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spk03: 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 in CEDR and EDGAR, as well as on the company's website at nacg.ca. I will now turn the conference over to Joe Lambert, President and CEO. Please proceed.
spk05: Thanks, Alan. Good morning, everyone, and thanks for joining our call today. I'm going to start with our Q3 2023 operational performance before handing it over to Jason for the financial overview. And then I'll conclude with the operational priorities, bid pipeline, outlook for 2023, and our first look at 2024 before taking your questions. On slide three, our Q3 trailing 12-month total recordable rate of 0.30% is less than half of what it was at this time last year and remains below our industry-leading target frequency of 0.5. We will continue to focus our efforts on further advancing our training programs, communicating and promoting safe behaviors, fall health campaign on flu shots and audiometric testing, and our winter hazard awareness programs as we enter our busy winter season and continue to add to our workforce. On slide four, We highlight some of the major achievements of Q3. I'll discuss McKellar later, but wanted to highlight the ramp up of our Fargo-Moorhead flood diversion project, which had its most active earthwork summer that will be followed by its busiest winter as this major infrastructure project progresses into the core of its multi-year construction schedule. Our telematics program is exceeding expectations, and we continue to expand our capabilities and support to the operations and maintenance teams. Our Miccosu joint venture is progressing nicely and continues to add low-cost second-life rebuilds to its fleet of heavy haul trucks. We see strong long-term demand for the Miccosu fleet and are actively looking for additional core assets to rebuild and continue to grow the joint venture assets. In northern Ontario, we successfully completed our gold mine construction project joint venture with NUNA and have several active bids in the Ontario and Quebec regions. We also completed a major overburden fleet relocation in oil sands to support changes in customer demand and mine plans during the quarter. We believe the current fleet allocations will fit well with future overburden demand and contract awards such that no meaningful fleet moves will be required over the winter. Moving on to slide five, you can see that the aforementioned Q3 fleet mobilizations negatively impacted our fleet utilizations. And although a better than average Q3, it was below expectations. However, we remain on trend and confident in our ability to hit our target range of 75% to 85% by the end of next year. Moving on to slide six, we highlight some of the key attributes of the McKellar transaction. First and foremost, we have cultural alignment, share core values, and maintain a focus on operational excellence, especially in the area of heavy equipment maintenance. We believe these common characteristics in a well-planned transition, which is already underway, will make for a smooth integration into the overall business over the coming year. Financial highlights include a purchase price below book value of assets and a favorable purchasing structure. Additionally, our strong underlying business has allowed us to finance acquisition with debt rather than equity, resulting in exceptional accretion. The vendor provided financing and earnouts, aligned management teams, and mutually incentivized performance. Although fully debt financed, leverage is expected to be less than 1.4 times by the end of 2024, which is about where we were immediately prior to the transaction closing. Last but certainly not least, McKellar adds $2 billion in incremental backlog, providing predictability and sustainability for the business that allows for longer-term investments for future efficiency and growth. Measured on all metrics, this deal was a rare opportunity, and we're eager to execute the transition plan and set up McKellar for long-term sustainable success. Slide 7 lists both our currently wholly owned operating entities as well as our strategic partnerships. These acquisitions and partnerships have all been formed over the last five years and are the main drivers of our success in growth, diversification, profitability, and lowering our costs. These acquisitions and partnerships have made us stronger and more stable and have meaningfully changed our business for the better. I think one of our major shareholders said it best while touring our Atchison facilities when he stated, this is not your father's NOA. With that, I'll hand it over to Jason for the Q3 financials.
