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spk00: Good morning, ladies and gentlemen. Welcome to the North American Construction Group earnings call for the fourth quarter and year-ended December 31, 2021. 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 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. 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 discussion and analysis, which is available on CDER 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.
spk03: Thanks, Rebecca. Good morning, everyone, and thanks for joining our call today. I'm going to start with our 2021 accomplishments. and operational performance before handing it over to Jason for the financial overview. And then I will conclude with the operational priorities and outlook for 2022 before taking your questions. I'd like to start my prepared comments with the tragedy that occurred a little over a month ago on January 6th. As I mentioned in my letter to shareholders, this fatal collision is an event that we do everything in our power to avoid. Our two absolute priorities right now are to one, support the family with anything we can, and two, determine the root cause of this incident, because more than anything else, we want to make sure this never happens again. We hold the utmost respect for the process that is currently underway and are still actively investigating this event. It's difficult to transition from an event like this, but the remaining slides reflect a long list of annual achievements and records. The calendar year of 2021 was one of the most satisfying of my career, and I am tremendously proud of the NACG team. We are in no way maxed out or done, but I will keep that for the 2022 discussion and hand over to Jason for the financial summary.
spk02: Thanks, Joe. The financial review starts on slide 13, and that's where I'll begin. As we started last quarter, we will continue to draw our readers' attention to total combined revenue. For those of you that have followed us over the past few years, you'll know that the impact of our joint ventures has grown from zero in 2018, only three short years ago, to what we see today, where in 2021, approximately 30% of our combined gross profit came from our various joint ventures. This is the primary driver of our ability to post 50% of our EBIT from outside the oil sands region. So with that said, total combined revenue for the quarter of $235 million was $65 million, or 38%, ahead of Q4 2020, which of course is a difficult year to compare against for the pandemic reasons we are all aware of. The $235 million is yet another quarterly record for us as it soundly beat out last quarter's record of $209 million. That said, revenue came in generally as we expected as the quarter enjoyed fairly consistent operating conditions. Revenue achieved in the quarter was not driven by one specific factor but by the broad listing of mine sites and business lines which all continue to trend in the right direction. The Millennium, Curl, and Syncrude mines have maintained their demand recovery trends, and we continue to witness firsthand the long-term resiliency of the oil sands region. The mobilized fleet at the Fort Hills mine had another full quarter of operations, and we remain very excited to be back on that site. The 65% operating utilization achieved in Q4 is the key performance indicator of our performance on site. Revenue from our joint ventures of $54 million was an obvious record beating out last quarter Q3 2021 by 26% and was not driven by and was driven not only by the continued volumes at the gold mine contract in Northern Ontario but also the increased prominence of our Miccosu joint venture as well as some initial progress made on the Fargo-Moorhead flood diversion project. Combined gross profit margin of 13.7% was influenced by a wide range of factors, but was most notably impacted by the equipment maintenance required at the Millennium Mine. Workforce availability continues to play a noticeable day-to-day factor in our site efficiency. As available for work, heavy duty mechanics and operators remain in short supply. Other unique factors specific to this Q4 included supply chain disruptions and delays and specific inflationary pressures on certain cost items. Our business is resilient but not 100% immune to cost pressures and excluding the normal risks related to operating heavy equipment, we've estimated that gross profit was negatively impacted by 2 to 3 million in the quarter under the broad umbrella of COVID-19 supply chain and inflation factors. We continue to be encouraged by the margins achieved as they are trending in the right direction despite the cost and efficiency pressures that we and our customers face on a daily basis. Moving to slide 14, adjusted EBITDA of $56 million was up 24% for Q4 on the revenue factors just mentioned. The margin of 24% reflecting total combined revenue is a strong achievement across many business lines, and again, indicative of where we see ourselves trending, but with improvements still possible. Included in EBITDA is direct general administrative expenses, which were a net $3.7 million in the quarter, equivalent to 2% of revenue. As always, G&A spending remained disciplined in the quarter, but notably benefited from a specific reimbursement of prior period costs in relation to the Fargo-Moorhead project. This cost reimbursement flowed through our G&A as this is where the costs have been incurred in the past. Our low G&A rate, targeted at 4% of revenue, continues to be achieved through cost discipline and strict attention paid to discretionary and non-essential spending, regardless of the revenue levels we achieve. And just for clarity, for those that are looking closely, future earnings from the two Fargo-Moorhead joint ventures will flow through equity earnings consistent with all of our other joint ventures. Going from EBITDA to EBIT, we expense depreciation equivalent to 13.3% of revenue, which reflected the depreciation rate of our entire business. When looking at just the wholly owned entities and our heavy equipment fleet, which many