North American Construction Group Ltd

third quarter ended September 30, 2024. 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 Cedar 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.

Thanks, Laura. Good morning, everyone, and thanks for joining our call today. I'm going to start with our Q3 2024 operational performance before handing over to Jason for the financial overview, and then I'll conclude with the operational priorities, bid pipeline, outlook for the remainder of 2024, and expectations for upcoming winter works in 2025 before taking your questions. On slide three, our Q3 trailing 12-month total recordable rate of 0.39 improves upon our Q2 results and remains below our industry-leading target frequency of 0.5. We continue to advance and improve our health and safety management systems, with recent focus on hazard analysis, frontline supervision effectiveness, and automatic testing. Naturally, at this time of year, we ramp up our winter preparedness in Alberta. Oddly enough, we'll also be commencing preparation for our summer programs in Australia with heat, hydration, and cyclone weather as recurring topics. On slide four, we continue to be recognized with industry awards in both safety innovations and leadership. Nothing makes me prouder than seeing our employees being recognized by our industry peers as being safety leaders. Across our business, we consistently see employees dedicated in living our core value of getting everyone home safe. On slide five, we highlight some of our major achievements of Q3. Although having a record quarter for practically every financial metric we measure is a fantastic achievement, It was likewise pleasing to see all areas of the business performing at or above expectations. Our Fargo and Nuna joint ventures finished off their busy summer season as expected. Our oil sands business continued as planned, and our Australia business continues to outperform. Australia also commenced the ERP rollout, received the final equipment ship from Canada, with expectations to have them all put to work by the end of the year, and achieved record quarterly fleet utilizations. Our contracts and procurement team were also busy finalizing a parts and component supply agreement with Finning in Q3. The new agreement reestablishes a strong vendor partnering structure, which we believe will improve fleet reliability and lower costs while supporting our in-house maintenance program and growth plans. We see Finning as a strategic partner and look forward to increasing our work together going forward. Moving on to slide six. You can see that the aforementioned Q3 record utilization of 84% in Australia was just a hair below our 85% target utilization. Our Canadian fleet improved to 51% off the Q2 low of 42%, and we expect the Canadian fleet to be back in the 60s at year end and remain there through our busy winter season. We remain on trend and confident in our ability to hit our target of 85% in Australia early in the next few months. In Canada, we expect to achieve our target range of 75% by the end of next year. With that, I'll hand over to Jason for the Q3 financials.