spk01: Thanks, Joe, and good morning, everyone. To start, I will provide brief context regarding the McKellar transaction, which closed effective October 1st. As disclosed in the Q3 report, a final purchase price for the McKellar Group will be based on audited financial statements as at September 30th, 2023. And as such, we continue to disclose the estimated full consideration of $395 million. We look forward to providing full purchase price allocation details in the year-end financials and are encouraged to see strong operating results leading up to and continuing through the close date. Similar to the other equipment related transactions we've completed over the past few years, there was zero interruption to McKellar's operations upon close, and we anticipate a strong fourth quarter from their fleet. The senior secured equipment debt assumed at close, along with the upsized credit facility, both transacted at levels disclosed in the July announcement, which gives us overall confidence in the estimate provided. Integrating and reporting on this transformative step change is front and center for a variety of our corporate groups and remains on track for full inclusion in our year-end reporting. Our teams have been in constant dialogue with their Australian counterparts with weekly and monthly routines taking shape. Moving to the historical financials and some brief commentary. On slide five, you'll see effective performance in the oil sands and progress on the Fargo-Moorhead project drove adjusted EBITDA of $59 million, which essentially matches the record-setting Q3 we achieved last year. Return on invested capital of 14.7% remained stable at the company goal we had set for ourselves of 15% as trailing 12 EBIT of $137 million was generated by the invested capital, which now sits at $735 million, just prior to the McKellar acquisition, which will add, as mentioned, $395 million to invested capital. On a total combined basis on slide 10, revenue was slightly up from Q3 2022. Reported revenue increased from ML Northern acquired on October 1, 2022, providing another full quarter of operations and a strong quarter from DGI trading. These increases were offset by lower equipment utilization achieved in the quarter as we moved equipment into Fort Hills, as mentioned by Joe. Our share of revenue generated in Q3 by joint ventures was $78 million, which was the same as Q3 2022. The Fargo-Moorhead project had an excellent operational quarter and achieved the progress metrics and project milestones they were targeting. In addition, we had positive contributions from the continued growth of top-line revenue from rebuilt ultra-class haul trucks and excavators directly owned by our joint venture with the MICSU. Offsetting these positives, the NUNA group of companies did not have the typical busy Q3 they are accustomed to. Permitting delays and the impacts of wildfires in northern Canada, and particularly the evacuation of Yellowknife, had significant impacts on NUNA's ability to carry out their assigned scopes. Combined gross profit margin of 13.9% was a quarterly improvement from the 13.1% we posted last quarter, despite the challenges experienced by NUNA, and again reflects the strength of a diversified business. Margins benefited from the ML Northern acquisition from both lower internal costs as well as strong margins from services provided to external customers. Moving to slide 11, adjusted EBITDA was consistent and reflective of the revenue commentary. Included in EBITDA is direct, general, and administrative expenses, which were $6.9 million in the quarter, equivalent to 3.5% of revenue, and remained under the 4% threshold we set for ourselves. Going from EBITDA to EBIT We expensed depreciation equivalent to 12.8% of combined revenue, which reflected the depreciation rate of our entire business, including the very active equipment fleet at the Fargo Moorhead project. When looking at just the wholly owned entities and our heavy equipment, the depreciation percentage for the quarter was 14.7% of revenue and reflected the challenging utilization quarter. Adjusted earnings per share for the quarter of $0.54 was $0.11 down from Q3 2022 as the impacts of higher depreciation and interest rates are factored in with EPS. The average interest rate for Q3 was 7.1% as we're up from the Q3 2022 effective rate of 5.8% from well-known interest rate increases. Excluding the upcoming impact of the McKellar acquisition on Q4 results, the gross interest expense of $8.1 million is expected to be the high watermark as free cash flow is generated in Q4, allowing for the pay down of debt with the expectation of stable rates moving forward. Moving to slide 12, I'll summarize our cash flow. Net cash provided by operations of $42 million was generated by the business. reflecting EBITDA performance net of cash interest paid. Free cash flow was $10 million as sustaining maintenance capital of $42 million was invested in the fleet. Moving to the final financial slide 13, net debt levels remain stable at $395 million in the quarter as the $10 million of free cash flow was used for growth asset purchases, dividend payments, and trust purchases. the correlated net debt and senior debt leverage remains steady at 1.4 times and 1.3 times, respectively. And with that, I'll pass the call back to Joe.