of you are used to hearing us talk about, the depreciation percentage for the quarter was 16% of revenue and reflected an effective and very active use of our fleet this quarter. Both of these measures compare very favorably to the Q4 2020 equivalents of 16.3% and 19.3%, as we both diversify our business into less capital-intensive areas, and we were able to operate at a much more effective level this quarter when comparing to 2020. Adjusted earnings per share for the quarter of 54 cents was driven by $25.1 million from adjusted EBIT net of interest and taxes. Overall interest ticked up slightly to a 4.7% rate and a $4.9 million cash expense this quarter. These slight increases from Q3 reflect the changes in our debt composition, the timing of our Q4 pay down, as well as some one-time interest expenses we incurred in the quarter. We continue to benefit from both posted bank rates as well as very competitive rates in equipment financing, and we fully expect our rates to remain stable in 2022. Moving to slide 15, I'll summarize our cash flow. Net cash provided by operations of $66 million was produced by the business. And given the neutral working capital result in the quarter, the difference between this figure and EBITDA is the cash provided by our joint ventures, which declared dividends in late Q4 and more than offset cash interest paid in the quarter. Sustaining capital of $21 million was dedicated to maintenance of the existing fleet as we make our way through another very busy winter season. We ended the year spending $102 million of sustaining capital, which was within the upper end of our range of $105 million. Joe will touch on our guidance later, but I'd like to briefly mention that for 2022, our stated sustaining capital range is between $110 and $120 million, which accommodates for our increased fleet size. The reason for quickly reiterating this is because our press release had a table with a range that was much too wide, and we wanted to clarify and confirm for our stakeholders that there is no change to the $110 to $120 million range that was disclosed back in October. Moving to slide 16, We provided a quick snapshot of how we allocated capital in 2021. The free cash flow generated in Q4 in particular allowed for the pay down of senior debt and resulted in a fairly even split for the year amongst the three categories of growth spending, debt reduction, and direct shareholder activity, for which we include the NCIB activity, dividends, and the trust purchases. Moving to our balance sheet on slide 17, liquidity of approximately $200 million reflects our strong position as we benefit from the strong free cash flow generation in the year as well as the issuance of $75 million of convertible debentures earlier this year. On a trailing 12-month basis, our senior leverage ratio, as calculated by our credit facility, is now at 1.5 times. Net debt levels dropped $40 million in the quarter as we focused the $48 million of free cash flow on debt reduction. And lastly, for my part, on slide 18, we show our actual results against our stated targets, which we initially made back in October 2020, almost a year and a half ago. As you can see, we are happy to report that are strong operational performance allowed for the achievement of all of these financial metrics. This slide provides a nice segue for me to turn the call back to Joel to discuss our outlook for 2022.
spk03: Thanks, Jason. Looking at slide 20, this slide summarizes our priorities for 2022. I will discuss each of these items separately on the following slides. but wanted to capture the overarching theme in discussing this slide. I'm probably showing my age here, but there's a phrase from the late 60s, early 70s that I feel really captures our focus in 2022. The phrase is keep on keeping on. Keep on keeping on is about doing your best and being persistent. For NACG, that means keep delivering against the strategy and keep improving. Moving on to slide 21, The Fargo-Moorhead project is progressing well, and we expect to commence earthworks this summer. The equipment fleet has been procured, and the focus is on planning and hiring. NACG has a project management culture which follows the principle that a job well begun is half done. So we expect a smooth project startup that we can share with you in the later half of the year. On slide 22, We highlight our continued expansion and advancement of our equipment maintenance capabilities. I mentioned earlier that the business is in no way maxed out. With our current oil sands demand and low cost provider status, we could gain another 10 to 15% in our oil sands business by increasing fleet availability. This is because our availability is limited by available maintenance workforce. Maintenance labor, specifically heavy equipment technicians, are in high demand and in some areas such as the Fort McMurray area are in extremely low supply. This labor supply issue affects everyone working in that area. Supply of additional field mechanics into our workforce through our union or even support from our OEM vendors is minimal if not non-existent. This skilled maintenance labor supply issue is not a new concern but our business continues to manage this as few others can. Most business in the region don't have the capabilities that NACG has. At NACG, we continue to look at new ways to improve our labor situation with key focus on two areas. Number one is how do we get more skilled maintenance workforce into the Fort McMurray region? To address this issue, we have steadily increased our apprentice program and today have around 55 ticketed trades apprentices, which is around tenfold what it was five years ago, and an area we continue to expand. We likewise have developed what we call a bench hand program, whereby we train people to do as many of the maintenance activities where a trades ticket is not required, thereby freeing up more of our heavy equipment technicians to do tasks where a trades ticket is required. We promote same or similar program implementation with our vendors, our clients, and even our competitors, as this is