Q2 2022 North American Construction Group Ltd Earnings Call
I will now turn the conference over to your number Michelle and CEO .
Thanks Sergio.
Good morning, everyone and thanks for joining our call today.
I wanted to start with the Q2 2022 operational performance before handing it over to Jason.
The financial overview, and then I will conclude with the operational priorities and outlook for 2022 before taking your questions.
In today's Q2 operational review I want to give listeners some clarity on the issues affecting our business.
What areas of the business are being affected what we're doing about it what progress we have made and lastly, when we expect to have the issues resolved.
On slide three our Q2 total recordable rate of <unk> 501 was a 40% improvement to our Q1 standalone results, but the trailing 12 months remains above our industry, leading target frequency of 0.5, and we will continue focusing our efforts on further developing our green hand, new hire trainee.
Programs, reducing hand in lifting incidents and prevention of high potential injury events.
On slide four we show the three major issues affecting our business the.
The first is a good issue to have high demand.
We'll speak more directly to this when we get to slide six where we highlight fleet utilization.
The second issue of inflationary pressures is due to parts and labor price increases from key suppliers or vendors, which are at historical highs.
These inflationary pressures are immediately increasing equipment costs, which are not yet being captured in the contract escalation clauses, which use lagging indices.
Third on the list is a skilled labor shortage, which impacts our ability to promptly repair equipment.
Skilled labor shortage in the oil sands in particular has also driven a wage escalation of almost 30% for mechanics as competition for their services increases.
The parts price increase impact all of our businesses, but the oil sands wage escalation is impacting the 50% EBIT of our business typically generated in the oil sands.
The diversification of our business across increased commodities and customers has definitely helped us limit the extent of the skilled trade was wage escalation impacts.
However, the cost escalation impacts from items, two and three are driving the historically low Q2 margins.
Operational execution and safety were in line with our expectations, but the continued increase in vendor parts pricing our need to match oil sand wage escalation for skilled trades to prevent further quits and the current disconnect between actual costs and lagging indices is a reason for margin reductions.
Moving on to slide five let's get into our response and how we are progressing against these core issues first and foremost we continue to develop to attract and retain our skilled maintenance tradespeople to improved fleet utilization.
<unk> has an extensive and comprehensive program to expand both our Atchison and field base maintenance workforce.
As an example of this progress on our Q1 call I noted that we add added approximately 20% more employees into our apprentice program since the beginning of the year.
That increase is now over 50%.
The total increase in heavy equipment technicians and apprentices in Q2 was just over 6%.
Our shop expansion with additional re manufacturing capacity and services and a central telematics control room is complete and we will allow for continued growth in our bench and program a machine health monitoring for our current around 260 real time connected assets.
Since the start of 2022 are been chance program has grown by 30% and our telematics program is estimated to have saved just under a $1 million through reduced in house monitoring costs and early machine health issue identification and interventions.
I look forward to sharing more of the benefits of our telematics system with you as connected fleet and data increases in our systems and reporting mature.
On the cost control side, we're seeing opportunities increase announced component remanufacturing and equipment servicing work and are actively looking at source suppliers and inventory management to reduce costs and increase efficiency in parts delivery.
Lastly, we have added senior maintenance leadership to better support the field work in summary, we're actively addressing all areas of cost and skilled trades development within our control.
Moving on to slide six while the Q2 financial performance was well below our own expectations due to the previously mentioned market issues the demand for our fleet remains high.
The Q2 utilization of 59% was essentially equal to the previous Q2 high of 60% achieved in 2019.
We expect the high demand to remain into and possibly beyond 2023 wells.
We likewise expect our progress on increasing the maintenance labor workforce will directly correlate to improved fleet utilization.
Between this high demand our progress on our manpower issues and our in house maintenance capability as highlighted in the following slide seven.
We remain confident in our future business success.
Slide eight is a quick snapshot of our current positioning as a company.
