North American Construction Group Ltd (NOA) 2013 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to North American Energy Partner's fiscal 2013 third-quarter earnings call. (Operator Instructions). I advise participants that this call is also being webcast concurrently on the Company's website at NACG.ca.

I will now turn the conference over to Kevin Rowand, General Manager, Corporate Development and Investor Relations of North America Energy Partners Inc. Please go ahead, sir.

Good morning, ladies and gentlemen, and thank you for joining us.

On this morning's call, we will discuss our financial results for the three months ended December 31, 2012, which represents the third quarter of our 2013 fiscal year. All amounts are in Canadian dollars.

I would like to remind everyone that statements made during our prepared remarks or in the Q&A portion of the conference call in reference to management's expectations or our predictions of the future are forward-looking statements. All statements made today which are not facts of historical -- sorry, which are not statements of historical facts are considered to be forward-looking statements.

Certain material factors or assumptions were [applied] drawing a conclusion or making a forecast or projection as reflected in the forward-looking information.

The business prospects of North American Energy Partners are subject to a number of risks and uncertainties that may cause actual results to differ materially from a conclusion, forecast, or projection in the forward-looking information. For more information about these risks, uncertainties, and assumptions, please refer to our December 31, 2012, Management's Discussion and Analysis, which is available on SEDAR and EDGAR.

On today's call, David Blackley, CFO, will first review our results for the quarter and then hand over to Martin Ferron, President and CEO, for his remarks on our strategy and outlook. As previously mentioned, management will not provide financial guidance. I'll now turn the call over to David.

Thank you, Kevin, and good morning, everyone. I am going to review our consolidated financial results for the third quarter ended December 31, 2012, as compared to the third quarter ended December 31, 2011.

As a result of the sale of our pipeline assets, current and prior-year activity from this division was reported as a discontinued operation. The results I will be discussing (technical difficulty) today are the results from continuing operations, which exclude any activity from our discontinued pipeline operations.

For the third quarter of our 2013 fiscal year, consolidated revenue was CAD189.1 million, compared to CAD218.2 million in the third quarter last year. The decrease reflects a reduction in heavy construction and mining segment revenue, partially offset by continued strong revenue growth in the commercial and industrial construction segment.

Gross margin was 14% in the third quarter, compared to 11.3% for the same period last year, reflecting increased heavy construction and mining segment margin, which compensated for the decline in margins arising from project closeouts in our commercial and industrial construction segment.

The improvement in heavy construction and mining segment margin primarily reflects a reduction in equipment maintenance costs and a lower operating lease expense resulting from the refinancing of certain operating leases to capital leases and from the sale of certain equipment under operating lease to Canadian Natural.

Third-quarter operating income was CAD11.4 million, up from CAD7.6 million last year. The improvement reflects higher gross profit during the current period and a CAD1.7 million reduction in G&A expense, resulting from business restructuring activities implemented earlier in the year. This was partially offset by a CAD1 million increase in stock-based compensation and short-term incentive program costs.

Net income from continuing operations was CAD2.9 million for the period, compared to CAD1.7 million in the same period last year. Excluding non-cash items, net income from continuing operations would have been CAD2.4 million, or CAD0.06 per share, compared to CAD0.1 million last year.

Looking at our results on a segmented basis, heavy construction and mining revenue was CAD114 million, compared to CAD159 million last year. The significant drop in activity reflects reduced mine support services at the Jackpine, Muskeg River, and Millennium mines and reduced demand for tailings and environmental construction services across the oil sands. Helping to offset some of this impact was increased overburden removal activity under our amended contract at the Horizon mine and increased site development activity at the Joslyn North mine.

Heavy construction and mining segment margin increased to 10.9% from 5.2% last year. The increase primarily reflects a reduction in equipment costs, mainly driven by lower equipment maintenance and operating lease expense. In addition, improved margins on overburdened removal activity and the closeout of two higher-margin SAGD type development projects helped offset lower-margin heavy civil construction activity and the reduction of higher-margin mine support services activity.

In the commercial and industrial construction segment, revenues increased to CAD75.1 million from CAD58.3 million last year. Piling activity was particularly strong during the current period with a high level of activity in oil sands at several projects, including the Surmont SAGD project, Base Plant mine, and Millennium mine and strong international sales of manufactured screw piles. These improvements were partially offset by reduced volumes in Saskatchewan and a reduction of structural field construction activity at the Mt. Milligan copper/gold mine as we closed out this project during the quarter.

