North American Construction Group Ltd (NOA) 2024 Q3 法說會逐字稿

Good morning. Ladies and gentlemen, welcome to the North American Construction Group conference call regarding the 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's 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 & Chief Executive Officer.

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 3, 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, front line supervision, effectiveness, and auto metric testing.

Naturally. This time of year we ramp up our winter preparedness in Alberta. Oddly enough, we're also commencing preparation for our summer programs in Australia with heat hydration and cyclone weather as recurring topics on slide 4, 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 and 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 Nona joint ventures finish 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 P rollout received the final equipment shipped from Canada with expectations to have them all put to work by the end of the year and achieved record quarterly fleet utilization.

Our contracts and procurement team were also busy finalizing a parts and component supply agreement with finning. In Q3, the new agreement re establishes a strong vendor partnering structure which we believe will improve fleet reliability and lower cost 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 6. 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% of 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, 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 8. The headline EBITA 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, on improved site conditions and steady usage of the equipment. The improved consistency is due to the nature of the contracts in all sense which are now focused on more steady time and material and rental arrangements.

Moving to slide 9 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 on improved variance from the second quarter when we were up $81 million McKellar and DG I 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 region.

Our share of revenue generated in Q3 2024 by joint ventures was consistent with Q3 2023. The Fargo 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-Q 3, Eba 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 time frame 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've 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 a $17 reflects all the positive factors mentioned but was offset by the impact of higher acquisition related interest which reduced earnings by 54¢ compared to 22¢ 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 EBITA 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 AUD 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 P 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 this plan and possibly achieving our Australian utilization targets early being positive 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 front-line 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 two 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 2025.

Item three 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 four 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 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 P in Australia this year.

As we have done these P rollouts both internally and with Nuna, we have seen how improved monitoring and reporting can help identify business improvements and lower cost.

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, an 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 in 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 all 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 poll process? Please press the start. Followed by the number two. If you're using a speaker phone, please lift the handset before pressing any keys. One moment, please. For your first question.

Our first question comes from the line of Erin Macneil from JD kennel. Go ahead, please.

Morning all,

morning.

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

I mean, we don't announce those. We, we, 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 Erin. 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 and for our winter reclamation work. So, you know, on the overall oil set number, it's not really huge impact, you know, as far as next year. And again, we don't have the details until we, we get these contracts and, and you know, this is the first time we've been in this position 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, you know, we had, we knew what those volumes are going to be last year was the first time we had 80% of our oil sands business because the consolidation under the one operator in one contract and we didn't have the award, we didn't get it until February. And we, we we estimated what we thought we were going to get without that and, and we did very poorly on that and that's why we pushed that off this year. So in general, we expect 2025 to, you know, all look very much very similar to 2024 but we really don't want to put kind of brackets around that, that range until we have these contracts signed off. So.

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, the Co line and I know Fargo 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 in we've had some in, in, 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 calling 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 in Canada other resources. So, you know, BC, copper, gold, we, we've got some gold in Ontario, you know, there, there is some I, think probably our largest big 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 have been focused on integrating McKellar there and getting our P rolled out. So, you know, that would be more of a 2025 focus is to really advance our business development on the infrastructure side there. That's, that's where some of those big dots in the, in the bottom line and to the far right are so got you. Thanks.

Guys, I'll turn it back.

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

Hey, good morning, guys.

Morning.

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

Yeah.

Yeah. Yeah, it went from, you know, last quarter in Q2, it was 5,053 odd million and $80 million and in Q3, it was a bit higher than I was expecting.

Yeah, there, there's both big activity and then some critical milestones crossed at our Fargo Moorhead project which trigger payments. So the payments there are hour by hour, they come from milestones of achievement. And Q3 had had more milestone achievements. It was the busiest quarter we've had at Fargo Morehead. So that, that would be the big difference here.

Okay.

And then when we think about, your Canadian revenue obviously been, you know, depressed this year, some tough comps due to due to KTE but the base oil sands business does seem to be you know, down and what are you, I mean, what are your expectations for 25? I think you mentioned that it would be kind of similar in 25. I'm hearing that, you know, there's been some, some work delayed, deferred. Does that provide an opportunity for some upside in 25? Just any, any additional color on, on the outlook for oil sands would be helpful?

Yeah, you know, I think the oil sands is, has 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. You know, I don't, 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 II, I don't think we'll find any big surprises this year. But I, you know, I, and, and I think the opportunity for, for upside is there predominantly on, if there's more civil construction activity, I think the bulk earthworks and large equipment is, is going to remain very consistent. I think we have an upside potential on, on civil construction, which we're projecting similar to this year and, 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, is there's still good upside in oil sense when you talk about, I think you, I also say that if you, 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 1 to 1 correlation. And so, you know, we think there could be uptight potential from that as well. But as of now, you know, we really don't have the numbers that we can quantify that really, 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, what exactly does that mean, like they are, they, 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, either they're moving it themselves or they're deferring it. We don't, you know, 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 that the, you know, the mining cycle in oil sands is very long.

