Q1 2023 North American Construction Group Ltd. Earnings Call
Yes.
[music].
Good morning, ladies and gentlemen, and welcome to the North American Construction group earnings call. At this time all participants are in a listen only mode. Following the 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 participants permission.
The company wishes to confirm that today's comments contain forward looking information and that actual results could differ materially from Mexico.
Christian forecast or projection contained in that forward looking information.
Certain material factors or assumptions were applied in drawing conclusions or 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 SEDAR and Edgar I fell off the Companys website at N. A C. G C.
I will now turn the conference over to Joe Lambert President and CEO . Please go ahead.
Thanks Joanna.
Good morning, everyone and thanks for joining our call today I'm going to start with some of our high level operational performance metrics do a brief look back as we recently celebrated our seventh year in business and then delve into our competitive advantages and barriers to entry before handing it over to Jason for a brief financial overview and.
Then I'll conclude with the operational priorities bid pipeline updated outlook for 2023, and our capital allocation before taking your questions.
On slide three.
Start with a safety update.
Our trailing 12 month total recordable rate of <unk> three six represents a significant improvement from last year and the Q1 rate of 0.30 matches, our Q4 best last year.
The 0.36 achieved gives us gets us back below our industry, leading target frequency of 0.5, and we will be focusing our efforts in 2023 on continuing improvements.
I often refer to us as a safe low cost contractor and I'm happy to report that on the safety front, we have made significant improvements and we will always work towards our motto everyone gets home safe.
On slide four.
In commemoration of our 70 <unk> anniversary I wanted to give a brief overview of how and where the business has changed and grown.
We have worked in many sites it operate for decades and perform services throughout their lives such as initial axis in development through to final reclamation.
We are continually operated in roads and infrastructure since the 19 fifties.
And since the 19 seventies, the Canadian resource industry since the eighties, and the northern Diamond mines, including building the ice road user access since the 19 nineties.
With decades of experience behind us, we have grown and diversified our business and now have locations in not only Canada, but also in the U S and Australia.
We are now on 30 project sites with clients producing over eight different commodities and expanded services, including major civil infrastructure construction.
Mine management and external maintenance services. We have also included a more detailed historic timeline independents. So those of you that may be interested.
Slide five demonstrates that we have built what we have built over the 70 years is extremely difficult to duplicate and creates what we believe are significant barriers to entry, including new equipment is getting more expensive and lead times are extending out more than a year.
A single oil Sands overburden fleet on one site purchase new would cost an estimated $100 million to $150 million and estimated to take around two years to get fully delivered.
An established and proven safety focused culture with a commitment to zero harm, which takes time and dedication of all levels to ingrained into the business.
We've also spent many years developing our maintenance skills to in house and lower cost, while others must rely on increasingly high costs third party vendors.
We have extensive experience working in the coldest climate and some of the toughest ground conditions from the soft under foot sands. It plays in oil sands to the hard to break the rock and the Canadian Shield.
These days on many Canadian projects contractor won't get a big package without an established and digital partnership.
There are limited amount of indigenous partners, many of which are already committed to others and we believe we have the best in digital partners out there and.
And lastly, and as many of you have been following our business for the last five to 10 years with no the proof and the strength of these barriers to entry is demonstrated over that timeframe by the amount of competitors that have retreated or sold off their equipment.
History is not only a great teacher, but pretty good gatekeepers, well and our competitive position is as strong as ever.
On slide six through eight.
We highlight our primary competitive advantage of being a low cost operator, combined with safety low cost operations as the advantage of works throughout any commodity cycle and we do this by being good operators and world class maintenance providers.
All in equipment costs are more than half of our typical cost in the year and we continue to drive our slower.
This slide illustrates the savings we've generated by in housing task that have traditionally been done by Oems OEM dealers and third parties. We are now rebuilding our own components at 30% to 40% less in dealers and completing home machine second life rebuild at 30% to 50% less than replacement cost of which we have done several dozen.