Thanks, Joe. Good morning, everyone. Starting with slide eight, the headline EBITDA numbers of $106 million and 29% margin were driven by another successful quarter from Australia. We have now posted four successful quarters in a row with growing quarter-over-quarter results. Combined gross profit margin of 22% illustrates strong operational performance. We included a comment here about our oil sands business, which, although down from last year's top line revenue, is posting more consistent quarter-to-quarter results than in the past and generated an 8% increase from the second quarter on improved site conditions and steady usage of the equipment. The improved consistency is due to the nature of the contracts in the oil sands which are now focused on more steady time and material and rental arrangements. Moving to slide nine and our combined revenue and gross profit. As we will have for this last quarter now, McKellar provides step changes in quarter over quarter variances. Our wholly owned businesses were up $90 million quarter over quarter, an improved variance from the second quarter when we were up $81 million. McKellar and DGI, which we combine as Australia in our results, were up $134 million on a steady, consistent quarter, during which McKellar posted an impressive 84% equipment utilization, peaking in July at 88%. This top-line positive variance was offset by lower equipment utilization quarter over quarter in the oil sands regions. Our share of revenue generated in Q3 2024 by joint ventures was consistent with Q3 2023. The Fargo-Moorhead project had a strong operational quarter, was up $12 million quarter over quarter, and achieved the progress metrics and milestones required of the schedule. Offsetting this positive variance was the variance impact of the completion of the construction project at the gold mine in Northern Ontario in Q3 2023 which led to lower quarter over quarter revenues within the NUNA group of companies. Combined gross profit margin of 21.9% reflects strong operational excellence across our business. Gross profit margins benefited both from the operations in Australia, which were higher than 20% in the quarter, which is normal course, and the Canadian operational personnel and fleet posting solid margins as they benefited from consistent and stable operating conditions. Moving to slide 10, Q3 EBITDA beat the previous Q3 record by 75% as a result of the McKellar acquisition. As mentioned, the 29% margin we achieved reflects an effective operating quarter and is indicative of where we see our business operating at, with our trailing 12-month EBITDA margin now at 27% which covers a very eventful 12-month timeframe. Included in EBITDA is direct general and administrative expenses, which were $9.6 million in the quarter and equivalent to 3.4% of reported revenue, which is below the 4% threshold we set for ourselves. G&A costs in Canada in particular have been decreased in light of lower revenue being generated in the oil sands region. Going from EBITDA to EBIT, we expense depreciation equivalent to 12.1% of combined revenue, which is exactly the same as the second quarter and reflects the depreciation rate of our entire business, including the equipment fleet at the Fargo-Moorhead project. Adjusted earnings per share for the quarter of $1.17 reflects all the positive factors mentioned, but was offset by the impact of higher revenue acquisition-related interest, which reduced earnings by 54 cents compared to 22 cents in the prior quarter. The average cash interest rate for Q3 was 6.5%. Moving to slide 11, net cash provided by operations prior to working capital was $80 million and generated by the business reflecting EBITDA net of cash interest paid. Free cash flow of $11 million was driven by another $32 million draw on working capital accounts and $12 million spent on capital work in progress. Moving to slide 12, net debt levels ended the quarter at $883 million, an increase of $50 million in the quarter due to growth assets purchased as well as the change in the Australian exchange rate. Of the $883 million, 470 million, or roughly half, is denominated in Australian dollars, but is naturally hedged with the heavy equipment assets we own in Australia. Net debt and senior secured debt leverage ended at 2.3 times and 1.8 times, respectively, and are expected to decrease in Q4 on free cash flow generated in the quarter. With that, I'll pass the call back to Joe.

Thanks, Jason. On slide 14, we highlight our progress on our 2024 goals. Items one and four have pretty much been completed with the turnaround at NUNA and the ERP rollout in Australia. Item two, we still expect to achieve these contract wins in Q4, and item three is a bit of a mixed bag with our telematics and sharing of best practices having progressed as planned and possibly achieving our Australian utilization targets early being positives and the negative being our Canadian utilization targets pushed off a year. Looking at slide 15, this slide summarizes our priorities moving forward. Our safety focus will be on further developing our frontline supervision and establishing consistency across our increasingly diversified business. Although we have many varied safety programs and policies for the differing environments we work in, we want to ensure certain aspects are consistent across all areas of the business. To ensure that consistency, we perform both internal and external audits on the HSE management system in general, and in field verification, those plans are being followed. Item 2 notes our equipment utilization goals, which I spoke about earlier in this segment. In addition to our utilization targets, we also expect to have our telematic system further advanced and rolled out on a few units in Australia with a more detailed plan for full implementation in Australia by the end of 2020. Item 3 outlines our focus on prioritizing winning bids to grow our backlog, ensuring stability and consistency in both operations and financial projections. This strategy also supports our ongoing diversification into commodities and regions that help reduce risk while enhancing asset returns or lowering capital intensity. Item 4 is focused on early renewals and extensions on contracts with existing customers. As you may have seen with some of our press releases on contract awards earlier this year, some of our contracts have options for expanding or extending based on mutual agreement. We believe these types of negotiated contract agreements of high value as they demonstrate the strength of our customer relationships and can provide increased commitment over a longer term, allowing us to better forecast our business performance. Item five is the logical extension from our goal to roll out our ERP in Australia this year. As we have done these ERP rollouts both internally and with NUNA, we have seen how improved monitoring and reporting can help identify business improvements and lower costs. The final area emphasizes our commitment to expanding our external maintenance business. We believe our in-house component rebuilds, whole machine rebuilds, telematics, and strategic partnership with OEM dealer will provide increasing opportunity for external maintenance sales. Slide 16 highlights a strong bid pipeline of over $10 billion with quarterly increases in the active tenders, that is the top line, representing increased activity in Australia and diversified resources in Canada. The items on the middle line are the potential contract extensions and expansions in the oil sands we expect to have concluded in Q4 and an early renewal opportunity in Australia. Moving to slide 17, With the Q3 contract wins combined with the typical quarterly backlog consumption, our pro forma backlog now sits at $3.1 billion and is an increase of about $300 million from our Q2 ending backlog. With the previously mentioned contract discussions expected to be concluded in Q4, we expect our year-end backlog to remain healthily above $3 billion and demonstrate increasing geographic and resource diversification. On slide 18, We have provided our outlook for 2024 with unchanged key metrics from Q2 and updated capital allocation representing increased growth capital and debt supporting the Q3 contract wins in Australia. Once we have finalized contract terms and scopes in our oil sands business, we will provide our outlook for 2025. We expect a meaningful increase of year-on-year financial metrics from the growth of our Australia business, consistent contributions from our JVs, and a stable oil sands business. We anticipate the breakdown of our earnings generation will be similar to what is shown on slide 19, with Australia producing over half of earnings and Canada about one quarter. Lastly, regarding capital allocation going forward, we have announced a 20% dividend increase alongside a normal course issuer bid, clearly demonstrating our commitment to investing free cash flow in shareholder-focused ways. We are also prioritizing debt management and maintaining liquidity to support the company's sustained growth. As I said in my letter to shareholders, this year has brought fluctuations in both our business and share price, and I'd like to thank our shareholders for their continued support and patience as we position ourselves for a robust year-end, positive growth and profitability in 2025, and the free cash flow to drive further shareholder benefits. With that, I'll open up to any questions you may have.