The material you're moving on the surface today is uncovering an or ton that they're going to be putting through their process 6-7 years from now. So, you know, 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. And, you know, we're not privy to that level of detail in our, our clients planning obviously. So, you know, my guess is it's being deferred and going to be made up over future years. But, again, I don't know those numbers. You know, 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 Thalhimer from Thompson Davis & Co. 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, the turnaround at Nuna kind of where we are? And your current thoughts on it?

I, you know, I think we've, completed the turnaround. I think they're focused on their winner work programs. This is their slow time of the year and then they're really, really focused on winning work for next year, which, you know, over this winter and into Q1 is when a lot of tenders happen in their business.

And, you know, I'm very confident we have the operations team that can operate, you know, safe and effectively there. And you know, our, our intention is we've, we've stabilized it, we're back to profitability now, let's grow it back again. And you know, our team is there is 100% focused on it. And then I think they've done an excellent job in turning this business around in the last, you know, 7-8 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.

I, you know, I think it's no surprise if you look across the commodity market. You know, the only ones really suffering are the eve metals at this time. You know, the, the lithium and the nickel, everything else is, you know, pretty strong and steady and, and, you know, when you look at resource rich countries like Australia and Canada and, you know, in Australia, certainly the met coal, the thermal coal, the iron ore, the gold, you know, very strong copper.

And then, you know, across Canada, we see the same things with iron ore, gold. And, you know, we, we think those commodity cycles are going to continue to do well and, and, and actually expect those ev metals to, to pick right back up again too. So, you know, I think we're in a strong long term commodity market that's going to increased production in, in those commodities and, and increased contractor demand. So, you know, long term, I think we're in a really good spot and even short term with this bid pipeline.

You know, it's very strong, especially the amount of work that's being, you know, the the amount of blue dots if you look at our bid pipeline versus red has, 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, 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 in maintaining that high utilization by the end of the year. You know, if there's, there's some other opportunities that we're bidding on that 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.

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

Hi, good morning, gentlemen.

Where the Max?

Maybe a couple of sorts of finance related questions for, for Jason if I may. Jason. So, when we think about free cash flow, you know, generation, can we maybe walk through a little bit you know, the conversion from like EBITDA to FCF how, you know, we should be thinking about this as time progresses and as you get, you know, more of your total pie coming from Australia. But 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 in the 30% ratio. So yeah, I think for, for 2025 when we, 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, 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 that's the context on free cash flow.

Okay. No, that's super helpful. And then just one quick clarification around Fargo. So that that project was structured as, as an SPD, right? And sort of all the equipment that you have is kind of fenced within that. And obviously when that project is finished, like you're not sitting without all the equipment, I guess, like even in the worst kind of case scenario, right?

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

Okay. That's great. And, and 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, are those discussions and what you might be potentially seeing on the 2025-time horizon. Thanks.

Yeah, they're, they're, they're pretty immature right now. Max, we really haven't gotten into details of them. You know, our team is really fully consumed in, in the integration of McKellar and this P roll out. All of that, will kind of finish up before year end here. And then I think our Australian team will have a lot more time and capacity to look at growth in the, in, in both the infrastructure side and, and just look at other opportunities within the business and, and same here, even in, Canada, we have a lot of people supporting that, that integration and that roll out 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 pre call for is actually in the US with one of our partners at Fargo. And we, we are seeing some other opportunities but in, in North America, but they again, they are at early stages. So, & I'd say Q1 stay tuned for that would be the time frame in that Q1 Q2 time frame that I 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, man.

Okay.

Our next question comes from the line of Tim Monticello from ATB 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, and what are your expectations for, for growth CapEx at this stage in the game? And how should we think about, I guess distributing or distributions out of the J BS in 2025 particularly for Fargo Morehead.

Yeah, Tim, I, I could take that as far as growth, you know, I would say that the contract win we had in Q3, which we announced, you know, not all that growth is shown in the growth range that we, 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 probably guide more specifically when we announced guidance that said in, in historical precedent, we've provided growth ranges more in the February March time frame. So, but that's a placeholder for growth for next year. And then as far as the JV goes, Fargo is the 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 is scheduled for 2026. So that could be a delayed piece of free cash flow, but Noa will distribute you know, the EBITDA they generate as well. The mal 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.

Okay. Let's follow up on Max's question on Fargo equipment, there's a lot of debt that's carried in that JB. Do you think that the equipment dispositions at the end of the JD or not 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. It's the debt will come down as the milestones are achieved. And there'll be very little debt at the end of that project because it's, it's all structured around completion of the project. So when they get to financial completion, there'll be no debt associated with the project.