Including <unk> 17 of our largest haul trucks that have replacement values exceeding $8 million each.
By in sourcing these activities, we have pushed down our ownership cost protecting both our markets and our margins.
Slide seven really highlights how we have expanded our maintenance capacity.
But our focus on vertical integration, we have more than quadrupled the number of shop hours, we can do in a year completing over 90% of maintenance activities internally.
While scaling up this capacity, we've been able to keep sharp cost per hour stake. Meanwhile, Oems have been steadily increasing their charge out rates are generally reducing the amount of mechanics available for contractor support.
Yeah.
Next slide eight shows the widening advantage of our low cost strategy.
Our all in equipment operating costs over the past decade, and remains stable against inflationary pressures and rising cost.
It's impressive to note that our operating costs were 100 ton haul trucks are lower than 10 years ago, you may notice a slight uptick in 2019.
This is when we purchase a competitor's equipment fleet had to invest a bit more than normal to bring that lead up to our standards.
Equipment and operating costs have allowed ACG to offer increasingly competitive rates to clients, while improving our bottom line a true win win.
On slide nine.
Youll see we achieved our highest Q1 utilization in five years. After just having posted our highest Q4 on record and the demand for our fleet remains high the Q1 utilization of 79% was directly correlated to improve fleet mechanical availability.
We expect the high demand remains route 2023, and continuing into 2024 and beyond and what I view as a stronger for longer commodity environment.
We likewise expect our progress on increasing the maintenance labor workforce will directly correlate to continued improvements in fleet utilization.
Lastly on this slide I would just like to point out two items.
First and as many of you have previously heard other than the obvious pandemic impacts in 2020, our diversification efforts over the last several years have delivered into expectation and demonstrated how cute higher Q2, and Q3 fleet utilization as we've moved the smaller underutilized portions of our heavy equipment fleet out of oil sands.
And into other geographies and commodities would have achieved more operating hours.
The diversification now built into the business has removed much of the seasonality and cyclicality as seen in previous years.
Secondly, we have now posted two consecutive quarters into our targeted range.
And our focused very focused on getting our typically lower Q2 in Q3 utilization up such that we have a trailing 12 months in or close to the range, which would have which would have us achieving our target close to a full year earlier than originally estimated.
With that I'll hand, it over to Jason for the Q4 financials.
Thanks, Joe Good morning, everyone.
So in conversations we've had with this audience, we've shortened up the financial commentary this quarter. So you'll notice my comments are brief.
We really had no unusual items in the quarter outside of the large timing impact on free cash and therefore brief financial commentary seems appropriate.
Starting on slide 11, combined revenue of $321 million, just beat Q4, 2022, which was the highest level of revenue. This company has ever had in a quarter.
Return on invested capital of 14, 3% is the highest return ever as well as trailing 12 month EBIT of $132 million was generated on relatively stable invested capital.
On a total combined basis revenue was 35% ahead of Q1 2022.
Reported revenue primarily generated by our core heavy equipment fleet was up 37% quarter over quarter with the driver of this increase being echoed oil contributions from adjusted equipment in unit rates as well as improved equipment utilization.
Equipment operating hours were up over 20% in the quarter as stable operational and maintenance head count yielded utilization of 79%, which was significantly higher than the Q1 2022 metric of 65%.
Ml Northern acquired on October one provided another full quarter of fuel and lube delivery and it had an excellent first six months with us.
Our share of revenue generated in Q1, 2023 by joint ventures was $78 million compared to $60 million last year.
Neuner group of companies had another solid quarter of activity at the gold mine in Northern Ontario, and the core business is operated at better than historical levels.
In addition, rare.
Revenue benefited from the continued growth of top line revenue from rebuilt haul trucks as well as purchased excavators owned directly by our joint venture with the <unk>.
And the increasingly important impact of the joint ventures dedicated to the Fargo Moorhead flood diversion project.