an industry-wide issue. Secondly, and what really separates us from others, is our Atchison facility. The in-house work we do here and the maintenance support we get from our recent acquisition of DGI Trading. The building and expansion of this facility and the work we have brought in-house has provided many benefits. The cost savings have been significant and support our strategy of being a low-cost provider in a cyclical commodity business. But what often gets missed is the labor benefits. The Edmonton area is an easier place to find skilled trades and apprentices. With our world-class facility, interesting work that few can perform, such as whole machine rebuilds and component remanufacturing, competitive wages, and opportunities to advance or work in other areas, we have a compelling model for recruiting and retaining our skilled trades capacity. So with our expanded adjacent facility and increasing workforce, we not only lower our costs, but we can move equipment down here and take some load off the field service and shops. Since we built the initial adjacent facility and including the subsequent expansions, we expect to have increased shop labor hours fourfold, adding about 270,000 man hours per year or the rough equivalent of 130 shop workers per year. Although not totally a one-for-one offset, the large majority of these skilled workers would have needed to have been sourced into the difficult Fort McMurray region had we not had the facilities and workforce available in Atchison. I don't usually go into this much detail on this call, but felt this area of our business is an important area for those interested in our company to understand. Hopefully one day soon, we will get another opportunity to hold an open house or investor day to allow anyone interested to see it firsthand. Slides 23 and 24 expand on our maintenance skills for sourcing used equipment and components and rebuilding whole machines or remanufacturing components. We have previously shown the significant savings of our in-house rebuilds and component remanufacturing, but I would like to highlight the added value and risk reduction that our DGI business and in-house maintenance skills bring. Similar to what many have experienced in the automotive industry, the rise in demand and supply chain disruptions have also affected the heavy equipment business. As new equipment prices increase or deliveries are delayed, more used equipment will be purchased and repaired. This increased demand in repairing and rebuilding components and equipment will probably stress many vendors and drive increased pricing and delayed deliveries. By having the in-house skills and capacity to our own remanufacturing, rebuilding, and repairs, we will not be subject to those same pressures. Of the few vendors that can supply used equipment and components and can remanufacture and repair them, even fewer of them have access to core machines and components such as NACG has through our DGI business, which is highlighted on slide 24. Lastly, in regards to maintenance, The increased skilled labor capacity, in-house rebuild, and remanufacturing skills primarily benefit our operations through increased equipment availability and lower costs. Secondarily, in an area we continue to grow, is our external maintenance market. The more capacity we build, the more we can offer these same repair and rebuild values to others. With that expanded description of our maintenance business, I'll try and speed up through the remaining slides. On slide 25, you'll see our bid pipeline remains strong, and we expect to continue to have success in all commodity areas. One item of note is that at this time of year, we generally don't have a lot of active tenders in the oil sands market. Typically, this changes in late Q1 to early Q2, which is when most summer civil construction works are tender. We expect our tender wins and subsequent increases to backlog, shown on the next slide, will grow meaningfully later in Q1 or early Q2. Slides 27 to 29 highlight some key areas of our progress on sustainability, including emissions reductions, inclusivity and diversity, and indigenous partnership. These three slides provide a great summary of the progress we have made in all these areas. But I would point anyone with more interest toward 2022 sustainability report, also released yesterday, for a more detailed description of the progress we have made and targets we have set. On my final slide 30, this slide for me really shows the value of my new keep on keeping on mantra. Performing the plan and generating approximately 100 million in free cash flow will allow for meaningful capital allocation to debt reduction, share purchases, and growth by a bolt-on M&A or fleet addition. It's disappointing that our multiples have not responded to the great strides we have made in regards to profitability, diversification, and backlog. We will continue to explain our business better and pull all the valuation levers we can to address this, with the latest one being the doubling of our dividend rate, which we approved this week. Last but not least, we have capacity within our fleet and demand from our marketplaces that continues to push us to improve equipment availability and outperform even these expectations. With that, I'll open it up for any questions you may have.
spk00: Thank you. To ask a question, please press star 1 on your touchtone phone. If you wish to withdraw your question, you can press the pound sign. Once you have completed your questions and would like to return to the queue, please press star 1. After a brief pause, we will begin the Q&A section. And your first question comes from the line of Jacob Bout with CIBC.
spk09: Hi. Good morning, Joe and Jason. This is Raul for Jacob. Good morning. Good morning. I just had a question on the Q4 gross margin. So we saw some margin pressure from required maintenance activity, particularly at the Millennium Mine. So just curious to know why there wasn't a similar impact at other mines, and is this more of a one-off sort of thing, or could we expect more of this through 2022?