Our indigenous partners under contract and in fleet, we have in place coupled with our ever improving maintenance capabilities gives us solid tangible confidence moving forward.
I will expand more on our future outlook after Jason reviews, the Q2 financials.
Thanks, Joe.
The financial review begins on slide 10, with a few of our key performance indicators.
Combined revenue of $228 million represented a strong quarter for us and was generally consistent with the last two quarter revenues of 237 and $235 million respectively.
This revenue consistency.
Highlights our diversification and has culminated with trailing 12 trailing revenue now exceeding $900 million over the last 12 months.
From a combined gross profit margin perspective, we generated nine 6% based on inflation factors that are much discussed throughout this quarter's materials.
As referenced on this slide the nine 6% can be split into our wholly owned businesses.
Which were significantly impacted by cost inflation and all told ended up posting a seven 4% gross margin.
That said, our joint ventures, we're much better positioned to manage inflation and based on their specific situations and strong operating performances achieved a steady an impressive 15, 7% gross margin in the quarter.
Getting back to revenue and on Slide 11, total combined revenue for the quarter of $228 million was 30% ahead of Q2 2021.
Revenue achieved in the quarter was driven by a broad listing of mine sites and business lines, which all show strong demand for our services.
The re mobilize fleet at the Fort Hills mine had a full quarter of operations compared to a partial quarter in Q2, 2021, which was a key driver of the positive revenue variance.
As you are likely aware the commercial posture in the Oilsands region is robust and we experienced this firsthand this quarter as the focus on production means our equipment is critical to our customers' success.
CGI trading, which we purchased in Q3 2021 as well as the sale of haul trucks into one of our joint ventures also boosted revenue this quarter.
Revenue from our joint ventures of $60 million was identical to Q1 2022 as continued volumes at the goldmine contract in northern Ontario, where coupled with the increasing prominence of our <unk> joint venture and progress being made on the Fargo Moorhead flood diversion project.
Combined gross profit margin of nine 6% was influenced most notably by the workforce workforce shortages in the skilled trades, which has the combined impact of lessening topline potential while increasing the need to implement less effective measures including re.
Alliance on third party providers and rental equipment.
Other notable drivers impacting this quarters margin included supplier and vendor cost increases primarily related to parts and components, which we conservatively estimate to have directly impacted Q2 caused by around $5 million.
And secondly, the timing impact of rate Escalations, which lag based on published index values.
Moving to slide 12.
Adjusted EBITDA of $42 million was identical to last year, but the lower margin of 18, 3% reflects the harsh cost impacts previously mentioned.
Included in EBITDA, as general and administrative expenses, which were $6 $9 million in the quarter equivalent to four 1% of revenue.
As always we pride ourselves on G&A discipline in Q2 was no different in that regard.
Going from EBITDA to EBIT, we expense depreciation equivalent to 12, 7% of combined revenue, which reflected the depreciation rate of our entire business.
When looking at just the wholly owned entities in our heavy equipment within them the depreciation fixed percentage for the quarter was 15, 7% of revenue.
And reflected an effective.
Albeit less than planned use of our fleet this quarter.
Adjusted earnings per share for the quarter of.
Of 17 was driven by $12 $8 million from.
<unk> EBIT net of routine interest and taxes.
Our overall effective interest rate year to date is now four 8% as we trend up from the 2021 effective rate of four 3%.
The well known interest rate increases.
Our credit facility.
Which currently has drawn $140 million and makes up approximately 35% of net debt is the only instrument directly impacted by rate increases.
Moving to slide 13.
I'll briefly summarize our cash flow net cash provided by operations of $35 million was.
<unk> by the business with the difference between this figure and the $42 million of EBITDA being cash interest paid in the quarter of $5 8 million.
Sustaining maintenance capital of $22 million was primarily dedicated to maintenance of the existing fleet as we invest in our fleet that drives our core business.
Working capital was flat for the quarter and similar to last year's Q2.