We had another full quarter of construction work at the Fargo project and ramp up of activities remains underway with the project remains on budget and schedule in this early phase of the work.
Combined gross profit margin of 17, 4% was a significant improvement from the 13, 7% we posted last year in Q1 and reflected strong operational performance in the quarter as our primary operations in the Fort Mcmurray, Northern Canada, and northern Ontario regions experienced predictable.
And productive cold weather conditions for the whole quarter.
Our joint ventures continued their trend of consistent operating margins and the updated equipment in unit rates were key drivers for Fort Mcmurray operations, returning to historical margin performance.
Operating margins benefited from the MLP Northern acquisition from both lower internal cost as well as strong margins from the services provided to external customers.
The second life rebuild program commissioned and sold another ultra class truck during the quarter.
Moving to slide 13, adjusted EBITDA of $85 million.
<unk> was exceptionally close to the Q4 2022 record of $86 million and was based on our strong margins previously mentioned include.
Included in EBITDA is G&A expenses, which were $8 2 million in the quarter.
<unk> to three 4% of revenue.
As our business grows we do incur certain incremental G&A costs, but as a percentage of revenue we remain firmly under the 4% threshold we set for ourselves.
Going from EBITDA to EBIT, we expense depreciation equivalent to 13, 1% of combined revenue, which reflected the depreciation rate of our entire business.
Diversification efforts into less capital intensive services continues to have noticeable impacts on the depreciation percentage.
When looking at just the wholly owned entities and our heavy equipment depreciation for the quarter was 15% of revenue and reflected an extremely effective use of our fleet during the quarter, which incurs a higher degree of idle time due to the colder temperatures.
Our internal maintenance programs continue to produce low cost and longer life components, which are also impacting depreciation rates.
Adjusted earnings per share for the quarter was 96.
And was <unk> 45 up from Q1 2022 as the revenue increases translated down to net income.
<unk> was driven by $45 7 million from adjusted EBIT net.
Interest and taxes.
The average interest rate for Q1 was six 7% as we trended up from last years rate of four 5% from the well known interest rate increases.
The gross interest expense of $7 3 million.
With a high watermark for the year should be a high watermark for the year as free cash flow is generated and we pay down debt with rates expected to be fairly stable moving forward.
Moving to slide 14, I'll summarize our cash flow net cash provided by operations of $66 million was generated by the business, reflecting the strong EBITDA performance was significantly impacted by changes in working capital balances.
Sustaining maintenance capital in the quarter in the first quarter of $47 million is front loaded and we expect it to be in the 35% to 40% range, our full year capital based on our historical profiles.
Free cash flow of $26 million was used in the quarter and was impacted by approximately $49 million worth of timing impacts.
Changes in routine AR and AP balances were about half of that as our equipment ran right through the right through quarter end generating higher AUR as well as us paying suppliers are normal terms.
The other half of the timing impacts were equally split between increases in capital maintenance work in process, which reflects our rebuild programs.
And joint ventures, which did not distribute cash in the first quarter.
Moving to slide 15, total liquidity is $172 million and reflects the impact of the use of free cash flow in the quarter net debt levels increased $28 million in the quarter as $26 million of free cash flow used was financed with debt and.
Addition to the dividend payments.
Despite the debt level increase net debt leverage decreased to one four times as increased EBITDA more than offset the change in the debt level.
On a trailing 12 month basis, our senior debt leverage ratio as calculated by our credit facility dropped to one two times as we ended the quarter back at our typical and targeted cash balance of approximately $15 million.
And with those financial comments I'll pass the call back to Joe.
Thanks, Jason.
Looking at slide 17.
This slide summarizes our priorities for 2023, our priorities for the year are unchanged and we remain focused on our safety execution efficiency, winning tenders and building up our backlog and continuing to grow our skilled trades workforce.
Slide 18 highlights.
Highlights the continuing strong demand inactive project tenders.
No projects were lost in Q1, and we added about 400 million in new tenders about half of which is outside of oil sands and roughly matches our current diversification.
