Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Recordable injury rate remains below industry-leading target frequency of 0.5, showcasing strong safety performance.
- Australian business delivered strong results, with MacKellar achieving its best monthly result in company history in May.
- Nuna partnership returned to profitability in Q2 after almost a year of poor performance.
- Fleet utilization in Australia remains strong, exceeding end-of-year utilization targets in two of the last four months.
- Q2 EBITDA reached $87 million with a 26% margin, driven by strong performance in Australia.
Negative Points
- Canadian fleet utilization suffered due to fleet mobilization between oil sand sites and lower winter reclamation work.
- Extensive loss days in Q2 due to wildfire protocols and abnormal rainfall in Canada.
- Lower-than-expected revenue from the oil sands business due to poor weather conditions.
- Net debt levels increased to $833 million, partly due to growth assets purchased and changes in the Australian exchange rate.
- General and administrative expenses were slightly over the 4% threshold, partly due to higher accounting and legal costs associated with the MacKellar acquisition.
Q & A Highlights
Q: Joe, just to clarify, does the guidance for the back half of the year require you to win one of the ex-oil sands awards that you're targeting? Or that's more going to bolster 2025?
A: It's more 2025. We don't have them forecasted. There's some potential that we get some early reclamation work in Q4, but that's not what's in the forecast.
Q: How has the bid funnel kind of shifted around the last few months? I see there's a large oil sands extension in there that's included in early 2025. I know you were chasing some work in Ontario. Just maybe a quick update on what's new and what's kind of dropped out of the bid funnel.
A: There were three projects in Ontario we were bidding and we're actively bidding, one really big one and two smaller ones. One of the smaller ones we were unsuccessful on, that's one that came off of that. We've received some increased interest in a couple of other opportunities, so I think what I would say is outside of oil sands, we've pretty much added to the bid pipeline from what was either lost, awarded or deferred. And inside of oil sands, we have a lot of active tenders with the regional contract and then winter reclamation.
Q: Just on the write-down of the assets held for sale, are those the 12 trucks that were auctioned off? And can you just confirm that that $4 million is in your adjusted EBITDA? I.e., if we were to add that back, you'd be more around $91 million?
A: Yes. We can confirm those are the trucks, but no, it is already added back as part of the -- from reported to adjusted earnings. It's already in the $87 million.
Q: You mentioned Canada hitting the utilization target by early 2025. I know you walked through the equipment transfers, the sales, the bids. But do you expect to hit that target just seasonally or on an annual basis? And do you need to win that additional work to hit the goal?
A: We expect to hit it annually starting in 2025. We originally thought we'd get there by the end of this year, pretty much Q4. Because we do start -- we're seeing -- as you saw in Jason's comments, we're starting to get a bit more normalized in oil sands. The seasonality of oil sands was the smaller assets, and those are the underutilized ones that we're moving out. A lot of that goes away as those assets go away.
Q: Jason, obviously some debt maturities in 2026. I can appreciate most of it's the credit facility, but you've got the converts in there, too. You've upped the exit leverage guidance for the quarter. You did the MacKellar transactions. I guess what sort of the capital allocation priority into 2025? And what's sort of in your job jar over the next 6 to 12 months as you think about planning the capital structure?
A: Yes. Obviously, free cash flow is paramount. We've broadcast or we've communicated that free cash flow is coming in the second half, and that will increase liquidity. We clearly have the liquidity available to us already as far as dealing with the convertible debentures, if required. And yes, we're in the routine of extending our credit facility every year, so keeping it three years out in the future. Those are kind of the key focuses, but we'll continue to look at alternatives. But base plan is move the credit facility ahead 1 more year in this calendar year and then keep tracking the debentures.
Q: Joe, you said you were surprised by the amount of winter reclamation work in the oil sands. Can you just expand on that?
A: Yes. We usually get the tenders, the RFPs for winter reclamation about this time, and we have several of them. We've submitted some actually, and there are some that are still to be submitted. And just the volumes, overall volumes we see -- because you basically get tenders from everybody, so you know what the whole market volume is, and this year looks to be about 25% higher than last year.
Q: Do you have a breakout on EBITDA contribution anticipated from the trucks that you sent to Australia once they get to work?
A: I would put it at about $5 million in Q4, so meaningful and at good margins, incremental margins.
Q: The trucks, the 12 trucks you sold, was that in Q2 or Q3? And what were the proceeds?
A: Proceeds came in in early July. It was reflected in Q2 financials, but the free cash flow of that $8 million will come in in Q3.
Q: Could you talk a little bit about the utilization of the oil sands fleet so far in Q3? Have you seen a nice uptick there?
A: Well, certainly from the low point to Q2, yes. I think we're projecting somewhere in the low 60s. May in particular, June wasn't great, but May was probably the worst month since the wildfires of 2016. We started the month with a week's worth of fire and evacuations in Fort McMurray, which were remnant of the May fires of 2016. But thankfully, only lasted a week in that case because we got some great rain after that. Unfortunately, great for the fire has been unfortunate for the rest of the operations. It rained for the bulk of the remaining part of the month of May, so we had double our rainfall and just some unusual weather events in the particular quarter there.
Q: The MD&A mentioned some scope productions for overburden removal at Fort Hills and Syncrude. Can you elaborate on that? Is that I guess an expectation going forward? Is that sort of a Q2 specific impact? Or how should we be thinking about your go-forward role at Fort Hills and Syncrude compared to what it was under the old contract?
A: When we looked at the overburden agreement, it's called the Heavy Civil Regional Services Contract now, that covers off the 5 mine sites that are managed by the one client. Year-on-year, they look -- we just got the RFP in, but the initial volumes look very similar to what was awarded this year. And with a slight change in that there was a unit rate overburden bid at 2 different sites last year. And the rest was bid as rental agreements for trucks and shovels, and this RFP only has unit rate work at one site, but it has more rental volumes. So it looks like they're switching one of
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