I'll end on slide 14.
Total capital liquidity of nearly 200 million.
Million.
Reflects our strong position as we benefit from our disciplined approach in years past.
On a trailing 12 month basis, our senior leverage ratio as calculated by our credit facility remained steady at one six times.
Net debt level of increased $10 million in the quarter as free cash flow of $10 million was more than offset by the purchase and subsequent cancellation of over $1 1 million shares.
For $17 4 million in the quarter.
And with those summarized financial comments I'll pass the call back to Joe.
Thanks, Jason.
Looking at slide 16.
This slide summarizes our priorities for 2022.
I've addressed item for as part of our response to the current macro environment now.
Now looking at item one we are and will continue to be laser focused on contract administration in regards to the application and accuracy contract escalation clauses and in particular, the local oil sands maintenance wage increases and impact of OEM and vendor equipment parts price increases.
As I have stated previously we are confident that our transparency and long standing client relationships will result, a mutually acceptable resolution we.
We have for oil sands customers and are in active daily discussions with all of them and we fully expect to achieve resolution within Q3.
Of the two remaining priority item too detailed on slide 17.
As our ongoing efforts to ensure a well planned and smooth startup of our Red River Valley lines Fargo Moorhead project.
The project is progressing well and we expect to commence Earth worked as planned in Q3.
The equipment fleet as been procured design work and planning are rapidly approaching construction ready status and hiring remaining field Stefan workers has commenced.
We are eager to get going and look forward to latter half of the year. When we can start providing progress reports on the actual construction activity.
Moving on to slide 18.
This bid pipeline slide highlights our remaining item three from the priority slide 16.
Our bid pipeline remains strong and we expect to win our fair share of their large red Dot regional oil sands tender and believe we will see another blue dot win outside the oil sands before year end.
Demand continues to grow and the number of projects in the active tender stage that is the second row of the bid pipeline has doubled since Q1 for both oil sands from 1% to two projects, but more impressively outside of oil sands from five to 10 active tender projects.
On slide 19, our backlog sits at $1 6 billion and we continue to replenish and win our fair share of work across all resource sectors.
What I believe are key takeaways on this slide is that our backlog is roughly proportionate to our diversification target demonstrating both confidence and sustainability of our diversification efforts and lastly, a possibly most importantly.
If we achieve the bid wins noted on the previous slide we expect our backlog to exceed 2 billion before the year is out.
On slide 20, we have provided our revised outlook for 2022.
As I stated in my shareholder letter, while lowering guidance is neither enjoyable or something we want to be seen as common in our business.
The fact that our business can withstand such unusual inflationary and market pressures and still produce a free cash flow that enables reductions of debt and common shares by 78% and allows modest growth investment.
It gives us confidence in the business core strength and resiliency.
On the upside we see slide 21.
As a reasonable projection of our business based on high demand modest growth improved utilization from our expected stronger maintenance workforce and increasing margins as we continue to lower costs and advance operations efficiency.
Combined we see these last two slides is showing a business with a core strength to endure high near term inflationary impacts, while maintaining our strategy and execution to provide consistent long term growth and returns and shareholder friendly ways.
With that up with that I'll open it up for any questions you may have.
Okay.
Thank you to ask a question on <unk> and number one if you wish to withdraw your question you can bridge turf quoting numbers too.
You have some periods your question and we would like to return to the queue.
Please press star one again sort of refresh will begin the Q&A section.
Yeah.
Your first question comes from Europe .
Please go ahead.
Hey, good morning.
Good morning, Harry.
Good morning.
So I wanted to circle, a circle back on your discussions with your customers on the contract escalation clauses.
We will assuming you're successful.
Will those be.
A retroactive at all will they go back into you say the spring when you started to see.
These really higher costs and the second part of that question would be what what's assumed in your guidance for these discussions.
So we've got an estimate on the.
On the resolution and I think we're conservative on that.