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star, followed by the number one on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star, followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Our first question comes from the line of Aaron McNeil from TD Callen. Go ahead, please.

Hey, morning, all. Morning, Aaron. Joe, I can appreciate that you've sort of pushed off the Canadian utilization target to the end of next year. But I think last quarter in your prepared remarks, you talked about total oil sand market volumes being up year over year in the winter season. you know, some discussion about additional smaller RFPs that you had received. So, you know, just setting sort of a bigger recontracting with Suncor aside, you know, can you just speak more broadly about some of the smaller opportunities in the oil sands?

Yeah, I mean, we don't announce those. We had about a, probably, we have probably a 25% increase in Reclamation Works this winter over last winter. I think that's what you're referring to, Aaron. You know, that's a small portion. That's something where we've gone from $30 million last year to $40 million this year, kind of, in relative terms for our winter reclamation work. So, you know, on the overall oil sales number, it's not really a huge impact. You know, as far as next year, and again, we don't have the details until we get these contracts. And, you know, this is the first time we've been in this position, Aaron. Like, previous to this last year, We had five-year contracts with committed volumes, so we weren't waiting on contract awards in September. We knew what those volumes were going to be. Last year was the first time we had 80% of our oil sands business because of the consolidation under the one operator in one contract, and we didn't have the award, and we didn't get it until February. And we... we estimated what we thought we were going to get without that, and we did very poorly on that, and that's why we've pushed that off this year. So in general, we expect 2025 in oil sands to look very similar to 2024, but we really don't want to put kind of brackets around that range until we have these contracts signed off.

Makes perfect sense. And then just On the bid pipeline more generally, can you walk us through what some of the diversified bid opportunities are that are opening up this year and how we should think about replacing some of the bigger diversified projects like Fargo-Moorhead and the Cote mine? And I know Fargo is still going, but just how you're thinking about that more generally.

Yeah, I think most of the projects you see are – You know, we've got some opportunities in Australia, and we've had some in magnetite iron ore, copper, zinc. So we're seeing a lot of different commodities. And then, you know, on the infrastructure side, we really got our eyes on pre-qualling for one major project right around the end of the year. Again, we're working with one of our same partners that we are in Fargo to qualify for those. And as you know, those are some fairly long processes. The bid process can be a couple of years on those. We're seeing a lot of activity in Canada, other resources. So BC, copper, gold, we've got some gold in Ontario. There is some, I think, probably our largest bid pipeline outside of oil sands that we've ever seen. And we're just starting to scratch the surface on the Australian infrastructure world. We've been focused on integrating McKellar there and getting our ERP rolled out. So, you know, that will be more of a 2025 focus is to really advance our business development on the infrastructure side there. And that's where some of those big dots in the bottom line and to the far right are.