Commercial and industrial construction segment margin was 19.4%, compared to 29.7% last year, reflecting the completion of two large projects at unusually high margins last year and the negative impact of outstanding unsigned change orders at the Mt. Milligan copper/gold mine.

Looking now at capital, total new additions for the third quarter amounted to CAD10 million, including CAD8.5 million of sustaining capital and CAD1.5 million of growth capital.

Moving onto liquidity, there were CAD35 million of outstanding borrowings and CAD3.1 million of issued and undrawn letters of credit under the revolving facility, leaving us with CAD46.9 million of borrowing availability.

Before turning the call over to Martin to discuss our outlook, I'm going to take a moment to report on the success we've had in reducing our long-term debt so far this year. Last quarter, we announced amendments to our credit agreement, extending the maturity date through October 31, 2014, and providing us with greater financial flexibility and a clear path to debt reduction.

I am happy to report that as of December 31, 2012, we have only CAD9.1 million outstanding on our Term B facility after applying CAD8.7 million of net proceeds from asset sales at the end of Q2 and CAD15 million of net proceeds from the sale of the pipeline-related assets to the repayment of the Term B facility in Q3 of fiscal 2013.

We also refinanced CAD40 million in heavy equipment operating leases, which we will expect to reduce annual operating lease costs by CAD20.3 million and reduce our annual cash lease payments by approximately CAD4.5 million. This will be offset by an increase in annual cash interest of approximately CAD2.1 million and an increase in depreciation expense consistent with the utilization levels of the refinanced equipment.

As a result of the accelerated repayment of the Term B facility, the disposable of surface equipment, and the refinancing of certain operating leases, we have reduced our total debt, excluding our revolving facility, by CAD56 million since March 31, 2012.

I will now turn the call over to Martin for his remarks.

Thank you, David, and good morning, everybody. This is my second full quarter with the Company and I'm delighted that we've been able to post two successive periods of good profitability.

Despite continuing difficult demand conditions for our heavy construction and mining business unit, we have now established a pattern of positive performance that we hope to sustain and build upon. Our Q2 profitability can now no longer be viewed as a one-off success. And our business improvement [activity] clearly moves on from its infant stage.

Our planning group again had an excellent quarter, but we also made very solid further progress in our efforts to reduce costs. I could point to several areas of this in our numbers, but the most striking one is our equipment under recovery cost. Followers of the Company will fully understand that this cost is inversely correlated to equipment utilization.

I'm pleased to report that our equipment under recovery cost dropped from CAD15.3 million in Q1 to CAD7.6 million in Q2 to CAD2.1 million in Q3, in spite of a more than 35% reduction in utilization hours over the same sequential quarters. We are gradually getting much better at matching our maintenance costs to our expected equipment utilization rates.

In reference to our other business improvement priorities, I was especially pleased that we sold our pipeline construction-related assets during the quarter for a modest premium over book value. As David mentioned, this helped us to reduce our Term B debt repayment target to just CAD9.1 million from CAD25.7 million at the end of Q2. We remain confident of being able to pay off this much lower Term B debt by the end of April this year.

Also, I'm again very satisfied that we've been able to do so overall long-term debt -- sorry, our overall long-term equipment-related debt by CAD56 million, as David mentioned.

One collateral benefit of the pipeline asset sale is that we can now monetize around CAD33 million of working capital that was tied up in the pipeline business. Although the collection of some of this is subject to dispute resolution processes, we are expecting to receive a reasonable amount of this cash by the end of Q4 to further improve our liquidity. Obviously, the sale of the pipeline asset also eliminated the risk of [three] other losses on future pipeline projects and therefore was a very positive step in reducing our overall profitability risk profile.

Another Q3 achievement which is very worthy of mention was the winning of an incremental long-term mine services contract on a new mine site. This allowed us to continue our very proud record of services and success on every mine site that has been opened since such activity started in the oil sands in the 1970s. This important contract award also clearly showed the confidence of a new customer in us and demonstrated to our competitors that we intend to remain a leading provider of such services.