I really don't want to tell you the specifics were in negotiations and I would.
I'd like to think that we might be able to improve upon that but essentially we are.
We are.
The reason for the drop down in the guidance is we do believe there is a timing gap.
And then have a overhang when there's when there's deflation if you would.
But roughly we think were probably about two months of overlap on that debt.
Arent going to be able to recover and that would be predominantly as we incurred in Q2. So we do think the.
Q3, Q4 numbers and our projections for the outlook are.
And in line with the timing and what we think will get.
Does that cover it up very I'm, sorry, as a little bit vague in that.
No no and I understand you are in the middle of negotiations. So I guess the point would be that there is no.
<unk>.
Kind of catch up payment for Q2 that.
That could conceivably boosts Q3 above where where it might otherwise be it doesn't sound like that's the case it sounds like youre trying to get the costs adjusted such that the back half of the year kind of return to more normalized margins is that it.
Yes, I would say that spot on here.
Yes, okay.
That's that's great for me I'll turn it over there. Thanks.
Yes.
Thank you. Your next question comes from Jacob bout from CIBC. Please go ahead.
Hi, good morning.
Sure Nick.
Wanted to go back to the ESCO.
Escalation costs.
How much.
Of these.
Contracts can be negotiated versus.
It's just a stomach.
We just have to deal with these Hawaii embassies.
Hi.
We've done this.
Consistently over time.
Both with increases and decreases so when Ed.
Particularly in oil Sands Jacobs, so the contracts we have in oil sands.
They they've been amended outside of contractual arrangements based on what's going on in the market. So.
Whether we add a depressed oil price and we are looking for ways to reduce our costs and pass on to customers, which we've done.
This case, where it's escalating we would expect.
Anytime we have unusual market conditions.
Both up or down.
There are clients are we've approach our clients our clients has approached us for amendments outside of the normal cycle of the contract.
So.
But to be clear all in your view all of these contracts should.
Should be negotiable.
Yes, and I would say, we've probably done this in the order of half a dozen times in the last.
Six or seven years.
Okay.
And then just on the technician technician shortages.
The what's your equipment utilization baked into the second half guidance that things return to normal or.
It it actually starts to return to normal over Q3.
We believe we can.
Possibly improve upon that come Q4, so it's a return to normal we really just started gaining I'd say in May and June net where we picked up at 6%.
<unk>.
The workforce during the quarter was predominantly in the latter half so based on our projections, which I believe were reasonably conservative.
We would get back to a more normal utilization over Q3 and then.
We've got had a normal into the forecast, but I do believe there could be some upside in Q4, if we're able to progress.
And some of it some of the areas better it's a direct correlation between manpower utilization right now.
And im assuming theres, a cost associated with attracting new talent.
How are you competing against guys like spending or gear.
It's market wage for us and I think.
One of the things that the different areas. We built upon like our bench hands program are things that a lot of other people can do.
That's kind of a shop based setup and you've got to have enough mass.
And our apprenticeship program.
For somebody to be able to build up.
Think we're somewhere in a range around 70 total apprentices.
That doesn't happen overnight, especially because theyre scattered through the years and equal distributions. So we think we will get roughly a quarter of that.
Third quarter will come out is fully <unk>.
Every year.
So.
Not everybody can do that.
I know some of our vendors have zero practices or had the last time I checked.
A significant amount.
The bench and program isn't something I hear a lot about different.
Company is doing that or our ability to move people around the shop environment, we have here versus the field and get work that matches.
Some guys might want to work longer extended schedules and have more opportunity to overtime and lehman camps or some might be homebase and be home every night and be more shop base. So I think.
We certainly have an offer of work.
Our work here I think that matches a lot of different.
Peoples work life balance and what they want to do and I don't think a lot of others have that even vendors.
Last question is just.
So you talked about 6% increase.
In hiring maybe you can just comment on what attrition has been over the first half of the year.
Well.
We.
We had about.
I actually have the numbers here.