Gotcha. Thanks, guys. I'll turn it back. You bet.

Our next question comes from the line of Yuri Link from Canaccord Genuity. Go ahead, please.

Hey, good morning, guys.

Morning, Yuri.

Morning. What drove the sequential recovery we saw in JV revenue?

The sequential quarter on quarter?

Yeah, yeah. It went from, you know, last quarter in Q2, it was 53-odd million and 80 million in Q3. It was a bit higher than I was expecting.

Yeah, there was both big activity and then some critical milestones across our Fargo-Moorhead project, which trigger payments. So the payments there aren't hour by hour. They come from milestones of achievement, and Q3 had more milestone achievements. It was the busiest quarter we've had at Fargo-Moorhead, so that would be the big difference here.

Okay. Okay.

Okay. And then when we think about your Canadian revenue, obviously been depressed this year, some tough comps due to Cote, but the base oil sands business does seem to be down. And What are your expectations for 2025? I think you mentioned that it would be kind of similar in 2025. I'm hearing that there's been some work delayed, deferred. Does that provide an opportunity for some upside in 2025? Any additional color on the outlook for oil sands would be helpful.

I think the oil sands is pretty much been steady at these levels for several months. We expect it to be this way. We expect 2025 to look very much like 2024. The downturn that we didn't anticipate was the change in scope, and really that's why we've held off on the guidance here. But I don't think we'll find any big surprises this year, and I think the opportunity for upside is there, predominantly on if there's more civil construction activity. I think the bulk earthworks and large equipment is going to remain very consistent. I think we have an upside potential on civil construction, which we're projecting similar to this year. And in the last few years, that's been very low. So I think, you know, we're projecting civil construction in summer of next year. That's lower than our last 10 years average, if you would say, but it's consistent with where we are right now. So I do think upside is, there's still good upside in oil sands. I also think, Yuri, I'd also say that if you look at every producer's projections on barrels, they've all got increasing barrels. And so, you know, increasing barrels is increasing material movements. That's a pretty one-to-one correlation. And so, you know, we think there could be upside potential from that as well. But As of now, we really don't have the numbers that we can quantify that really tight for you.

Yeah, well, that's kind of what I'm getting at. I mean, when you talk about the scope changes, what exactly does that mean? Like, are your customers... Is the work going to other players? Are they doing it themselves? Are they not? Like, where's the dirt going?

You know, I... Either they're moving it themselves or they're deferring it. We believe we can see all of our other contractors. We think this year we got what would be our normal kind of market share of that work. We just think the work was reduced. You have to keep in mind the mining cycle in oil sands is very long. The material you're moving on the surface today is uncovering an ore ton that they're going to be putting through their process six, seven years from now. Any annual decrease doesn't necessarily reflect a long-term perspective. You can move quite a bit of volume from one year to another or spread it across five or six years. We're not privy to that level of detail in our client's planning, obviously. My guess is it's being deferred and going to be made up over future years, but again, I don't know those numbers. That's just my perspective.

Yeah, understood. Okay, guys, thanks for the color. I'll turn it over.

Our next question comes from the line of Adam Thalimer from Thompson Davis. Go ahead, please.

Hey, good morning, guys. Congrats on the strong quarter. Thanks, Adam. Can you guys just give us a general update on the turnaround at NUNA, kind of where we are, and your current thoughts on it?

I think we've completed the turnaround. I think they're focused on their winter work programs. This is their slow time of the year. And then they're really, really focused on winning work for next year, which over this winter and into Q1, is when a lot of tenders happen in their business. And I'm very confident we have the operations team that can operate safe and effectively there. And our intention is we've stabilized it. We're back to profitability. Now let's grow it back again. And our team there is 100% focused on it. And I think they've done an excellent job in turning this business around in the last seven, eight months.

And Joe, I really liked your comment about the largest bid pipeline outside of the oil sands ever. I was curious if you could kind of flesh out what you're seeing on the commodity side in the bidding.