One big item of note is that earlier in the week, we had our first client meeting an update on the large regional oil sands tender. We continue to expect to win our fair share of the large red Dot regional oil sands tender and look forward to putting together a compelling low cost tender package for our clients consideration.
Couple of other items to note.
We believe none of them will have their fleet fully committed for the year with anticipated awards. In Q2. We also believe we have a good chance of being awarded an approximate $75 million over five years scope for fueling and servicing of an oil sands customers equipment fleet.
Successful. This award would represent our first major tender of our newly acquired <unk> Northern equipment servicing business working under our <unk> partnership and we believe we will see one or two more tenders like this over the next six to 12 months.
On slide 19.
Our backlog sits at $1 1 billion and provides consistency that allows for planning and efficiency of our workforce in our fleet.
What I continue to believe is a key takeaway on this slide is that our backlog is roughly proportionate to our diversification target demonstrating both confidence and sustainability of our diversification efforts lastly on backlog, we continue to have expectations of exceeding 2 billion before the year is out.
On slide 20.
I'm excited to provide an enhanced outlook for 2023.
With our strong Q1 results progress on priorities and focus on carrying some of that momentum into the summer we've been able to meaningfully increase the mid points for all of our key financial metrics. We are again on track towards accomplishing another record year we.
We have added great winter work season and are confident they will continue build on what was another outstanding quarter.
As I stated in my letter to shareholders capital allocation based on the new free cash flow range of $100 million to $115 million will as always be prudent and direct and in a way that maximizes value.
At this point in time, we see dividends share repurchases and debt repayments name similar to previous guidance and the anticipated increase coming in growth and acquisition allocated to expansion of external maintenance services.
And as I've said, many times our capital allocation decisions are consistently are continuously analyze and we will of course redirect cash flow to share repurchases or growth opportunities. If they provide superior return to our shareholders.
In closing I would just like to thank the great team I have here.
And all of our partners for all your efforts and support in helping us achieve the strong results as we continue to exceed expectations with that I'll open it up for any questions you may have.
Thank you.
Last quick question. Please press star one on your Touchtone phone.
As to what's wrong with doing a question second question sorry, Kim once you have completed your questions I would like to return to the queue. Please press star one of Jefferies. Please pause we will begin the Q&A session.
First question comes from Tim Monticello at ATB capital markets. Please go ahead.
Hey, good morning, everyone.
Good morning, gentlemen, Tim.
So first question just.
I was interested to hear that you're basically back filling that nuno contract with cotai coming off in Q2.
Can you speak to I guess the level of confidence that you will fill that backlog to the back half of the year and what you're including in guidance related to that.
Yes.
I believe what we have in there right now Tim is.
Similar to what we had before regarding our own fleet that's in that.
And in that job.
Noon, who would be projecting their fleet to be working somewhere else so that fleet at that mine.
Hopefully not confusing this too much but that fleet has been split into three different segments of Theres, a new non fleet is being put in there. There is a north American fleet is put in there and then there is a joint venture fleet.
And our fleet is still predicted and planned to come back into oil sands and have lower utilization. So theres still some upside from our side of that we believe nunez engage that fleet and other opportunities and what's shown up we do have.
Several areas on our on our bid pipeline that we think have opportunities for the fleet that we put in it which is the larger portion of that fleet.
Being put into work, but it hasn't been awarded yet.
Okay. So about a third of the fleet that's at Coty right now still ads is expected to fall in utilization that comes back to the oil sands is that yeah. It's not a huge chunk is probably I think theres 25, or 30 pieces of equipment in there that our north American.
Okay.
But incrementally positive outlook for the fleet compared to what you would have been talking about it with the Q4 results.
On the newness side ours would be unchanged on the newness side, yes.
Okay got it okay I appreciate it.
And then.
I appreciate the detail that you had on the multi site contracting negotiating the oil sands.
Tesla just announced to date.