spk05: Thanks, Jason. Looking at slide 15, this slide summarizes our priorities moving forward. McKellar integration is obvious, and I'll touch on that in the next slide or so. And I'll rightfully start with safety. This area of focus being core to our culture and values is our ongoing efforts to ensure each and every one of our employees returns home safely at the end of every workday. As I've stated before, although we have an extensive health and safety management system and multiple initiatives for improvement, we continue to feel our growing workforce requiring increased new hires and an industry supply lowering in experience. Our focus on further developing our frontline supervision and expanding our green hand training programs will be key as we expand. Item 3 describes our prioritizing of winning bids to continue to build our backlog, which provides consistency and stability in our operations and financial projections, and continue to drive our diversification into commodities and geographies that reduce our risk profile while improving return on assets or lowering capital intensity. The final area prioritizes continued expansion of our operational and maintenance expertise. We will prioritize new technologies, such as our telematic system, and continue to in-house and vertically integrate our maintenance services and supply, including a near-term focus on identifying and sharing best practices between our Canadian and Australian businesses. We believe this prioritization focus will continue to lower costs and improve equipment utilization, resulting in increased competitiveness and likelihood of winning the tenders mentioned in the previous item. Slide 16. show some key milestones in our McKellar integration plans, much of which I have discussed previously. What I would like to highlight is just like any project in North American, we know a project well planned that starts strong tends to run smoothly. As such, we have had our transition ERP teams, including our internal systems experts, experts consultants, which we have had prior experience and success, and McKellar executives and senior management, developing our execution plan far before this deal closed. Within the first week after close, we had McKellar executives in Canada reviewing and providing input on those plans, and before the end of October, we have boots on the ground in Australia executing the plan as we speak. We believe strongly that the system stability and increased management information that our transition ERP teams can bring to support the McKellar team will provide a robust, well-tested foundation for the future growth, and increased profitability of the business. Slide 17 highlights a net increase of around $1.5 billion to our already strong bid pipeline with large increases, that is the big blue dots on the top line, from long-term non-oil sands contract tenders. One change of note to the bid pipeline has been our regional oil sands tender. Unlike the original submission, which was for a five-year term with committed overburden volumes for all five years, The client has told us they are pivoting to a three-year term with committed overburden volumes for one year. The change to a master services type agreement with annual commitments isn't new, and as a return to the same structure of agreement, we operated for many years prior to this current agreement. Although no formal reason was provided for the change in term of commitment, we believe the client is looking to optimize their longer-term mind plans and focus on operational opportunities as communicated by their leadership team. We believe oil sands demand for heavy equipment, especially for the larger ultra-class size equipment, will remain strong for the foreseeable future, and our fleet will be fully engaged for 2024 and beyond. The shorter-term commitment has some positives, as pricing is only firm for one year, and we have low risk for cost inflation that can occur outside of contract escalation indices such as we had in the last couple of years. Lastly, although we truly believe our oil sands demand will remain strong for many years to come, We also see those big blue diversified dots and continued strong heavy equipment demand in Australia as opportunities to further diversify and reduce consolidation risks. Lastly, on backlog in Q3, we were awarded winter projects in oil sands, totaling about $30 million, and NUNA was awarded a $30 million mine remediation project. On slide 18, our pro forma backlog sits at a record $2.8 billion, with our addition of McKellar adding about $2 billion and our expectations for year-end are to have backlog in excess of $3 billion with the award of the regional oil sands tender offset by our normal quarterly drawdown from executed work. On slide 19, we have provided a revised outlook for 2023. With McKellar closed, Q3 in the books, and a focus on a safe and efficient close of the year, we've been able to increase the midpoint and tighten the range for EBITDA with an encouraging uplift for EPS as well. Sustaining capital increased due to some remanufactured component quality issues, which we have isolated and resolved, and a slight increase from McKellar. Free cash flow was also reduced due to the previously mentioned sustaining capital increase, combined with joint venture distributions deferred into the new year, and slightly offset by the increased EBITDA projections. On slide 20, we have provided our initial outlook for what is projected to be a record-setting year. This is a slide I've been eager to get to. Outpacing our 50% accretive acquisition, adjusted EBITDA and EPS midpoints are more than 80% increases over any previous year end result. Free cash flow is more than double any previous year end result, and if directed to debt repayment, our net debt leverage at the end of next year will be less than 1.4 times, which is a level lower than any previous year end. This slide more than any other shows what this business and this team can produce And I'm so excited to close out this year strong and achieve these 2024 targets while continuing to challenge our team to advance this business beyond expectations for years to come. In my 15-year tenure with NOA, these are by far the strongest projections we have issued. Lastly, regarding capital allocation, as always, we continue to assess our options in light of market and other macro conditions outside of our control, and we'll provide our expected allocation in more detail on our next call. With that, I'll open up for any questions you may have.
spk03: Thank you. To ask question, please press star 1 in your touchtone phone. If you wish to withdraw your question, please press the pound sign. Once you have completed your question and would like to return to the queue, please press star 1.
spk02: After a brief pause, we will begin the Q&A section. Your first question comes from Yuri Link of Canaccord Genuity.
spk03: Your line is already open.