Moving on now to talk about outlook, I mentioned last time that I expected demand headwinds to potentially get worse for our heavy construction and mining business over the near term. While activity levels as measured by equipment hours were down around 5% in Q3 from Q2 levels, this was due more to the impact of Christmas than any deteriorating market conditions.

For Q4, our overall outlook remains cautious as work resumed slowly in January for both our business units.

However, for heavy construction and mining, we have a reasonable amount of what we refer to as [dirt] work in hand, which is overviewing the Muskeg removal, together with reclamation activity. This may be a positive, although, unfortunately, the startup of work on our new contract was delayed due to a shortage of sand bags at the mine site. Also, as in any year, the amount of dirt work we can get through will depend on sustained cold weather conditions.

However, such favorable cold temperatures for mining work could have a converse negative effect on piling activity, particularly in northern Alberta. We have a good seasonal pile and backlog to again perform well in Q4, but we need suitable weather conditions to execute it.

As tempted as I am to head off for a tropical beach for at least part of the winter. I'm fully resolved to stay for every day of the season so that I can better appreciate the very interesting demand dynamic caused by the different impacts of cold weather conditions on the two main segments of our business.

Our business prospects for our financial-year 2014 are difficult to call at this juncture, although we're expecting a continuation of strong demand for our piling services and much the same demand headwinds to prevail for our heavy construction and mining group. Our oil sands customers are likely to remain in a cost-focused, wait-and-see mode for expenditures on existing and new open mine sites, with our main concern being continued wide oil price differentials caused by a shortage of pipeline takeaway capacities as typical of refining sites in the Gulf Coast of the USA.

There is, however, some light at the end of the mining services demand win tunnel with engineering companies reporting robust activity levels related to projects in a design stage and WTI oil prices holding up pretty well, partly supported by expansion of their reverse Seaway pipeline. Any positive news on the Keystone pipeline also likely be (technical difficulty) obvious positive catalyst for our type of mining services.

We are preparing our strategy and budget for financial-year 2014 in this quarter, and I fully expect us to remain concentrated on the continuation of our business improvement initiatives, with a particular emphasis on free cash flow generation from both operations and further mining asset sales to further reduce our leverage and improve our liquidity.

I will close with an update on one final improvement exercise, and that is the buildup of my personal stockholding in North America. At the start of our trading blackout period in early January, I owned just over 645,000 shares of the Company.

That ends my prepared remarks, and I'd now like to hand the call back over to the operator. Thank you.

(Operator Instructions). Ben Chemiavsky, Raymond James.

I'm sorry, David, I need just a little more handholding on the debt because I'm just trying to reconcile a few things. I look at your -- well, first of all, let me start on the cash flow statement. If I look at that, and I sort of ignore the sale of the pipeline business, you didn't generate any free cash in the last quarter or the nine months. Is that sort of the comment that was made in the remarks about change orders and working capital? Is that expected to unwind in the coming quarter and do you think they'll be free cash flow positive for the year?

Yes, Ben, if you look at the statement of cash flow, you will see there the working capital impact, both -- just over CAD8 million of cash back out of our numbers, and that's all equipment and working capital. It really is a timing issue as (multiple speakers)

What in particular is it? Is that the change orders?

Some of it is change orders, just the timing of work. As we've talked about, piling has gone through a very strong quarter. Their revenues have continued to ramp up. With that, their working capital has continued to build.

What we expect to see here is debt cost to turn in our fourth quarter, particularly as we collect money from our pipeline business. So we expect a large part of that CAD33 million to come in before the end of the quarter.

And I guess on the -- I'm just trying to maybe get a little more clarity on how much of that is change order related, because in the past that's been something that's been difficult to predict just how much you were going to get and when. (Multiple speakers) degree of confidence around getting that number this time -- that money to come around.

Yes, Ben, I know there is some change order impact. I don't know what the exact breakdown would be.

I would say more of it is related to the ramp up of activity at some of our larger construction projects, like the mine relocation at Syncrude and the strong activity that we've seen in piling through the third quarter.

Okay. And then, just on your debt. Sorry if I -- and maybe we can take this off-line, but just a little more handholding on how you're looking at the decrease in the leverage because, I mean, I understand the capital lease part of it being just a reclassification of operating leases. But other than that, I see what looks like about a -- am I correct? -- about a CAD20 million reduction in the debt from March 31?