You know, I think it's no surprise if you look across the commodity market, you know, the only ones really suffering are the EV metals at this time, you know, the lithium and the nickel. Everything else is, you know, pretty strong and steady. And, you know, When you look at resource-rich countries like Australia and Canada, in Australia, certainly the met coal, the thermal coal, the iron ore, the gold, very strong copper. And then across Canada, we see the same things with iron ore, gold. And we think those commodity cycles are going to continue to do well and actually expect those EV metals to to pick right back up again too. So I think we're in a strong long-term commodity market that's going to increase production in those commodities and increase contractor demand. So long-term, I think we're in a really good spot. And even short-term with this bid pipeline, it's very strong, especially the amount of work that's being, the amount of blue dots, if you look at our bid pipeline versus red, has grown tremendously if you compare that to even a couple of years ago.

That's good color, Joe. And then just lastly, quickly on, where are we on moving trucks to Australia?

We're complete. So we moved 25 units. The last of them are there and we actually expect all of them to be put to work and maintaining that high utilization by the end of the year. You know, if there's some other opportunities that we're bidding on, if They could attract some resources from Canada, but there's nothing committed at this time beyond that. Great.

I'll turn it over. Thank you.

Thanks, Adam. Our next question comes from the line of Maxim Suchov from National Bank Financial. Go ahead, please.

Hi. Good morning, gentlemen.

Morning, Max.

Maybe a couple of sort of finance-related questions for Jason, if I may. Jason, so when we think about free cash flow generation, can we maybe walk through a little bit the conversion from like EBITDA to FCF, how we should be thinking about this as time progresses and as you get more of your total pie coming from Australia?

Thanks. Yeah.

I think we're still in that 30 to 35% conversion ratio max. Clearly working capital has had a large impact this year. You know, with the decrease in revenue in the oil sands and moving trucks from Canada to Australia, it has made for, you know, that conversion ratio isn't in place at the moment. But, you know, we see Australia, you know, more in the, above 40% conversion ratio and then Canada in the 30% ratio. So, yeah, I think for 2025, when we do provide guidance, I would expect that conversion ratio to be in place. You know, as is understood, we do expect a big working capital swing positively in Q4, We expect 2025 to be much more consistent. 2025 should be a year that we can generate free cash flow more consistently. From my perspective, there's no reason why we shouldn't be able to. So, yeah, that's the context on free cash flow.

Okay, that's super helpful. And then just one quick clarification around Fargo. So that project was structured as an SPV, right? And sort of all the equipment that you have is kind of well-fenced. And obviously, when that project is finished, like you're not sitting without equipment, I guess, like even in the worst kind of case scenario, right?

No, that equipment is actually fit to the timeframe of the job. And when that job's done, that equipment will be disposed of. So we don't, they're all joint venture assets. You know, basically, they run the life of the project, and then they're disposed of at salvage value. Okay.

Okay, okay, that's great. And Joe, you mentioned quickly some of the early discussions around, you know, opportunities in Australia on the infrastructure side. What was curious just in terms of, you know, how advanced are those discussions and what you might be potentially seeing on the 2025 time horizon? Thanks.

Yeah, they're pretty immature right now, Max. We really haven't got into details of them Our team is really fully consumed in the integration of McKellar and this ERP rollout. All of that, we'll kind of finish it up before year end here. And then I think our Australia team will have a lot more time and capacity to look at growth in both the infrastructure side and just look at other opportunities within the business. And same here, even in Canada, we have a lot of people supporting that integration and that rollout. And then I think we'll have a lot more capacity You know, we do have the one project I talked about that we want to pre-qual for is actually in the U.S. with one of our partners at Fargo. And we are seeing some other opportunities in North America, but, again, they are at early stages. So, you know, I'd say Q1, stay tuned for that would be the timeframe. And that Q1, Q2 timeframe that I'd expect to start digging in more to that infrastructure work both in Australia and here.

Yeah. Okay. Excellent. That's it for me. Thanks so much.

Thank you, Max.

Our next question comes from the line of Tim Monachillo from ATV Capital Markets. Go ahead, please.

Thanks very much. A lot of my questions have been asked and answered. I'm curious just around sort of the gives and takes for free cash flow in 2025. Namely, what are your expectations for growth CapEx at this stage in the game? And how should we think about, I guess, distributions out of the JVs in 2025, particularly for Fargo-Moorhead?