We had a loss of about.
I'd say 20.
People total in in Q1 going into April of Q2, and we recovered more than half of that.
In the May and June timeframe. So.
And this was really Jacobs this was us resisting to pay those increases we didn't see increasing wages is bringing more skilled trades into the region and then if all you're doing is.
People walking across the street, and we're not actually bring in more resources into the area, we're not fixing the issue.
But ultimately.
We started out people leave because these are these are significant wage increases this isn't somebody getting 50 sets in our remarks them getting $15 an hour or more and so ultimately we had to match it or we would keep losing people and.
And that's what we did and then.
That stopped and we're able to start recruiting again.
Thank you for your answers.
Thank you.
Thank you. Your next question comes from Brian <unk> from.
From Raymond James.
Yes, thanks, good morning.
Morning, Brian .
Yes, maybe just some comments on DTI, how is that part of the business performed of late are you seeing an increased interest as we continue to see that type of equipment and parts market.
Yes, certainly.
Performance.
As planned slightly better I believe and which.
It was a tremendous accomplishment certainly during the pandemic and the limited ability to travel to a lot of this work is finding.
<unk> and.
Cores that are all around the world. So travel is a pretty interesting.
Part of that business, but.
I'd certainly the the demand on new equipment and people wanting to extend used equipment life longer including ourselves.
One of <unk> best customers is internally.
It is.
Certainly bodes well for their future.
We have been looking at expanding more into Canada.
Significant market here and I think we're going to set up a bit of a shop here for our DGA guys in and be able to grow this business. So it's not a huge top line business, but it has certainly shown to be resilient and consistent.
With great opportunities for growth.
Okay. Thanks.
And then I know you provided some color but is there any reason to believe that.
Technician availability is different from prior cycles.
Is this a tighter environment, where youre available talent pool has actually shrunk because people have left the industry.
Okay.
I'm just talking from my perception I don't think the numbers have shrank I think the demand for equipment is increased and so you've got more equipment operating hours in the same amount of people.
We're not drawing them in.
So thats, just making the ones that are there.
Of higher value so.
We've got.
Looking at ways, we can get people from outside of the region.
And again this is just my perception, but I think a big Henry historically, we've been able to draw from other resource areas that we're in a downturn.
So whatever commodity it was people that were working in that commodity in those regions.
But we are no longer working those areas you recruited in.
Theres not theres, not really any commodity areas down so people arent looking to leave whatever region, they're in now and Thats really why we pushed that apprenticeship program, saying, we need to build their own b bench answer apprentices and.
And not count on them, just coming from different areas of the country that might be a more depressed resource markets.
Okay, Thanks with the Permian.
Thanks, Brian .
Thank you. Your next question comes from Aaron Macneil from TD Securities. Please go ahead.
Hey, good morning, Thanks for taking my questions, Joe I'm sure you're dying to answer more questions about inflation.
Figure out I'll add one.
Uh huh.
What are you doing to ensure project like Fargo Moorhead or some of your other diversified projects.
Don't experience the same inflationary pressures that you've seen in your oil sands operations.
I can appreciate the oil sands or.
So.
Unique animal, but I mean inflation pressures across parts and people are pervasive across sectors. So just wanted to get your sense of what youre doing now to ensure that you don't see it.
Pressures elsewhere.
But in.
In areas, we are actively bidding including that large regional oil sands contract.
We're putting it into the contract clauses that Theres reopener is based on these unusual market conditions. So we're making it more contracts show right.
Mutually agreed upon amendment.
Just giving it a bit more for us.
And then also trying to increase the frequency.
When there is high volatility.
You don't want the overhang you want the timing to match up as best you can.
The differences in indices.
3% and your actual was four two.
No big deal.
When the various growth is big it is and the overhang of a big deal and then.
So.
We're putting that into contracts.
Fargo Moorhead, our or I guess, I would say probably less of an issue because they have longer term profiles you know when you have.