No. What you're looking at -- if you actually refer to our (multiple speakers)

(Multiple speakers) in the MD&A on the long-term debt, current to the long term.

Yes, so if you look at the breakdown there with the debentures and the term loan, you'll see there that we are going from CAD283 million down to CAD252 million, so a fair reduction of debt.

And then, when you look at the operating lease, the capital lease, which we've classified as equipment building financing, you'll see that that's also come down. Now some of that is clearly in the P&L part of it, the operating lease component. And you'll see that benefit in the operating lease expense. And we have seen our revolver increase since March.

So if you were to add that into it, then clearly it would be less. But overall, if we look at those two main line items, we see that we produced a significantly -- if you just look at it from a balance-sheet standpoint, then I think the number you're referring to is closer to the mark.

Yes, because that would -- I mean, your revolver is still debt. I mean, I guess your point would be that's upon the working capital that you're talking about?

Yes.

Yes, okay. And then, finally -- one final question, if I may, in commentary around the margin, heavy construction mining, that there is an increase -- I'm just quoting here -- that primarily reflects a reduction in equipment costs mainly driven by lower maintenance and operating leases. What would be the mix of that? How much of that is -- can you give some kind of quantification around the maintenance cost impact versus the reclassification of the leases?

I think we need to compare the numbers to last year. Clearly, we've got an CAD8 million benefit related to operating losses. Some of that benefit is, as you mentioned, is broken up by a contribution from [siena rome] when they bought out some of the assets. I don't have the exact number of how much that CAD8 million benefit relates to siena rome. Some of it is because we sold finances which we dealt with in prior quarters. Some of those assets were leased, so that reduced both the debt and the operating lease expense front.

So that's helped, and then there's obviously the third piece, which is the refinancing, restructuring. So that makes up the CAD8 million.

In terms of the breakdown on the equipment costs, that's probably a little bit of harder for me to quantify. I don't know if you've got any comments showing that.

I mean, it's just timing and parts of labor on the equipment side, but it would make some improvements on our inventory management system, and through our restructuring we did, we've got some proved efficiency in monitoring on our labor factors to make sure we keep our field labor flexible to fit the utilization profile. It's not an exact number for either event, but it's ongoing information we're tracking that and we don't have a lot of history around it to project out to the future.

Yes, and I know that's been, I think from Martin, has been a focus of -- low-hanging fruit on the cost as on the maintenance side, correct?

Yes, absolutely. We have plucked our low-hanging fruit, but I think there's still some juicy fruit on the tree within easy reach.

Okay. That's great. Good to see you guys profitable again. Thanks a lot.

Bert Powell, BMO Capital Markets.

David, I just want to go to the G&A line. Relative to our expectations, it was a better performance this quarter. Can you help us think about that number? Can we revisit what that looks like on a run rate basis? And maybe, give us a sense of what is fixed and variable so we can have a better understanding of how that's going to move around quarter to quarter (multiple speakers) seasonality.

Yes, I think the biggest variable component is the stock-based compensation. That can swing pretty significantly, depending on things like our share price.

Yes.

So I think we will run anywhere from a low of about CAD700,000 and we can go up CAD3 million, CAD4 million, so that's more a factor of the soft -- or the share price.

In terms of the G&A itself, I would expect it to run somewhere between CAD13 million and CAD15 million on a quarterly basis, taking into account some of these normal variances that we get in our share price.

Okay. But excluding -- so if we exclude the share, the share-price impact on what flows through the G&A line, that's still a pretty broad range on a quarterly basis. So can you help us understand what is going to put that at the low end of the range and what's going to put that at the high end of the range?

Well, clearly, the other component would be things like our estimates of where we think we're going to have to compensate people for our short-term compensation for their performance. So we monitor that through the quarter. We could see that number vary CAD500,000 to CAD1 million, perhaps more, depending on how our performance is going.

Great. So were there reversals this quarter in the number, in terms of going through and prospectively thinking about what you're going to have to accrue for performance compensation?

No, there weren't any take PIC reversals this quarter.

Okay. So then, this quarter with CAD1 million of stock movement in it is probably a decent way to think about G&A on a quarterly basis?