Yeah, Tim, I could take that. As far as growth, you know, I would say the contract win we had in Q3, which we announced, you know, not all that growth is shown in the growth range that we provided for 2024. So whatever isn't in 2024 will fall into 2025. So that's in kind of the $40 million range. And that's all we have assigned right now. So we, you know, right now we see a very busy 2025 without any growth. So, you know, we'll probably guide more specifically when we announce guidance. That said, in historical precedent, we've provided growth ranges more in the February-March timeframe. But that's a placeholder for growth for next year. And then as far as the JV goes, Fargo is a big distribution. They continue to accumulate their earnings in those joint ventures. We likely won't include a sizable distribution in 2025. My understanding is that it's scheduled for 2026, so that could be a delayed piece of free cash flow. But NUNA will distribute the EBITDA they generate, as will the MNELP joint ventures. And so yeah, to the earlier question, I would expect free cash flow to be more consistent and in that kind of 35% conversion ratio. OK.

A follow-up on Max's question on Fargo equipment, there's a lot of debt that's carried in that JV. Do you think that the equipment dispositions at the end of the JV when that wraps up will satisfy the debt obligations there?

Well, the debt obligations are more around just financing the project itself. So as the authority pays their milestone payments, that debt will come down. The equipment is a tiny piece of that debt. The debt will come down as the milestones are achieved, and there will be very little debt at the end of that project because it's all structured around completion of the project. So when they get to financial completion, there will be no debt associated with the project.

Okay, great. And I was happy to see you guys stepping in at the NCIB. Can you talk a little bit about the cadence of your purchases that you're planning?

Yeah. I think that, you know, at these kind of share prices, we plan to be active in the market. So I don't think we wouldn't announce NCIB if we didn't have intention to buy shares.

Okay. Great. Well, I look forward to getting some more color over the coming months on 2025. Thanks. You bet.

Our next question comes from the line of Prem Kumar, private investor. Go ahead, please.

Hey, good morning, team. Good morning, Joe, Jason. Congrats on the quarter. Great to see Canada utilization heading in the right direction and definitely appreciate the dividend as well. the NCIV are looking forward to share your purchases in the future. I had a couple of questions. So first one is, on the parts and components supply and service agreement with Finning, could you expand on how that is different from before and what are the main changes, if you don't mind?

I'd say, I guess the easiest way I'd say is, We do a lot of our own components and a lot of our own maintenance in-house. We had three partnerships, essentially, three primary partnerships. One of those partnerships, we in-house and we took it on all ourselves. So we've just brought, you know, we've taken what was a 50-50 partnership and just taking it over and doing it all ourselves. And the other two partnerships, we swapped from the vendors we had to Finney. um, for the components that they were doing in that partnership. And, um, and we've, we've got strong confidence in, in Finney and then the terms that they gave us as far as, uh, getting better life and, uh, out of our components and lowering our overall costs. And, um, you know, we've done a few initial partnering, um, works on, on equipment rebuilds. And, you know, I think it's a, you know, it's a great partnership that's going to help us do more and cost less. So, you know, without getting into the details of it, we really just swapped a couple of partnerships from vendors in the U.S. to our OEM dealer, and we took the other one in-house ourselves.

Perfect.

Appreciate the color. And on revenues, like diversification of revenues, in a recent presentation shows U.S. the revenues of about 10%. So I'm curious, like what are some barriers to expand in the U.S. for now? Any plans on increasing revenues from U.S.? Like just want to get a color on, you know, it's 10% now, but maybe why it's 10% not more?

I think the big opportunities we see from in the U.S. are the infrastructure works, in particular, um, large earthworks infrastructure that are like our Fargo one that are climate resiliency projects. Um, that is the, the, the big infrastructure project that we hope to prequal for in, in the end of this year, beginning of next year. Um, but there would be more longer term out there. I'd say, you know, we, we'd like to see one in place before, before the large construction years of Fargo end, which would, you know, in the next three years. And, um, So we're going to get a lot more active in that infrastructure market in the U.S. here in the time to come, but we wouldn't expect that to be affecting our U.S. revenue until probably late 2026 or more likely 2027 kind of timeframe.