spk12: Good morning, guys. Morning, Yuri. Morning, Joe. Just wondering how your 2024 expectations for McKellar have evolved since you announced the deal back in July. Okay.
spk05: I think we probably have a bit more information and then we're probably a bit more optimistic on what we put out as the annual contributions. It's probably slightly more than what we had in that July 27th deck. And so we brought them up and I think we have more confidence in those numbers.
spk12: Okay. And does that imply the legacy business is kind of flat to modestly up on EBITDA in 2024?
spk05: I think it's fairly significant. I think we're up probably 10% or 15% on a year-on-year basis. I'll have to ask Jason to do the math for me.
spk01: Yeah, that's correct. We're expecting a really strong year from Fargo and then strong, probably 10% up on the legacy business from an EBITDA perspective.
spk12: Okay. And Jason, just while I have you on the guidance, a pretty significant increase at the low end of EPS guidance for 2024, based from what I was expecting anyway. Was there anything in DNA or interest expense that played into EPS beyond what the EBITDA would have implied?
spk01: No, it's all in the EBIT rate. Yeah, depreciation, taxes, and interest all are at run rates. That would have been in previous guidance. So, yeah, the uptick you're seeing would be, you know, stronger than expected run rate at McKellar, as Joe alluded to, clarity with Fargo, and then, you know, strong utilization from oil sands assets.
spk12: Okay. That's it for me, guys. Thanks.
spk04: Thank you.
spk03: Your next question comes from Aaron McNeil of TD Cohen. Your line is already open.
spk00: Hey, morning, and thanks for taking my questions. I think I'll stick with the guidance as well. If I look at the midpoint of the revised 2023 guidance, I think sustaining capital shakes out to about 12.8% of revenue. Next year, that bumps up to 14.5%. And I'm just asking the question because you highlight the relatively newer fleet of McKellar. All other things being equal, you'd expect that introducing newer equipment in the fleet would bring that ratio down. And so I'm just wondering, is that increase a function of your conservatism or are there other factors at play that we should be thinking about?
spk05: You know, there is some conservatism in that because we haven't done the detail of the component scheduling at McKellar that we do here. We're in the process of doing that, so there's more of an assumption of sustaining capital being at the depreciation levels. So, yeah, our expectation would be that we could actually improve upon that with the McKellar side, but there's always risk too, right?
spk00: Got it. So in terms of the a legacy business, there's no major changes. Is that the right way to think about the sustaining capital?
spk01: Yeah, I think that's fair, Jason, here from the financial side. I think, as Joe alluded to, the component issues in 2023 here would be a factor in that percentage as well. And we'll just take a look as we go through 2024. Makes sense.
spk00: I know you already spoke to this a bit, but can you walk us through next steps with that regional oil sands contract that you're chasing? And specifically, I'm wondering, you know, how much of that contract is extending existing work scopes versus new work scopes? How might things work if your contract expires but you haven't signed a new one yet? And just kind of like what you expect the timeline to be.
spk05: We expect it to be... finalized before the end of this month um we're in communication with them practically every every day or every couple of days um we're going through some terms and conditions with them yesterday um these kind of changes aren't new aaron i think you've probably been around with us the last time when we the last oil sands contract we renewed i think we announced it in march of 2022 that contract was actually We were told we were going to be awarded in September of the previous year, and the contract expired on December 31st, and we had to have a bridging contract between December 31st and March 17th when we finally signed off on it. So when you have these big, complex contracts, they can take some time, and it's not unusual for the execution of them to take a little bit of time. We fully expect this to be done by the end of November. We believe we will receive a level commensurate with what we're doing this year to fully utilize our fleet. We believe the demand is there. I think more than anything else, I know there's probably some anxiety because we said we were going to get this contract last year and then it got deferred to this year and now we're saying it's October 31st and now it's going to be the end of November. And yeah, we're It's frustrating, but that's not unusual with this size of a contract and the fact that our client went through a significant change at their senior leadership level. But our budgeting and our forecasting is based on first principles here. We just look at where we are, what we expect. It's supply, demand, competition, and price. And we fully expect to be awarded work that's going to keep our oil sands fleet busy for next year and into the future. The change in structure just goes back to an old format, and we believe that's being driven because of needs to have flexibility with their plans to adjust operations. So I don't see this as anything tremendously unusual. It is frustrating, but we don't expect it to have any significant impact on our business.