The acquisition of one of its partners can oil sands today I'm wondering is if there is an initial implications from that deal is that you think that might change the scope of work.
Or have any other implications that I'm not taking over.
Anyway.
You would have to be here.
I don't think it will I think theyre just buying the interest of one of their partners.
If that's what you're referring to but.
Presented we will have we will have the actual scope of the RFP. We are just giving a brief outline of timing and intention. This week, we will have the scope and the volumes.
I believe in.
Two weeks.
But we don't think there'll be a significant change from previous.
Okay.
Volume work that we're looking at.
And can you remind me what you think the timing of the award will be because.
If I'm not mistaken those existing contracts.
Roll off at the end of the year.
Yeah.
The expected award at the very end of October .
Okay.
We are this week.
Okay great.
And then I was just curious if you could speak a little bit about the incremental growth capex that you have in <unk>.
The guidance.
And is that related at all to.
The five year.
Field fueling contract that you've been talking a little bit yes, that's exactly what it is.
So.
We have strong expectations strong enough such that we forecasted that growth capital in there.
And what would the return profile look like for that type of investment.
Do you have.
As is our normal hurdle rates, Tim 20% IRR three to four year payback sort of a timeframe with these are longer life assets.
But yes, very strong economics at the.
Fuelling and servicing contracts are much lower capital intensity than our overburden in big truck price would be Tim.
Right so like the.
$5 million to $10 million of investment is that basically to build the fleet. So that you have enough equipment.
<unk> to service the contract correct.
Correct, Yeah, we have some already but it would be topping that up.
And there are some of the items in the scope that we don't didn't have.
Is that was an existing client.
Yes.
And we believe there are two markets that will look very much like it coming in the next six months to 12 months.
Okay very interesting.
Alright, I appreciate all the details yes.
Thanks sure. Thanks, Thanks, Tim.
Thank you. Your next question comes from Brian fact at Raymond James. Please go ahead.
Yes, hi, good morning, guys.
Right.
I mean, we look at the cost structure of North American.
<unk>, you've made over time, which has been very apparent and results.
As you look across the business, Joe where do you see opportunities for further improvements here.
Alright, and the biggest most obvious one is.
Utilization and because we are in control of it and we're in a very unique environment right now, Brian where we have extremely high demand and consistent demand.
So, it's keeping getting equipment running and its dealing with the maintenance side. So.
We do not believe that 75% to 85% ranges.
At all pipe Dream, and obviously, we've been in it for the last six months.
So thats by far the biggest opportunity within the business that we don't even have to dream about it's there.
And I think outside of that it's.
That bid pipeline and what we see in.
Especially what we see is an increasing demand outside of oil sands.
So we're starting to get.
More and more opportunities and we think we'll be able.
Okay. That's helpful and then with some of the northern part of the business for a couple quarters here. It sounds like things are progressing them. All you just provided some good color, but could you frame just how that business has trended.
Relative to your internal expectations.
Items that would be far far ahead of what we had originally anticipated.
Yeah.
I appreciate it Hey, Brian I cut you off there.
Thank you, ladies and gentlemen, as a reminder, should you have any questions. Please press star one.
So backlogs down and I understand that's really just due to this timing issue related to the large regional oil sands tender.
Outside of that given the broader macro uncertainty are you seeing any hesitancy at all from customers or tendering new work, especially outside of the Oilsands region.
Maybe we need to separate out our oil sands backlog from the rest or something because.
Our oil sands are now getting pretty fairly well aligned to be five year bumps and so youre going to.
Going to have what we believe is a huge increase this year and that will drain down over five years and then another one so it will be very lumpy.
Our only our other contract in Los Angeles, only year separated so it's really the outside which which I think we can portrayed betters as showing is increasing and the opportunities that we have there but.
We haven't seen any.
Seeing more projects, especially outside of oil sands and other commodity markets.
Alright.
And I noticed in the MD&A that.