spk03: The reason it was, well, first of all, the reason it exists is a buildup for increased work over winter. So you catch up on your backlog of all your maintenance that you have because all your fleet's going to be running in the winter. And the reason it's highlighted as millennium is because that's where the largest portion of our fleet is. So it just happens to be where they were at the time. And we do typically see it when our winter season is extremely busy. And so we tend to, in the late Q3, early Q4, pick up on all of our maintenance repair work to make sure everything's running.
spk09: Okay, that's helpful. And maybe just on backlog, so it was down quarter on quarter, but still much higher than a year ago. Based on the visibility of your bidding pipeline today, how do you see backlog levels trending through the year? I know you had mentioned that you do expect a bunch of the oil sands work to be tendered in the first half, but just curious as to the levels and how they trend through the year.
spk03: I'm looking for an increase in backlog at the end of this year from what it was last year. So I expect we're going to win our fair share of projects and hopefully extend term on work that we already have.
spk02: I would add our backlog is contractual in nature. So our backlog is quite specific to contracts. So as we complete the work, it's going to draw down. So the increases will come through gradually.
spk09: one contracts and projects right okay and uh maybe just the last one for me um so it's a nice uptick in equipment utilization in q4 uh but with the ramp of omicron in recent months do you expect there to be more of a impact like a covet impact uh in terms of labor availability uh for q1 or do you do you see uh utilization rates continuing to improve on a year-on-year basis?
spk03: I'd say we had some absenteeism from the Omicron wave of COVID from mid-December through to about now. It's really coming down quick, just like everyone else. It actually has, even though it was a much higher level of infection rates in Omicron, it was actually worse at this time last year because of the amount of close contacts and the isolations that we had to do with close contacts and the amount of time they had to spend in quarantine. So even though there's more individuals with infections who are not attending, we didn't see as many because of the close contact stuff.
spk09: Great. Okay. Thank you. That's it for me. Thank you.
spk00: And your next question comes from the line of Yuri Link with Canaccord Genuity.
spk05: Hey, good morning, guys.
spk03: Morning, Yuri. Morning, Yuri.
spk05: Morning. I thought slide 11 was interesting. It's showing your operating hours on the legacy fleet are still below pre-pandemic levels. Is that because you've got fewer assets or less demand, or is it a result of the joint ventures? How should we think about that going forward?
spk03: It's actually... I'd say slight increase. I would also remember that we actually have taken some of our assets and put them into those joint ventures. As an example, that Northern Ontario gold mine. So, you know, the reporting side of that might not be as accurate as you think, but overall the trending is absolutely accurate so that it's increasing. And I expect this to be at pre-pandemic levels going forward.
spk05: Okay. Okay.
spk03: And much more consistent in the Q2s and Q3s than historically. Does that cover up what you're thinking, Murat?
spk05: Yeah, and that brings me to my second question related to that. Now that half of your EBIT is outside of the oil sands, any kind of guideposts in terms of how we should think about how the quarters shake out in terms of contribution to full year EBITDA. I mean, we generally have a pretty big dip. Q2 from Q1. Any color on how we should think about that, especially with Fargo-Moorhead ramping up in the summer?
spk02: Yeah, it's a great question. We were looking at that. I think for 2022 in specific, it's looking quite flat, the quarters. We'll see how Q4 looks with the northern gold mine. But Q4 could be, you know, oddly one of our lower quarters, given what happens there. But I would say The uniqueness of Fargo hopefully ramping up in Q2 will offset a strong Q1, and then being fully engaged in Q3 with Nuna having such a strong Q3 in their base business really results in 2022 showing quite a flat profile, actually, all four quarters.
spk05: Okay. Thank you, guys. I'll turn it over.
spk03: All right. Thank you.
spk00: Your next question comes from the line of Aaron McNeil with TD Securities.
spk08: Hey, guys. Thanks for taking my questions. I'm not sure if this one's for Jason or Joe, so I'll leave it to you guys, but you obviously doubled the dividend. Don't want to diminish that, but still pretty small in the context of your overall capital allocation. So I guess the question is, you know, you've earmarked your leveraging for most of your free cash flow this year, a little bit for the NCIB, the dividend, but I guess what's the message to shareholders? Is your goal to leverage or is it a stop gap to sort of prep the balance sheet for other longer-term opportunities, you know, like larger diversified bids or M&A? Like, I guess I'm just, A, I guess trying to get a sense of where you think leverage should shake out and B, you know, what your longer-term capital allocation plans are.