spk00: The bridging in contract was exactly what I was trying to get at. So let's say... This gets delayed further. Contract doesn't get signed until the spring. In your, I would expect that you'd have a similar type of arrangement.
spk05: We would have some amendment with the existing contract that bridges it through to whenever they were. That's what we did with the last one. Yep. That just amendment that extended the term of the previous agreement until we had all the terms and conditions signed out on the previous one.
spk00: Appreciate the color. Turn it over.
spk02: Yeah, no worries.
spk03: Your next question comes from Maxime Saichev of National Bank Financial. Your line is already open.
spk08: Hi, good morning, John. Morning, Max. John, I was wondering if you don't mind me commenting in a bit more sort of granular detail around sort of the Australian business. Because I think some of the local peers are sort of calling out a flattish 2024. And maybe if you don't mind, I'm finding kind of how, you know, met coal is different from thermal and maybe some of the puts and takes that you're seeing kind of like on the ground as you get more comfortable with the assets. Thanks.
spk05: Yeah, Max, I'd say, you know, we continue to see what I'd say across all commodities is a stronger for longer trend. This goes from our oil sands business to met coal, thermal coal, or any of the commodities. We think there's an extremely strong marketplace out there that continues. We see it in our bid pipeline that you would see here in our Canadian business. Although we don't have it on those graphs, we see the same thing in Australia. We've had a lot of inquiries. We actually have There's like six different infrastructure projects that we're going to be digging in down there that we're now aware of, which McKellar hasn't pursued in the past. So, you know, I don't think there's been a negative surprise in any of the work we've done so far or our expectations going forward. And between our forecast of 2024, which is a bit of an uplift from if you had just taken the pro formas from our July 27th to now, we've increased. And I think we've been first principle based in that. That's not an overly optimistic viewpoint. We fully expect to meet or exceed those targets. And I think I've used the term that we see opportunities to grow at 5% to 15% annual pace in our business. And I think that holds true whether we're talking Canadian resources or Australian. or even the infrastructure side, which comes a bit lumpier. But no, if anything, I'd say, Max, we're just reconfirming our confidence in this market going forward.
spk08: Yeah, no, for sure. Thank you for that. And I guess on the infrastructure side of things, Joe, so are you at the point right now of evaluating sort of these opportunities? And would you have, hypothetically, the ability to participate in those if some of them sort of come to a bit fruition in Australia, I'm talking about?
spk05: Yeah, I mean, we're really early stage as in expressing interest to receive tender packages and then talking to potential partners like our partners that we're using in Fargo. But there's a significant amount of work that we're already aware of that has significant... We're just looking at ones that have meaningful earthworks to them. And I think we've already identified five different jobs There are solar farms, wind farms. There's a desalination plant, you know, a harbor bypass and an inland rail that we were looking at down there that we'd just be expressing interest on and then looking at partners. So, you know, these things don't move real fast. They tend to be years in the process, but we do see great opportunity down there to expand our McKellar business into that. And our COO, Barry, is down there right now talking to him.
spk08: It was great to hear. Thank you. And then do you mind maybe just kind of, because you mentioned Fargo, maybe kind of discussing sort of the critical path of this project and, you know, where it will stand in terms of, you know, the execution dynamic and partners and so forth, just maybe any incremental call on that. Thanks.
spk05: Yeah, I think we, we, we had a really good summer and, and looking to finish it up with a strong winter there. The, the, Last winter, we weren't real busy, but this winter is going to be much busier. And then next summer, not only is the earthworks high, but we start into the roads and bridges side of things. So we really get into the teeth of this project over the next four years. I think we had a six-year construction schedule altogether, something like that. And there's really the meat of it that we're just getting into. And, you know, from the earthworks side, we're pretty much meeting and beating our plans, at least we did this year, and we'll hopefully continue to do that. So our expectations remain high for that project.
spk08: Right. And I guess we're sort of fully over the hump in terms of getting supply chain and some of the materials and I presume labor as well to a certain degree, right, in terms of that project specifically?
spk05: Yeah, I mean, we've been doing mostly the earthworks. Certainly our equipment and our labor supply and our maintenance supply has gone well. You know, we had some anxiety at the start, but it's really, we delivered into the plan well. And we've exceeded some of our production forecasts. So, you know, I think as we get into the bridge and the road work, and I think we're roughly, we'll end the year around 25% complete on the earthworks, but not that far into the bridge and road works. So next year will be, you know, kind of the end of next year when everything's kind of at that, 25% or further mark, I think will be a good milestone for us to really predict how the overall project's gonna go.