Here was increased to $5 93 million from $499 million previously so just curious what's driving that increase exactly for this year.
Yes, I can take that it's really just a function of forecasting we have jobs that go between.
Our tightened material scopes and unit rate and so it can it can change that proportion our topline revenue estimates haven't really changed but how it draws down our backlog can can change slightly so that can be anywhere between 50% to 60% of backlog and then it gets chewed up in <unk>.
Q4, but it's really no impact on.
The combined revenue estimates we have for the year.
Okay. Okay.
And I think slide 27 of the presentation deck that shows that.
They have a pretty good job steadily increasing the maintenance head count over the past several quarters.
Would you say that you were happy with where you are sitting today from a head count perspective.
Possible would you look to replace some of that.
Third party vendor employee force with your own at some point.
Absolutely Thats exactly the plan. So we will continue to increase both internally and externally until we maximize our utilization.
And then once we hit that will continue to increase our internal.
Workforce and replace higher cost third parties.
Alright, Okay. Thank you very much I'll pass it over.
Thanks, Ron.
Thank you next question comes from Devin Schilling at PR financial Please go ahead.
Hey, guys. Thanks for taking my question this morning here.
With with tandem, making a push into the critical minerals market can you guys comment on I guess the potential here for an OE to benefit from this growth segment like is there anything currently in your bid pipeline relating to this are you guys seeing anything on the horizon.
Yes.
We have some activity both in Quebec, and none of it iron ore I wouldnt necessarily call those critical minerals sides, but just on the overall commodity and then Nick will work in Ontario.
Open pit mining nickel in Ontario.
So.
I don't think I've ever seen them.
We're starting to see some pre tender stuff in some BC copper, but we havent actually seen a tender yet.
Maybe if we could just talk about.
The acquisition landscape out there right now obviously, the valuations looking a little bit better than it has been in the past is there anything out there looking interesting right now.
Those have been.
Kind of our staple for the last few years with DG I am on northern.
On the bigger side, we are seeing some opportunities.
Both in North America and in Australia.
Yes, they are looking more accretive than in the past and certainly we'll be digging into them further and it would just be a competition for capital.
Deleveraging these higher interest rates carries a little more value than it has historically as well.
Oh no worries.
Great.
The fact that you've been accustomed to got it and so forth. If there's also a need to increase the pace.
A minor amount of internal mechanics, we were able to hire in Q1, but winter is typically our least.
Successful recruiting time people, usually remaining positions. So we hope to build on that in.
In Q2 through Q4 here.
To build up our bench and programs with our which are not taken it trades in our re manufacturing site. We just added a cylinder rebuild here in the last quarter into our Remanufacturing.
And both internally and external mechanics, we continue to hire I think we'll see.
Bigger increases on that and then in Q2 into Q3 going forward at least we are open to do that with our recruitment and retention plans.
Okay. That's super helpful. And then another two part question in terms of Fargo. I was wondering if you can provide a bit of color in terms of how the execution is progressing there.
And maybe related question to sort.
Some infrastructure outlook in general if there is any other incremental slot that version type work that might be coming through the pipe, especially in the U S over the coming let's call. It 12 months. Thanks.
Yeah, Nick execution progress is.
There are only about 10% complete on that job. Our Earth works has gone as planned they did have a particularly.
Winter.
Unusually snowy winter, so they have a bit more of a.
Our spring runoff than normal so it'll be a little <unk>.
Software Muddier condition, certainly nothing we're not used to having worked in oil sands for many years.
That would be kind of a near term operational execution side, but we don't expect any any meaningful impact to the overall project.
As far as the infrastructure outlook.
I believe we see that market is good.
We haven't seen the bids come yet, but often there is quite a bit of a delay between announcing infrastructure spend and when actual designs and bid packages come out later, so we are anticipating.
Seeing more but we haven't seen any significant increase as of yet.
And I believe there is an opportunity, but its probably I think it's a pre bid still on.