spk03: I, you know, I'm, on this capital allocation, Aaron, I think what we're showing here is that we think there's some great opportunities to pull some shareholder-friendly levers, be it dividends, share purchases. This is a year where we'll actually be reviewing dividends twice because we generally do it in the fall, and last year we pushed it into this quarter. So we'll actually have a second review with our board of dividends in the fall. But with those moves, we still have an opportunity. We're still showing an ability of what I see as a good vertical integrated bolt-on M&A that's not real huge, but I thought DGI was a great acquisition last year, and we think there might be opportunities for that. If something bigger came up and it was accretive, absolutely, we'll look at it. With our multiples, we don't necessarily see that as a high likelihood. That's why it's not really reflected in anything there. And then that still allows for a meaningful reduction of debt. And like I said in the presentation, we're looking at every lever we can pull on our capital allocation that can get us what we think is the value of our business. And we'll continue to look at all areas there.
spk08: And maybe, Jason, on where you think optimal leverage should be?
spk02: Yeah, I think we gave a nice range there for net debt. I think 1.2 to 1.7. We look at companies that are in the low ones and they do seem to reflect strong share multiples. So I think if we can get into the low ones, that's great. This to me feels a little bit like we're getting back into pre-COVID, our 2019 year where we wanted to drive down debt and see what that meant from a shareholder perspective. We're just going to play out the year and put up the performance that we expect and see how things play out. We'd love to be in that 1.2 to 1.7 range by the end of the year.
spk08: Maybe I'll ask a slightly different question but related. You know, it seems like there's a few additional diversified projects in your bid pipeline in the active tender phase. You know, when I compare this quarter slide deck versus last quarter, can you maybe give me a sense of what you're seeing in terms of incremental opportunities and, you know, is there a capital component that might be attached to those opportunities?
spk03: Well, first of all, I think that the higher proportion is because, as I mentioned earlier, A lot of the oil sands summer bids don't come out until late Q1, early Q2. But we are seeing more opportunities on the diversification side. We see a great opportunity in Alaska gold mine that we hopefully know about here in the end of this quarter, beginning of next quarter. And, you know, we continue to see other opportunities in other commodity areas, including iron ore. And... even the potash side. So I think it's just a great line of bids we've seen. Some of these can come and go very quickly. They're permitting or they can't get financing if it's a junior and things like that. So some of these things do pop on and pop off. But I will say there's several of those blue dots on there that I'm very confident will go forward, including that Alaska gold mine.
spk02: And I can confirm, Aaron, like nothing on the bid pipeline slide would require working capital investment. Similar to Fargo-Moorhead, which we've really enjoyed, you know, financial close happens in the quarter, but no working capital investment was required by us into either joint venture. These big projects are designed to be cash flow positive from day one for the, you know, the successful proponent. The growth spending that we put in our guidance is really, as Joe mentioned, if bolt-ons become available or incremental noticeable increases to our fleet where we make strategic investments. But the growth capital is not designed to support that bid pipeline slide.
spk03: Yeah, same thing for that Alaska mine. It's actually... all of our existing assets we have right now for that. From what I can see in that bid pipeline, I don't see anything with major capital additions required.
spk08: Okay, understood. One final question for me, kind of a bit of an oddball, but weather in Alberta has been all over the place in Q1, really cold, really warm. Is there any implications for your Q1 quarter just for your core oil sands operations?
spk03: No, I think we actually got quite a bit done and welcomed the cold weather that was late December through the end of January. The warm stretch really hasn't affected our winter works. I think we're in an excellent position in Our swap over of our winter works into overburden works here in Q1, and I don't think we're going to be impacted regardless of the timing of spring breakup on this. Okay, great. I'll turn it over. Thanks for taking my question.
spk08: Thanks, Aaron.
spk00: Your next question comes from the line of Tim Monticello with ATB Capital Markets.
spk06: Hey, good morning, everyone. Good morning, Tim. You got to be quick on the draw to get some questions in on this thing. I think most of them have been answered so far. But perhaps on the project opportunities, you've called out a few that you've been following. I appreciate that. A couple others that I was curious about was the Baffin Land project. Obviously, there's the Calgary Flood Diversion Project and a couple that you're chasing in Quebec on the non-oil sandsides. I wonder if you can just give a little bit of an update on those ones.
spk03: I didn't catch the last half after Baffin Land. Why did you...
spk06: The ones you're looking at, Tim? Oh, the ones that you guys were chasing in Quebec. I think one was back on the bid sheet at the last update.
spk03: Yeah, I don't think it's been awarded to anybody, but we haven't heard any response on the Quebec one either. And in Backland, it is in that bid pipeline there, and I think we have pretty high confidence in from what we've seen in community approval going forward, that they are going to advance that project. But again, it's in that permitting process where you're never 100% until it's done, right? But I think it'd be a great project, especially for NUNA, and an opportunity for us to participate in as well.
spk06: Okay. And then on the oil sands side, and kind of referring to slide 36. With crude prices well above the $65 per barrel mark, what are you hearing from your customers in terms of expansions and e-bottlenecking projects and perhaps adding scope to current operations that you're working on today?