spk08: Okay, excellent.
spk02: That's it for me, thank you very much. Thank you, Max. Your next question comes from Jacob Bout of CIBC.
spk03: Your line is open.
spk07: Hi, good morning, Joe and Jason. This is Rahul on for Jacob. Morning. I had a couple of questions on guidance as well. I believe the slide deck mentions that 2024 revenue guidance assumes McKellar's current run rate operations. So not much growth being baked in there, if I'm reading that right. Would you say there is a degree of conservatism being built in here, given integrations just started and the broader macro environment?
spk05: I think that's reasonable, but we're going with what we have in hand. This is still first principles budgeting, but we're not assuming any big growth opportunities or expansions.
spk01: I think I can elaborate on that. The current run rate is the Q4 run rate. McKellar's at a tick above even their Q3 prior to our acquisition, so You know, the comment is really meant to say, you know, the range for McKellar is consistent with where they're running here in Q4. So, you know, obviously the upper end would be a bit of an increase for them, and the lower is kind of where they're at right now.
spk07: Right, right. That's helpful. And then in regards to the 2023 EBITDA and EPS guidance range, just wanted to clarify, is that just a factor of the timing of the McKellar acquisition close or expectation for better performance in the legacy business as well, or both?
spk01: Yeah, of course it's both, but the primary is McKellar. We had McKellar, you know, closing in mid-November here. as far as the July 27th guidance and the ability to close it effective October 1 gave us some upside there. But we have a slightly improved outlook for our base business as well. So that's what gets the midpoint of 290 for EPS.
spk07: Okay. Very helpful.
spk02: Thank you very much. I'll pass it over.
spk01: Thank you.
spk03: Your next question comes from Adam Fallheimer of Thompson Davis. Your line is already open.
spk09: Hey, good morning, guys. Nice quarter. Thanks. The revenue you lost within NUNA in Q3, does that come back in Q4? Is that just a deferral?
spk05: We're trying, but it's all weather dependent. So a lot of the places they're working will get snowed out. pretty quick here if they haven't already. So unfortunately, sometimes those deferrals can't be pushed past that level because they work in some high snow areas at some of these projects, and they actually get pushed into next year. So some of them, when you get deferrals with NUNA and Q3, you can't always recover in the same year. So if I'm guessing, Adam, I'd say half and half.
spk09: Okay. And you're... I also wanted to ask about the bid pipeline. So your bid pipeline went from $5 billion to $6.5 billion. Is the jump there the inclusion of Matt Keller?
spk05: No. No, actually there's several major mining projects that we have that are multi-year mining projects that are non-oil sands that have come up in the last quarter. I think we've added... um, you know, over 2 billion of, of pretender phase projects in that. Um, and we, we, we continue to see, you know, you had heard it in my comments. We continue to see good opportunities for long-term mining contracts in the resource industry in Canada. And I think we're going to see the same thing in Australia, but these ones are only our core business right now, Nuna and North America.
spk09: Good news. And then, um, Your largest oil sands customer, the change in terms and commitments, if you were in our shoes, would that at all change the way that we should be modeling your oil sands business?
spk05: No, I wouldn't change it at all. It's unfortunate that we have to revise our timing of things, but it's not unusual. As I said, the exact same thing happened on our last contract with our other oil sands producer. Unfortunately, this one's even bigger than that one was. So I can understand how it may create some anxiety, but it wouldn't change our basis of prediction of how we're going to perform. Our budgeting and forecasting is done purely on first principles and hopefully with a little bit of conservatism in them. And so, no, we fully expect that we will replace that work and hopefully do more through an increase in utilization, which is what our plans are.
spk09: Great. And just lastly, Jason, do you have the depreciation numbers for Q4 and for 2024?
spk01: Not right in front of me. I think we're running right around 15% combined revenue for those years, and it's all reflected in EPS, so we're not – We're giving ourselves a little cushion with McKellar, you know, as the comment came with their capital for next year. So a little difficult to predict McKellar's depreciation rate at this point, but we're right around that percentage. Okay. Thanks, guys.
spk02: Thank you.
spk03: Your next question comes from Jim Monichello of ATB Capital Markets. Your line is already open.
spk11: Hey, guys. Is this Tim's brother? Yeah, this is his evil twin. I guess just around the Suncor contract that he has in negotiating, is that still going to incorporate all the sites into one?