Six years of construction and 29 years of operation and maintenance.
Things tend to move towards the averages when you have terms like that and a.
Short term inflationary pressures won't necessarily adjust.
My guess is 10 years down the road target as inflation looks like an average inflation.
Although it may put some pressure on the first year of operating here and then.
So I guess that's.
The key for US is just making sure what we learn and how the disconnect between the indices and rail costs are we trying to put direct into contract language. So that it's not a.
Mutually agreed negotiation it's actually.
Contractual right.
Okay understood.
And then on the inflationary thing maybe a couple of quick follow ups.
Could you maybe walk us through.
Your slate of projects for new and that this summer.
Thanks.
The seasonally strongest quarter.
How does the job mix I guess compare year over year.
Hi.
Pretty similar.
A larger driver being the northern Ontario Gold mine.
As you know.
When we go through the bid pipeline that's a combined.
<unk> North American bid pipeline.
Yes, it's there's equal distribution I'd say, probably the broadest distribution.
And those.
Those 10 or 12 of those 12 are dodson at middle row.
You know there is there is a couple of oil sands easy to pick out the Redmond Theres a couple of infrastructure. There is a couple of goal, there's potash iron gold platinum nickel diamonds.
It is.
He has the most diverse and active bid pipeline, we've seen in a long time and a lot a good chunk of that is is known it because it's outside of oil sands or areas, we would look to partner with Nona.
Theres larger asset requirements, and theyre meaningful terms and jobs as well.
Yes.
Thanks.
Okay great.
The last question I had.
Well it looks like Theres, a lot of diversified projects on the radar a lot of them being smaller.
How many of these smaller projects could you reasonably execute on before it kind of becomes too cumbersome for a company of your size and I guess like the <unk>.
Context. So the question is this.
The oil sands operations were so efficient because they are all baked in there all in the same area. So I guess I'm just wondering.
If you are worried about losing some of those efficiencies. If you were to take on a lot of those little projects.
These projects actually have good term and reasonable size so.
Seven out of those 12 projects are plus $100 million. So these arent.
At $10 million sales lift for two months in the summer somewhere and multiple ones of them not.
Not to be redundant, but multiple of them are multiple year contracts. So it's not.
Typical.
Three months summer work kind of contract, there's some significant term and volume and dollar value in these contracts and thats really what to extreme.
Extremely excited about not only diversification and so these areas that typically are underutilized fleet in the oil sands are 100, and 150 ton trucks that are small in oil sands and typically get high utilization in winter, but very low in summer. This gives us an opportunity to get year round utilization on those fleets for multi.
People years, hopefully in these longer term contracts.
And so I.
These aren't distractions that are going to be two months jobs. These are meaningful jobs that will have.
Yes.
More than half of them that will be gains in utilization along with diversification.
Okay perfect. Thanks, Joe I'll turn it over.
No worries thanks.
Thank you. Your next question comes from Max seems future from National Bank Financial. Please go ahead.
Hi, good morning, gentlemen.
Morning Mack.
Just maybe first question for you do you might just.
Reminding us how.
How we should think about that.
Revenue ramp up.
Fargo, because suddenly I presume, it's going to be some.
JV accounting can you just remind us how we should be thinking about this.
Yeah.
Next year 2023 is that.
The big year of 2023 and 2024.
Well, it's $650 million of our backlog as Fargo.
About $150 million of that per year is in 'twenty, three and 'twenty four and that comes through in our combined revenue.
So it won't be reported revenue, but it's a.
It shows in our and our combined revenue and Thats quite a steep ramp from this year year to date, it's been very modest.
The kind of $15 million year to date.
And a little higher than that through Q3 and Q4.
But that's kind of the ramp we've always said 2023 is going to be that kind of a step change for Fargo.
Okay. Okay. That's helpful. Thank you and then.
Another question for Joe.
Some of the clients.
The oil sands have been facing some.