spk03: You know, the overburden and winter reclamation work, I think more than anything else, I think we have opportunities to do more if we can get more of our fleet running and do more than we expected with a higher availability. And that's what I was talking about, the opportunity for that 10 to 15%. When it comes to the de-bottlenecking, those are actually the summer civil projects that I expect we're going to hear about here in Q1 or Q2. Those are really the telltale signs for us when we're in an up cycle or not, is when there's significant amounts of summer civil construction. Because a lot of that, this projects are more discretionary. And so when we see more, that's what I expect to see, Tim, is more of those summer civil projects, MSC walls that support projects that they're doing for demodellacking or growing their production.
spk06: Okay. So I guess if I was to rephrase what I've heard is that labor capacity is the biggest constraint on increasing utilization of the current fleet during busy times, but you could see some upside in sort of the summer periods based on some expansion work in terms of civil construction.
spk03: Yeah, and the labor is mechanics, heavy equipment technicians. It's stressed on the operator side, but we're very good at finding inexperienced operators and training them and getting them up to speed. You can't do that overnight with mechanics. There have to be ticketed trades. It's three- and four-year programs. We can train operators very quickly, and we have very good training teams to do that. The mechanics specifically are very hard.
spk06: Okay. And then last one for me here, just on the EBITDA guidance range for 2022. Can you just talk a little bit about what you would include in that top end and what would be included in the bottom end of that range?
spk02: Yeah. To me, it's project execution ranges. Particularly, I think Fargo has some uncertainty about, you know, how much work will get done. And so that is a big... factor. And then equipment utilization, as Joe's touched on many times, is a defining factor in the top end and the bottom end of the ranges. We don't have, to quote your Baffin Land question, we don't have Baffin Land in the top end and then not in the bottom end. The range is based on existing work and contracts that are in place. So it comes down to execution and and how the projects and the sites perform.
spk03: Yeah, I'd say there's some timing in that too, Tim, in that, you know, when you transition the fleet out of that Northern Ontario gold mine, right now it's anticipated that it's in Q4. If that work is actually expanded or extended, then that, you know, kind of loss of operating hours for the demob and the remob back into wherever they're going is in there. And so if that gets extended or you find more work for it in the area, Those are the opportunities on the upside.
spk06: Okay. All right, that's great, Keller. I appreciate it, guys. I'll turn it back. No worries.
spk00: Your next question comes from the line of Brian Fast with Raymond James.
spk04: Yeah, good morning, guys. Morning.
spk03: Good morning.
spk04: As you reflect on the DTI acquisition, could you provide some color on how it has performed relative to your expectations, and then if you see opportunities for expanding that part of the business?
spk02: I can touch on expectations. For six months, we had a 12-month target, but as of six months, it was bang on the model that we had used to support the purchase. And they feel like they're lagging in expectations. The management team in Australia, they'd like to be higher. Travel restrictions out of Australia have been very restrictive. But it's essentially hit our expectations dead on. And as far as further expansion, Joe would probably like to touch on that.
spk03: Actually, we had two main operating guys in the office yesterday and had great discussions because there's excellent potential, like I said, both in our fleet and servicing us, but the external maintenance market because, as I stated, there's more used equipment and more repair work going on because of the price and availability of new gear. I expect their demand is going to continue to increase because that's the work they do is supplying core components into the repair and reuse cycle of the business. I also think, even with our discussions, there's There's a lot more work we can do and integrate our businesses with them. And this is the first face-to-face we've had with them. And so it's a great opportunity for us to understand it better. And they're doing a significant amount of business right here in Alberta, outside of us. So I look forward to being able to tell you more specifics on it as we go forward. And I'd say that's probably... Q2 reporting, Q3 timeframe, we'll be able to be a little more specific in what we're doing there. But I do think we're going to have some opportunities to integrate them further into our business and grow their work around here.
spk04: Okay, good stuff. I look forward to more color there. So, Jason, I might have missed this, but are you able to quantify the impact on the reimbursement from Fargo Moorhead spending in the quarter just that flowed through SG&A?
spk02: Yeah, I think, you know, put it in my script, but the difference between our run rate of a little over 4% of G&A and the 2% that we posted is the Delta. So you get in kind of the $5 million range as far as the Q4 impact. And again, you know, Fargo earnings will continue. And so it feels one time to certain people, but that's a continuing trend. source of EBITDA moving forward. But that's kind of order of magnitude how it hit. You know, moving forward, it'll all be in equity earnings, but the way the transaction happened in Q4, the majority of the earnings was in G&A, but there was a small portion reported in equity earnings in Q4.