Yes. Yes, I think if you try to target something around about CAD11 million. I mean, whatever bonus -- incremental bonus or [draft] would come up, had to come off that number, and then you would layer on top of that that stock-based compensation to get you into that CAD13 million to CAD15 million.

Okay. And then, just going to equipment costs, was there anything just in terms of timing in the quarter? Was this a particularly light quarter? Was there deferrals or is this representative on the maintenance side?

I'll let Joe answer that one, I think.

I mean, there isn't anything particularly unusual about the quarter or the timing. Our expenses occur. Our major components get capitalized. There's always volatility quarter to quarter just on the -- when our major components come in, but they generally -- they're on the capital side when they're of significant dollars.

Okay. So there's nothing anomalous this quarter that would point to expenses on the stuff that runs through the P&L?

No.

Okay. So I just meant, David, just following along with that, if I look at the operating margin at the gross profit level that you put in in the heavy equipment group -- I'm sorry, the heavy construction versus commercial, I'm coming out with kind of underabsorbed costs of about CAD650,000, and your MD&A says CAD2.1 million. And I'm generally thinking about that as kind of your maintenance costs in the quarter. Can you help me reconcile those numbers?

I'm not sure where you are getting the CAD650,000 as the depreciation in corporate. That's what fits our part of the numbers. When we roll it back into the divisional -- into over-recoveries when we allocate it back is that small corporate piece, so it's included in the CAD2.1 million overall.

Okay. Okay, thank you.

(Operator Instructions). Cat Lutell, Sterne, Agee.

Just a couple of quick questions. On your new long-term mining services contract, can you kind of give us a sense of the margins that you're seeing in the current market?

And my second question is around the reduction in tailings work. I think it was kind of anticipated that that business would be ramping up more by now with the direct to 74 and everything, so has anything changed there and how does that look going forward?

I'll have a shot at both of those. On the new contract, we did the work with our usual margins so we certainly didn't play everything to win it on a cheap basis. I'm hopeful through our cost-reduction initiatives we'll actually earn a better margin return on the project.

In terms of tailings work, it just dried up with a lot of other mining service related work during the course of the year. It's a discretionary expenditure, to an extent, on behalf of our customers, and they were in deferral mode. So we just saw a drop-off in that type of activity gradually through the year.

Okay. Thank you.

AJ Strasser, Cooper Creek.

So just a few questions here. Just all things considered, maybe you can talk a little bit about Q4 in the HCM division. You said the project was slightly delayed. What was it delayed from, when to when? And all things considered, what should we -- how should we think about revenue in that division, Q3 to Q4, if weather is cooperative? Just kind of given the typical seasonality.

Yes, I think the overall answer is pretty flat in terms of new contracts. We'd expect it to be more or less in full swing by now.

Unfortunately, production at that site has been delayed, so they need more beds, more camp beds to accommodate the resources to bring up production on. So we've got a plan of getting on site and ramping up, which is today probably 30 days from what we hope for. So as I mentioned in my prepared remarks, we've got a reasonable amount of work. It's just, as you say, having the weather to execute it. So all signs are so far that the weather is cooperating, but we have to see for the next two months.

I mean, Martin, I appreciate the conservatism on the end markets being a little bit still soft, but the typical seasonality, Q3 to Q4, is, I think, maybe something along the lines of CAD20 million-plus of revenue. So any reason we shouldn't kind of see the typical seasonality this year if weather is cooperative?

Yes, I'm hoping it will be similar. You know, last year piling benefited from, number one, warmer weather conditions.

But as I mentioned in my remarks, that could happen again. But that would have a negative effect on mining. So the mix of whether is very interesting in terms of what our potential outcomes are.

Could you outline what you expect your CapEx to be for the entire year?

Yes, AJ, we would be looking at it at around about the CAD40 million mark. We usually get that range of CAD40 million to CAD60 million. We would be targeting the lower end of that range, around about CAD40 million. That's excluding any asset disposals in that.

And then, the last question is a little bit more qualitative. We'd appreciate all the cost savings that you guys have done here on the HCM side. You've done a phenomenal job. Without doubt, over some time, one [seas] pipeline you build and oil sand activity picks up again. Could you give us a sense of how you position the Company to kind of benefit from that type of pickup and where, given all the cost-savings initiatives, where do you think the margin could be once these end markets eventually pick up?