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

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

Okay.

Great. Well, I look forward to getting some more color over the coming months in 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 as the NCIB looking forward to share purchases in the future.

I had a couple of questions. So first one is on the parts and components supply and service agreement with Ping. Could you expand on how that is different from before and like, 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 and in house, we had three partnerships, essentially 3 primary partnerships. One of those partnerships we in house and we took it on all ourselves. So, we, we just brought, you know, we've taken what was a 50-50 partnership and, and just taking it over and doing it all ourselves. And the other two partnerships we swapped from the vendors, we had to finning for the components that they were doing in that partnership.

And, we've, got strong confidence in, in finning and then the terms that they gave us as far as getting better life and out of our components and lowering our overall cost. And, you know, we've done a few initial partnering 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 swap a couple of partnerships from vendors in the US to our OEM dealer and we took the other one in house ourselves.

Perfect. No, I appreciate the color. And, and on revenues like diversification of revenues in a recent presentation shows us the revenues of about 10%. So I'm curious like, what are some barriers to expand in the US for now? Any plans on increasing revenues from us? 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, in, in the US are the infrastructure works in particular large earthworks infrastructure that are like our Fargo one that are climate resiliency projects. That is the, the, the big infrastructure project that we hope to prequal for and in the end of this year, beginning of next year, but they 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 is, you know, in the next three years.

And so, we're going to get a lot more active in that infrastructure market in the US here in the time to come. But we, we expect that to be affecting our, our US revenue until, you know, probably late 2026 or more likely 2027 kind of time frame?

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

We, certainly look at it and we consider it. We, we've seen some, some minor opportunities in, in copper, but we haven't seen any major contracts come up and really, you know, you need something of a reasonable size to be able to mobilize from far away in and to compete with local guys that don't have those mobilization costs.

And, we just haven't seen that like in the US resource, commodity mining kind of space as of yet. But, but we certainly would, we, we monitor it and we would be active in those tenders. We have multiple us 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 or you know, we certainly would pursue it.

Okay. And on the cash flow free cash flow. So, for your guidance, I think Q4 would be one of the bigger cash flows. I think you 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 move towards reducing leverage and, in the longer term, what's kind of like the company's leverage target? I know we've updated it to 2.1 for year end, but over the long term, kind of like what's, what's like the baseline leverage that you'd be targeting.

Yeah, you know, we, we, we've always wanted to keep at least one turn of EBITDA and our debt ratios and in, pocket. But, you know, I think depending on where the interest rates are, you know, getting down to the one time, you know, would be great. You know, but if there's opportunities for investment in, in buying our own shares back, like we're seeing right now with our NCIBs and those kinds of returns.

You know, I we're, going to look at our cap 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 pay down this year in the, in Q4 with this big cash flow that you, you rightly stated in, the, in our Q4, I also think we can still participate in our NCIB. And, and what we see is an extremely high return on purchase.

Okay. And that's, all I had and thanks a lot. I appreciate the color.

Thank you, bro.

Ladies and gentlemen, just a reminder. Should you have a question, please press the start, followed by the number one on your touchtone phone.

Our next question comes from the line of Devin Schilling from Venom 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 in the oil sands market, Maybe you can just elaborate on this a bit like is this strictly about reallocating equipment or is there, is there more to this? Thank you.

I, you know, on the small end of the equipment, it's reallocation on the on the bigger end it's adjusting to cha changes of scope getting more into the rental market very, similar to what we have in Australia. So, you know, it's, it's really looking at how we track our cost and how we look at things.

It's different from renting. A piece of equipment is different from unit rate work significantly and how you track your cost and compare. So really, it's just adjusting our strategy so that we, we understand our cost in the business that much better and it's, it's changed from, from more unit rate work or time and materials to the straight rentals. 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 cost a little differently because, you know, some, some of them go away and it simplifies a lot in the rental market.

Yes. Okay. No, that, makes that makes sense. And I guess just on, on a follow up on the 25 trucks that you guys' ship to Australia, maybe you can just comment on your, your expected incremental EBITDA contribution from, these trucks for, the next year. Thank you.

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. II I would expect that they're going to be, you know, somewhere in the, I'd say 10 to $20 million range of bit of contribution to McKellar next year.

And they were fully underutilized in 2024. Correct.

Yeah, we, yeah, you know, for six months they were being torn down and on the water. So, yeah, and before that they were being parked and we, 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.

Thank you. Then.

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

Thanks Laura. Thanks again everyone for joining us today. We look forward to providing the next update upon our closing our Q4 2024 results, we would also, we will provide some more color on the guidance with these contract conclusions in, 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 line.