spk04: Okay, fair enough. That's it for me. Thanks.
spk02: Thank you.
spk00: Your next question comes from Maxim Sitchif with National Bank Financial.
spk07: Hi, good morning, gentlemen.
spk06: Morning, Max.
spk07: Joe, I just wanted to follow up on the Fargo Moorhead project. Maybe do you mind providing any color in terms of sort of any initial surprises, relationship with the client, the GV partners? So anything incremental on the project you can speak of?
spk03: You know, right now it's all about the planning and processing and work and getting the approvals with the authority. You know, I think it's pretty much going as planned. Our procurement side of things and the equipment has gone well. I think the real work side of this for us on the earthworks execution side is going to start in the summer and that hiring portion, that's the real push, Max. The relationships are fine. The authorities are fine. There's a lot of things that permitting-wise and land acquisitions they're doing through this timeframe. And, you know, I haven't seen anything move in our timeframe for boots on the ground. So it's really focused on planning right now and continuing to work the hiring marketplace.
spk07: Right. And in terms of equipment procurement, so like obviously there's a lot of, you know, delays right now and tightness when they use the equipment market. but so you still believe that you should be able to hit sort of the capacity requirements to start on the project with what you have in hand or where you have the visibility to source that equipment, right?
spk03: Yeah, as soon as we had the award and knew the financial close date, Max, we were working with the suppliers to make sure we locked that stuff in, and we did, and we will get our equipment on time as needed.
spk07: Okay, that's super helpful, thank you. And just last question, more sort of high level. In the presentation, the reference to the fact that the producers still move most of the overburden versus kind of you guys or the contracting supply chain in general. Just curious in terms of if you are seeing any incremental movement to increase your market share there Yes, maybe any color from what's called medium-term perspective. Thanks.
spk03: I mean, it's all speculative, Max, but this is really, when people say, well, we're 70% of the marketplace, well, we're 70% of the contract marketplace, but that's 7% of really the overall volumes that are being moved there because the clients do the same work as we do. So what I look at is when, you know, there's several places where people are de-bottlenecking or pushing through more throughput. And as you've always heard me say a thousand times that, you know, there's four yards of material for every barrel. So when somebody says they're going to produce 100,000 barrels a day more, it's 400,000 BCM of material that needs to be moved to produce that. So those are the opportunities. And I think specifically there's a couple of areas of focus on changing in the way they look at cutoff grades and in the fines content of the ore from the owner's side that you can get a little more insight in on the Alberta energy regulator stuff, but it's been stuff that's been transpiring over the last five odd years that I think will improve the quality of the ore and increase the volumes of materials that get moved. And I think we are in a great position to be the guys that help move that.
spk07: Okay. Super helpful as always. Thank you so much. That's it for me.
spk03: Don't worry. Thank you, Max.
spk00: And your next question comes from Richard Durnley with Longport Partners.
spk01: Good morning. To pick up on that last question, when I first got involved with your company 100 years ago, the discussion of doing more than just overburden was on the table. And then it kind of went away. And now here it is alive in slide 38. Has there been a meaningful change, or did I just misinterpret that whole flow?
spk03: No, Richard, you know, that slide really is more on the overburdened side. You know, I think there still is an opportunity. It's not an area I think that industry is in right now. Because giving up ore is giving up your revenue stream, and that's going to take a lot of trust with a client, and something we continue to work on. But what I'm talking about is the volumes of overburden moved and are going to increase, both with increasing production of barrels, but the other side of it is increasing strip ratios, and that strip ratio is increasing because of reclassifications of ore because of fines content. So those overburden volumes are going to increase, And we think we can get a larger proportion of those, especially if they're over shorter timeframes, because our clients typically aren't looking to buy 25-year assets for a five-year peak in overburden stripping. And that's where we can come in and look at more of the peak shaving for them all. Does that answer your question?
spk01: Yeah, okay. Now, let's tie that ability to do peak shaving into the next question, which... Going back to slide nine, the utilization of the fleet. First, you know, in the fourth quarter, you get up into the 75%, 80% utilization every once in a while. But other than, sorry, the first quarter. But other than that, you know, the mid-60s seems to be, you know, the peak area. Is that going to change in the future?
spk03: That's what we're trying to do, Richard, is keeping that 7% CAGR line you see on that slide and keeping and bringing that up. And the way we're looking at doing that, the diversification side is what we're looking to really prop up the Q2 and Q3, and that's via NUNA and via getting more summer work where our smaller equipment fleet was underutilized in new oil sands. And then just driving the whole line up by having increased mechanical availability and increased demand from our clients. So, yeah, we want to get all of those dots above that trend line and keep that trend line going up.