But are there smaller opportunities, let's say, in either the copper space or the gold space, anything that you would be looking into?

We certainly look at it and we consider it. We've seen some minor opportunities in copper, but we haven't seen any major contracts come up. And really, you know, you need something of reasonable size to be able to mobilize from far away and to compete with local guys that don't have those mobilization costs. And we just haven't seen that like in the U.S. resource commodity mining kind of space as of yet. But we certainly would. We monitor it, and we would be active in those tenders. We have multiple U.S. entities now set up, you know, from Texas and Wyoming and North Dakota. And so, yeah, you know, if something comes up in Arizona or Nevada, you know, we certainly would pursue it.

Okay. And on the cash flow, free cash flow, so per your guidance, I think Q4 would be one of the – bigger cash flows I think we need about 130 million or more to hit the lower end of the free cash flow range and I understand there's some growth capital still left I think about 25 million maybe so with the remaining mostly moved towards reducing leverage and then In the longer term, what's the company's leverage target? I know we've updated it to 2.14 year-end, but over the long term, what's the baseline leverage that you'd be targeting?

We've always wanted to keep at least one turn of EBITDA in our debt ratios in pocket, but I think depending on where the interest rates are, getting down to one times is you know, would be great. You know, but if there's opportunities for investment in buying our own shares back like we're seeing right now with our NCIBs and those kind of returns, you know, we're going to look at our capital allocation like we always do as far as a risk versus return. And, you know, although I think we'll get a substantial portion of that debt paid down this year in Q4 with this big cash flow that you've you rightly stated in our Q4. I also think we can still participate in our NCIB, and what we see is an extremely high return on purchase.

Okay. That's all I had, and thanks a lot. I appreciate the color. Thank you, Brent.

Ladies and gentlemen, just a reminder, should you have a question, please press the star, followed by the number one on your touchstone phone. Our next question comes from the line of Devin Schilling from Ventum Financial. Go ahead, please.

Hi, guys, and congrats on the quarter here.

Thanks, Devin.

Just in your shareholder letter here, you guys talk about adjusting your operational strategy given some of the changing conditions in the oil sands market. Maybe you can just elaborate on this a bit. Is this strictly about reallocating equipment or is there more to this?

Thank you. On the small end of the equipment, it's reallocation. On the bigger end, it's adjusting to changes of scope, getting more into the rental market, very similar to what we have in Australia. So, you know, it's really looking at how we track our costs and how we look at things. It's different from renting a piece of equipment. It's different from unit rate work significantly and how you track your costs and compare. So, really, it's just adjusting our strategy so that we understand our costs in the business that much better. And it's changed from more unit rate work or time and materials to these straight rentals. It doesn't affect our strategy as far as what our expectations of margins are. It just

changes some of the risk and then we we just need to look at our costs a little differently because you know some some of them go away and it simplifies a lot in the rental market yep okay no yeah that makes uh that makes sense um and i guess just on on a follow-up on the uh the 25 trucks that you guys ship to australia maybe we can just comment on your your expected incremental even a contribution from from these trucks for for the next year

Yeah, you know, I just kind of rule of thumbs. I don't have it calculated specifically to those fleets because that fleet got split up and is going six different directions, even the 25 units. So I couldn't tell you exactly. I would expect that they're going to be, you know, somewhere in the, I'd say, $10 million to $20 million range of EBITDA contribution to McKellar next year.

And they were fully underutilized in 2024, correct? Correct.

Yeah. For six months, they were being torn down and on the water. And before that, they were being parked, and they'll be back to work by the end of the year.

Perfect. No, that's great to hear. That's everything for me. Thanks. Thanks again.

No worries. Thank you, Damon.

There are no further questions at this time. I'd now like to turn the call back over to Joe Lambert. President and CEO of Closing Commons.

Thanks, Laura. Thanks again, everyone, for joining us today. We look forward to providing the next update upon our closing of our Q4 2024 results. We would also provide some more color on the guidance with these contract conclusions in Q4 here, and you'll know that sooner than our Q4 results there.

Thank you. Ladies and gentlemen, this concludes the North American Construction Group conference call on Q3 2024. We thank you for participating and ask that you please disconnect your lines.