max, it's a medium to long-term objective. I think all our customers are still comfortable and then the old sales. It's just that we think once we've shown them we can operate and maintain these ultra-class trucks. They might entrust us with some of handling of the ore. So we're not including it in any objectives right now. We've still got plenty of other work to do. It is just when you look at how mines operate, it might make sense of just one party to do all the earthworks rather than two. So we'll see how that pans out, but it's really a medium- to long-term objective.

And then, was wondering if -- you mentioned thinking about potential dividend increase. I mean, obviously, right now, the dividend payout ratio versus net income is quite de minimis, but in terms of -- are there -- is there a range where you would feel sort of more comfortable telegraphing right now in terms of where -- if you were to increase the dividend, where it could go?

No, I think it's a little bit early for that, Max. We have a Board meeting next week, and we're going to be discussing potential NCIB dividend increases. So I'll leave it till next time to give you more color on that, if I may.

And then lastly, just wanted to get an update on the potential opportunity that you spoke about -- on Nuna in Northern Canada. Do you mind maybe sharing a couple of data points in terms of which commodity that you're thinking about and potential materiality on that?

Which commodity I can say is non-oil. Not much over there. And I can also say that if it transpires and we're very, very hopeful it will, it will be the largest contract in Nuna's history by far. So it's an important potential award, and let's see. We're looking forward to bringing it home in Q3, hopefully.

[Operator instructions] Our next question comes from the line of Richard Dearnley of Longport Partners.

I was intrigued by the comment on the slide about 40% of the second quarter revenue came from backlog. Now in the past you didn't have much backlog, so I guess the historic percent of revenue from backlog was very small. What would you expect the -- as now that you have backlogs, what would you guess the -- you'll be running in the future as a -- how much is turns business versus backlog?

Yes, it's an excellent question. Thank you, Richard. I think the main point we're making is that our backlog has grown very dramatically. Some of us might think that that's driving all of our activity right now, whereas you can see, it's only driving 40%. So despite having the large part of a work, we still get 60% from the spot market and Nuna. So the backlog only contributes 40% despite its size, right? I think that's the point we're trying to make.

Right. But in the winter months, where you're probably doing a higher mix of contract work, I would guess your percent from backlog is higher. So on a full year basis, where do you think you'll come out?

Yes, around 50%.

And there are no further questions at this time. I'll turn the call back over to the presenters.

Good. Thanks, Natalie, and thanks everybody for joining us today. We look forward to talking to you next time. Thank you.

This concludes the North American Construction Group conference call. Have a great day.