Management changes and some pressure just wondering.
Some of what you are hearing in relation to the trends to in source versus outsource work.
What is your sense right now from some of these declines if you can maybe comment.
Yeah.
I guess I don't have much of a change in sense until.
Get a better understanding of what may happen on the.
Uh huh.
With those executive teams.
Generally.
The people we deal with are there guys with P&L responsibility that are overseeing the mine sites Theyre generally.
Those VP of ops Gms of sites that are usually.
Decision makers and the ones, we're very much engaged with and.
And then ultimately they get approval from whatever level in their organization.
But I don't I don't think any of that.
<unk> that are occurring in may occur in any of our clients are going to affect our abilities and our negotiations are ongoing.
Yeah.
I really don't have a sense before if it's going to change perceptions and give us a better opportunity to in house.
Some of the work that they're doing it but.
Yeah.
I guess I really lack a good answer on that for you Mac that wait to see what happens in health.
If there is any change in strategy from those clients.
And I guess are you seeing any changes from your other three key clients on that front or.
On a business as usual.
I believe one area and I do believe this is an area. We will continue to make inroads on as is our maintenance and our maintenance rebuild.
And component manufacturing capabilities I think there is certainly opportunity to do more of that for our clients and I think there we.
<unk> shown more of them and dunmore of that work for them I think near term, we're really focused on getting our own gear fixed and running so it's hard to put much time into others right now.
Until we have more capacity built up but I do think that's an area that we could easily grow.
And our and our clients are showing more and more interest in that.
So in housing some of the maintenance that they may be doing or may have other vendors doing and bring in it.
To us I think thats it.
A very real possibility.
Right.
You mind, maybe just providing a bit of some.
Kind of a bridge to how many people do you have to hire like in terms of absolute numbers or in terms of percentages. So that you have the capacity to do.
Outside of.
Of your owned fleet work like is it 15%, 20% or is it too much much higher.
I'd actually say, it's probably we've probably get back excuse me back we'd probably get back to.
Where we expect to be with another.
56% kind of add and I think we'll get that in the next quarter and then <unk>.
As we add where with our own high demand I think we will focus on improving utilization as we can grow beyond that and this is five or six percentage.
Five or six guys basically it.
Actually it's about 11.
11 for <unk>.
That 6% increase.
Once we add another 11 actually probably nine to 11 I think it was will be at where we were in Q1 with our head count and as we go above that which I believe we will be able to do.
We'll look to improve our own utilization using that manpower, but we'll also start looking at doing more work for others.
We have been doing some and continue to do well it's just.
Want to make sure we focus on our own fleet first.
Before we offer our maintenance services to others and then I think our our action facility has.
The best capabilities and ability to draw people in and this is where we've added quite a bit of capacity. So that we can move equipment down here.
And so I think we will continue to be able to do that so.
That cover operating rack.
Yeah for sure for sure and then.
I think in the past you said.
The goal is to get to 25 million of external maintenance is that kind of still the number that you're working towards an end.
Where are we right now.
Run rate relative to those numbers.
Yes.
I think we're on we're on track to actually exceed that slightly and predominantly from those rebuilds, we did for the joint venture partner.
And you know like I said that that's where that's drawing backs and capacity to work on our own fleet. So I think the upside of that I think will will hit will exceed those numbers that you said this year and like I said as we get more manpower, we'll be able to increase upon that external maintenance work.
Okay Super helpful. That's what can we think of so much.
You bet, Thanks, Matt Thanks, Matt.
Okay.
Thank you Nathan Yamana as a reminder, should you have a question. Please press star followed by number one.
Okay.
Thank you for the Q&A session of the call.
Moving over to your number Chris anthem Shiels for closing comments.
Thanks, Sergio and thanks again, everyone for joining us today.
Ladies and gentlemen, this concludes your conference call for Jamie. Thank you.
I know that you. Please disconnect your lines.
Okay.
[music].
Yeah.