Well, we've achieved 14% in this quarter in difficult market conditions. So it's not unrealistic to hope for much better margins when demand picks up. I wouldn't want to put a number out there, but it could clearly be a lot better than 14%.

Okay. Thank you, again, and great job.

Thank you.

Bert Powell, BMO Capital Markets.

I just had a couple of follow-ups. David, just on the operating leases, there's more contemplated in terms of converting to operating. The CAD8 million in this quarter, assuming you get the rest of it done, what does that look like as we head into 2014?

Yes, Bert, there may be a little bit left to do. I'm not planning on a lot more in the way of refinancing in this next quarter. We don't really want to use up all of our capacity right now that we've [view] at the banks. We want to leave ourselves some flexibility there. So whatever comes through is likely to be pretty small.

Okay. David, can you get the Term B going this quarter?

We're confident we can. I think we've got at least another CAD800,000 that we have paid down or will be paying down shortly here. So that certainly helps.

We do have the ability to pay down up to CAD5 million out of the revolver, if we need to. We don't anticipate doing that right now, but that certainly helps us. And I know that John and the equipment group are continuing to look at options for selling equipment. Pretty much as we said, it will come in more piecemeal and over a longer period of time.

Okay. And then, just last question in terms of the Mt. Milligan closeout in the quarter having an impact on margins, if I look to the claims attributable to the commercial industrial segment, it looks like there was about CAD600,000 of revenue that went through without associated costs. Is that the right way to think about it, which would be kind of like a couple basis points in terms of margin, or is it more material than that?

It has the potential to be more than that, so keep in mind that we've only recognized revenue up to cost. If through some of our change orders we can get more than just the regular margin, because we've got some other things that we want to claim there, then yes, we could do that.

Just thinking about the margins this quarter, the right way to think about it is adjusting the commercial margins for the Mt. Milligan is (multiple speakers)

Yes, yes, we just want to adjust the margins in this quarter for that, yes.

Okay. Thank you.

Stephen Ragard, Stephens Inc.

Just a couple questions from me. On the gross margin line, I guess in the current demand environment you're seeing, you saw nice improvement there sequentially and on a year-over-year basis. The 14% margin, the right way to think about that going forward?

Maybe for Q4 it might be down a little bit because of the mix of work. But we're certainly striving for 15% as our first target on a kind of core [beit] and annual basis.

Okay. That's helpful. And then, I just wanted to make sure I heard correctly. On the sequential change in revenues, you're basically sort of expecting right at this point, I guess weather depending, flattish type sequential growth? Did I hear that correctly?

In terms of heavy construction and mining, yes. But piling will be down because of the seasonality.

Chris Layla, GMP Securities.

I was just wondering if you could give a sense of the fleet utilization (technical difficulty). And then, secondly, maybe just a sense of how much equipment is still out in the market and how much overcapacity is there?

Do you want to take a shot at that, Joe?

Yes, as far as our monitoring, even looking at the year on year, it can be quite distorting because of the downtimes that we had at CNRL previously. So it depends on which -- you almost have to separate it.

We're looking to develop better KCIs that we can monitor that on. Right now, in the fourth quarter, we're fairly high utilized with our fleet, and we look at it quarter by quarter on what kind of work is coming up.

So, not a good answer for you. I'd say, overall, the fleet utilization is probably similar to what it was last year in this quarter, but I don't have a key measurement I can give you on that.

Okay. That's fine. And then, just secondly on -- maybe just as well a comment on the greater -- on the more macro market in terms of what you are seeing in terms of equipment in the market. And then, just also on Joslyn North, just a comment maybe on how much work you have remaining with them and if there's any impact of Suncor's announcement last night.

Well, there were lots of pieces there. Let's (technical difficulty) one or two of them. In terms of equipment capacity, I think there is overcapacity in the market generally. We're in the mode of rightsizing our fleet in order to better serve this demand and we're going to continue to do that probably into our next financial year.

I can't really comment on competitive fleets. On Joslyn, Barry, maybe you can --

Yes, on Joslyn, there's a definite impact on where they're spending their money, and then some of the scope has been deferred or, at this point, delayed. So we're still forging ahead at the same pace we were. It's a slow and steady pace that [sight] capture and clearing and grubbing and ditching and pawns. There are futurescopes that we're pricing right now, but nothing I can really speak of that -- with any substance.