spk05: It'll be one form of contract for all three sites. I guess technically there's five different mine sites on three different locations, but each one will have their own scope.
spk11: And you'll be able to move between them still? Is that still the idea, or has that changed as well?
spk05: No, I believe our contract specifically, I don't believe that will be in every base contract. I believe we'll have that provision in ours where we allow movements of committed volumes between sites.
spk11: Okay. And I appreciate all the commentary around sort of your view of how it may or may not affect activity, at least over the near term. The optics of it might suggest that the long-term positioning for the way that they're thinking about contractor usage has changed, and that would align with some of the commentary they've said publicly, although I think there's a number of structural reasons why that's difficult. I'm wondering if you can kind of elaborate on and why you think your positioning in the oil sands is defensive over a longer period of time?
spk05: To me, the three big drivers are our low-cost provider status. Also, mining equipment, I guess a lot of people may not know the mining equipment world, but these aren't like automotive. They don't make hundreds of thousands of vehicles. They literally make dozens. When you look at these big trucks, they make dozens a year for a worldwide mining market. It's just supply and demand. Like I said, these are first principles basis. I'm sure there's some anxiety about contract timing and things like that. This isn't an emotional-based forecast. This is supply and demand. Every new truck, every new piece of equipment that comes into Fort McMurray, We know because there's only one road in and one road out, and we see every piece of equipment that comes in there. We know what manufacturers' capabilities are as far as putting out fleet because we ask for that fleet too, and we know the timing. I'll give you an example. Some of the largest hydraulic shovels in the world, you'd be two years out on some of them. Some of them aren't even Tier 4 compliant yet, so they can't even sell them in Canada. So I think just understanding the market and the demand We know what the volumes are supposedly going to be required because our clients have told us how much contractor volumes there are in the haul distances. So really, this isn't pie-in-the-sky thinking. This is just straight supply and demand calculations off of equipment and availability and how fast it could come in or not. And then the fact that we think as a safe, low-cost provider, we're going to be the last one standing anyways, even if this market did cut back. which we don't think is going to happen. And we also see a lot of opportunity outside of oil sands in, uh, in, in some of the other commodities.
spk11: Okay. I appreciate all that. Um, if, you know, in a worst case scenario, uh, and you did start to see declining demand, how early do you think you would start to see signals in the market? Uh, you know, customers buying equipment or, or, um, you know, contractors being laid off. Like, is that something that you would see with a relatively good lead time that you could move equipment to, you know, better opportunities? Or do you think that could be a sudden shift?
spk05: No, I think we'd see it. I think our customers would announce it, frankly, especially with the strength of the relationship with the MICASU, who have significant investment in our capital assets, They're also partners with our producers on things like the tank farm. So, you know, I think there's longstanding relationship there. No one's going to, you know, we're not going to pull out of oil sands overnight and leave our customers hanging. And I don't think they'd do that to us either. So, you know, I, my opinion, Tim, I think we'd have years of forewarning.
spk11: Okay. That's true. That's helpful. Second one question here. Just to follow up on the bid pipeline question, you not only did expand, but you have some pretty large blue circles, probably $3 billion or so worth that have come into that preferred opportunities and extensions category. I'm wondering if you can speak to those and what makes those preferred.
spk05: What makes them preferred is that we have existing relationships with the clients. And, you know, the two biggest ones are the regional tender and the work in Baffinland, which we'd look at with NUNA. If you're looking at the preferred opportunities.
spk11: Yeah, there's like three sort of larger blue circles in the 2025 area.
spk05: Yeah, there's a major mine reclamation for a diamond mine with the relationship that we've had in the past through NUNA. There's a backland iron stuff through NUNA, and then there's the regional oil sands tender.
spk11: Okay. And then as it relates to the Northern Ontario gold mine that just – the contract that just ended for NUNA, do you think you're going to be able to find work for that out east, or is that being mobilized back through oil sands now?
spk05: Yeah. I think we will be moving some of the stuff back to all things. I think the excavators and then we had the trucks. I think we're sitting on right now. We're evaluating the tenders that are in in Ontario, Quebec. We also one of the things Barry's doing in Australia is we're looking at some of the opportunities, whether we should be shipping some of those over to Australia and addressing some of the demand in the Western Australian marketplace, which fits those smaller trucks more.