spk01: But you mentioned several times the fact that basically you're fully utilized. So that suggests, you know, in the fourth quarter that 65% is, you know, effective full capacity.
spk03: Yeah, but what I'm saying there is of what we have available to run, too, and I'm saying that what I'm trying to tell on that is there's opportunities for us to increase the hours available, mechanically available, to utilize those. So you're looking at utilization of hours when the truck's available. We need to make more trucks mechanically available by increasing and improving on our maintenance work over and above, to get over and above that Kager line that you see right there.
spk01: Okay, thanks. One other thing, back to this graph. If you, you know, the new NOA, which kind of started in 17, you know, I would say that 7% CAGR line is actually flat to down. Of course, you've got COVID, so we'll take that bottom out. You know, if I was eyeballing that, I'd say that's kind of flat at 60%. But that's just me.
spk03: Well, it's a calculation, Richard, so it shouldn't be something we have to argue about. You know, that line's drawn from the Q1 2015 through Q4, and that's a calculated line. It's not something we interpret or anything. So, you know, I'm happy to draw it up for you if you want on whatever timeframe you're looking at. But I think more than anything, we're showing a consistent trend of improvement and increasing on those hours. every year on year.
spk01: Right. Okay, thanks.
spk03: Don't worry, everyone.
spk00: And as a reminder, if you would like to ask a question, please press number one on your telephone keypad. Your next question comes from the line of Tim Monicello with ATB Capital Markets.
spk06: Hey, guys, me again. Welcome back. Thought you got rid of me. Can you guys just talk a little bit about the aspirational targets you set in the sustainability report around scope on emissions intensity reduction? You got 10% reduction by 2025, which is near term. Good to see that. 20% by 2028, and then net zero by 2050. What's it going to take to get there? And do you expect CapEx allocation towards those ESP goals?
spk03: I think one of the key things for us, Tim, is that We wanted to do things that are practical that we know what the numbers are from. So those 10% and 20% are based on actual allocation of technology we think will be available in that time frame. And the key ones for us on the 10% are idle reduction through our telematic systems and stop-start technology. That's the key driver for that first 10%. Those technologies exist. as you know from our previous discussions on telematics. The next jump after that for the 20% is really looking at more of the hybrid technology of getting smaller engines with battery support. That technology obviously exists in the automotive side and is not as nearly as complicated as fuel cell electric vehicles or full electric vehicles and that kind of area. So those are the drivers for that. The 2050 and hopefully something we can report on in more detail and interim steps to that is really, in my opinion, driven by hydrogen and fuel cell EVs, hydrogen combustion, where the emissions are zero or near zero, especially when it's combined with carbon capture and blue hydrogen. The near-term, that 10 and 20, are driven specifically by those technologies. And after that, it's more so from the hydrogen side.
spk06: Okay. That's helpful. In terms of the near-term outlook for telematics, the CapEx for the year, you guys have talked a little bit about that, but zero is the low end. So are you expecting to spend money on telematics in 2022? If so, what does that look like? And then I guess if you look at hybrid technology through the rest of the decade and incorporating that in the fleet, will that be done just on a basis of equipment rebuilds and replacements, or do you expect to have retrofits of equipment with remaining useful lives on the engines?
spk03: Yeah, the telematic chapel is actually in our budget and in our forecasted. I think we're adding 400-odd machines this year, and we should have the bulk of our heavy equipment fleet done by the end of this year. And the stop-start technology isn't a large capital side of it, and I think it'll actually be a lot of it driven out of the telematics side. So I don't expect any meaningful capital other than what we've already put out there. The hybrid side in the longer term, there's going to be capital associated with that, but I actually think it's offsetting in that At the time you're going to replace an engine, as an example, you're actually going to replace it with a smaller engine and a battery setup. That's how I expect it to happen. And so I don't think that capital difference is going to be a huge amount because you're going to have a savings on the smaller diesel engine you're putting in and an expense on a battery setup, if you would. So I don't know enough about it right now to be definitive for you, Tim, but... I do think it's going to be a bit of a swap with maybe a slight increase on versus what a normal engine remanufacturing and rebuild would have cost.
spk06: No, no, that's great, Kelly. I appreciate it.
spk03: And our whole plan there, if you go through that sustainability report, is regardless of what we use for technology, with our skills and our in-house skills on the equipment, we expect to retrofit our machines.
spk02: Okay, got it. Thanks. Appreciate those questions, Tim.
spk00: And this concludes the Q&A section of the call. I will pass the call over to Joe Lambert, President and CEO, for closing remarks.
spk03: Thanks, Rebecca, and thanks again, everyone, for joining us today. And until next time, keep on keeping on.
spk00: Thank you. This concludes the North American Construction Group Q4 2021 conference call. You may now disconnect.
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