And in terms of Suncor's announcement, they've always an upgrader. Didn't have any impact on us. It will obviously be interesting to see what they decide on Four Hills and Joslyn with their partner. So we'll be keenly looking to news on that.

Great. That's all for me.

Maxim Sytchev, AltaCorp Capital.

Just a follow-up on the fleet size and how far you are in terms of rationalizing the asset base. I mean, is it fair to say right now you are kind of half done with your prospective disposals, or how should we think about that?

I think we've done a couple of things, Maxim. I mean, we are continually updating our utilization profiles and projections based on what operations tells us. So nothing gets ever in the top, ultimately. We're always going to monitor it, but getting our [pigs] down to the levels of where our consistent usage is, I'd say we are at least halfway through that, based on our projection of the future.

And one of the other major gains for us is improved monitoring of our fleet is it -- we've been able to manage down our rental unit. So getting more out of our own fleets and being able to drop the rental units, which doesn't change our equipment operating hours. It improves our profitability because we're using our own equipment instead of external rentals.

All right, okay. That's great. And then, any comment in terms of pricing right now? I mean, overall, obviously the macro environment is still pretty difficult. But are you feeling that we're kind of scraping the bottom in terms of expectations for what the producers would like the service providers to price on the market?

Yes, I'd certainly like to think we are near or at the bottom on that, Max.

Okay. And then, maybe just very lastly, in terms of leverage goals over the medium term, where would you like maybe to get, let's call it, over the next 24 months on a net debt to EBITDA basis? I mean, is there a target that you think is achievable that you might share with us?

Max, we haven't set ourselves a specific target. What we are looking to do is just, as we get [inserts] of cash, that will obviously go to reducing our debt, and that's what our continued focus will be.

Ben Chemiavsky, Raymond James.

Hi, guys. I just wanted to clarify something that I -- one of the comments you made, just to make sure I heard that right. CapEx at CAD40 million. Was that what you were expecting it to finish out this fiscal year or is that an expectation for fiscal 2014?

No, that would be for this year.

What would 2014 look like?

We haven't completed our project process yet, so that's a little hard for me to say, but clearly, all things being equal, we'd be looking at numbers similar to this, yes. If we can find a way to lower it, we would certainly look to do that. I don't think we've got plans right now for a big capital spend next year.

Right. And I guess, any commentary at this point on next fiscal year or is it still premature for you?

Yes.

Yes. As I mentioned, we're in the middle of our budget in process now, so we'll have much more color on that next time around.

And just finally, another small point in the commentary that you made. International sales of manufactured screw piles. Is that amounting to anything material at this point?

Yes, it is.

What would it be? (Multiple speakers). How do we look at that? Is that something that you think will continue (technical difficulty) you to grow and at what rate? How is that affecting those numbers as we think about it?

Yes, you know, I think near term we are not expecting big increases, but it is developing into a potential growth opportunity for us longer term (multiple speakers)

Is this from the acquisition you did a couple of years ago?

Yes.

Yes. So that market is coming to fruition for you.

Yes, actually it's coming a different way. I think when we initially looked at the acquisition, the focus very much would be the opportunities in Alberta, but as it's turned out, we've found a lot of opportunities internationally. We picked up some work in Alberta, but the real growth seems to be outside Canada.

That's great. Okay. Thank you.

(Operator Instructions). AJ Strasser, Cooper Creek.

Thank you for taking my follow-up question here. Are there any potential new projects that you guys are bidding upon right now, maybe in line with as large as your recent win?

Not as large as that, AJ, but one or two nice projects that we are bidding. One of them is outside the oil sands, and that's going to be a focus area for us going forward. So yes, we are bidding some nice work, so hope to win some of it.

And could you elaborate on your work that you guys did in SAGD this current quarter?

That was mainly in our piling division, AJ, in our [the three month site].

Okay. Thank you for taking my questions.

Thank you. I'm showing there are no further questions at this time. I will now turn the floor back over to management for closing comments.

Okay. Well, thanks for joining us today and we look forward to talking to you again in the near future. Thanks.

Thank you. And this concludes the North American Energy Partners conference call.