spk11: Okay, that's really helpful.
spk02: I'll turn it back. Looking forward to an exciting 2024. Thanks. Thanks, Tim. Your next question comes from Sean Jack of Raymond James.
spk03: Your line is already open.
spk10: Hey, good morning, guys. Just really quickly wanted to look back at slide 16 and just ask, how sensitive is the guidance for 2024 to some of the key steps shown here? And would there be a critical step that you would highlight as kind of the most influential to your guys' success in kind of hitting the midpoints?
spk05: I'd say in this integration, I think the key for us would be an ERP implementation, but I don't think that prevents anything from happening. As Jason said, they're on the burn rate right now in Q4, and obviously we haven't done anything yet. So we see most of this as being upside opportunities and sharing best practices, and that's really where we see the synergy of the deal. It's really not shown in it right now.
spk10: Okay, perfect. And... Just quickly, I know that you spoke a lot about transmission metals and the market there in Australia when the deal was originally announced. Just for context, when you guys are now kind of looking a bit more closely at the bid pipeline down in Australia, are you seeing many immediate options in that space right now?
spk05: Certainly, the lithium marketplace is very active down there because it's hard rock. It's not like the brine stuff you see in South America. And And I think you're seeing an increase in the copper and iron ore side. You know, whether you consider that part of transition or not, I don't know. And then I'm trying to think there was some zinc. I think some zinc opportunities. I don't have their bid pipeline memorized yet there, Sean, but it's a very active marketplace there in Western Australian metals and even in Eastern Australia. thermal and metallurgical coal markets.
spk10: Yeah, okay, perfect. That's all really helpful.
spk02: Thanks. You bet. Your next question comes from Aaron Kumar, investor. Your line is already open. Hi, team.
spk06: Congratulations on closing the acquisition. I have two questions. One is on capital allocation with regard to share purchases, especially as we know if the stock is trading well below 10 times our estimated future earnings. And I understand as we look forward, we want to pay down the debt first, but I'm trying to understand if the shares are still trading at low valuation How does the team look at capital allocation? And then I'll come back to the second question after. Thank you.
spk05: Yeah, Aaron, we look at capital allocation the same all the time. We're always evaluating return opportunities and risk and appreciate you highlighting the bargain that our share price is right now. I agree. You know, we'll be having those discussions with our board here in the next couple of weeks. And look at where we put the significant cash flow we're going to generate in 2024 to work. You know, so I agree with our current PE. It starts with a six with today's opening price. I think you were mentioning less than 10 times. And I think there's some opportunities there, but we'll be evaluating that. Certainly debt repayment at, you know, I think we're over 7% interest rate this last quarter. And obviously that has zero risk. So there's going to be competition for capital. We also have done very well with some bolt-on acquisitions in the past and vertical in-housing. So if those opportunities come up, it's really just a competition of risk and return.
spk02: Thank you.
spk06: My other questions are more on the longer term. opportunities in Australia, like the acquisition you made with McKellar, and thoughts on deploying cash at good returns over the next five to 10 years, if there are other regions around the world that you're interested in. This is more of a long-term, how you're thinking about allocating capital. Thank you.
spk05: Yeah, Aaron, I think whether it's Australia or here, we're going to look at the return on assets. It's just like I was talking about these trucks that are in Northern Ontario. We're going to put equipment where it gets the best return. If that's in Western Australia, we'll put them in Western Australia. If it's in Canada, we'll put it in Canada. I think historically, the marketplaces that we've thought were best for us would be North America, Australia, and South America. Obviously, we're in North America and Australia right now. Most recently, it South America has had a lot more turbidity in governments and royalty regimes, so it's kind of suppressed investment dollars from the mining world. But obviously that could change, and if we're looking longer term, we would certainly be looking back in South America again. But for sure, the North American and Australian opportunities in the near term, even five to ten years, we think are going to be tremendous.
spk02: I think that's all the questions, unless you have any more, Aaron? No, that would be it. Thank you. Thank you, Aaron. Thank you.
spk03: This concludes the Q&A section of the call. I will pass the call over to Joe Lambert, President and CEO, for closing comments.
spk05: Thanks, John, and thanks, everyone, for attending today's call. I hope you all have a safe and festive holiday season. I look forward to sharing our year-end results and business updates with you in the new year.
spk03: Thank you. This concludes North American Construction Group conference call on third quarter of 2023. You may now disconnect.
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