Manitoba Hydro project, but other than that and we've had our eye on that for a bit havent really seen anything else come out yet.
Okay, that's super helpful.
Thank you very much thanks Veronika.
Thank you. Your next question is a follow up from Tim on a cello at HB capital markets. Please go ahead.
Hey, Thanks, guys just a couple of quick follow ups.
Joe I was wondering if you could have better color or visibility into the summer work programs and they all have a sense at this point.
Not a lot.
You know.
Some reclamation and some haul roads and like if you looked at the bid pipeline theres about you'll see like six.
The bid pipeline, one and of those dots.
The two or three smaller ones are those fuel and lube contracts.
And then the other ones that arent very big regional tender or Theres a job on that.
Some.
Here in the next couple of weeks, we also do get awarded.
Going forward now.
Okay got it.
Alright any of those large enough that they would be something you'd press release, if you want.
I wouldn't think so we pretty much need to be cost plus a 100 million kind of numbers and.
Generally those summer type jobs, because they're only three to six month type jobs are usually in the range of 20% to 70, it's just.
They stack up and they create a lot of good work for the small fleet. The large equipment fleet is already kind of scheduled out and gave overburden works.
Okay got it.
And then just a follow up for you Jason just around your initial comments.
They're being about $49 and timing impacts on free cash flow in the quarter I'm wondering if he will speak a little bit too.
Your expectations for at least the working capital piece of that unwinding over the next several quarters.
Yes, so we expect it to fully unwind by year end I would expect.
About half of it to unwind in Q2 here and then the rest in Q4 Q3 is a unique quarter for us with newness ramp up.
They tend to drive some accounts receivable increases through the summer.
They're busier time so.
Yes, we are we expect a nice working capital turnaround in Q2, and then the remainder in Q4 and it all is contained in our free cash flow expectations.
Okay, and then with regards to those free cash flow expectations. The guidance is up a little bit you've got a little bit of growth spending, but it looks like there is some wiggle room in there where.
Incremental free cash flow Hasnt really been allocated deal deleveraging our shareholder activities what's the.
Our preference right now for incremental free cash flow in terms of allocation between those two and perhaps M&A.
Alright.
Just depends on what we see as opportunities at the time and the returns.
And we will look at any acquisitions, whether large or small.
How they compete with that.
Thank you. Your next question comes from Yuri Lynk Canaccord Genuity. Please go ahead.
777 fascinating chart.
Just wondering if you can speak to your ability now versus anytime in the last 10 years to put more of those savings in your.
But what.
Rates are rising with inflation and I'm, just wondering if you're able to maybe put a little bit more on your own pocket.
We have the slide in the deck, but I think it's still in the appendix, where we show our projected growth in revenue and margins and the margin.
The EBITDA and that's really based on our history. So over the last 10 years.
Or at least all of it away. So that's where that I think we put in that chart and don't quote me on it but there's like 1% to 3% margin improvement over the next.
But.
And anything that you got on improved utilization would be in addition to that right.
Yeah, Yeah. The utilization is just getting more running hours.
Yeah.
Speaking utilization.
You know Q2 is always the seasonally weakest quarter, but I know you're doing a good job books.
Even in milk.
Variability between quarters, but do you anticipate.
Falling out of the target range that you've got there on slide nine in the second quarter.
Yes, we would.
Q4, and Q1 are always our highest quarters as you noted.
In Q2 of Q3, we would expect to be in the high <unk> low Seventy's and then Q4 back into the mid to high seventies again.
Our our forecast right now for the year is to be slightly below that range and.
That's why I said, if we managed to get into their off of the Q2 and Q3, then we'd be kind of a year in advance of when we thought we'd be in it.
Yeah makes sense.
Hey, guys another great quarter.
Thanks, Gerry appreciate it thanks.
Thank you. This concludes the Q&A session of the call and I will pass the call back over to Joe Lambert, President and CEO for closing comments.
Well thanks, everyone. I appreciate you joining the call today and look forward to talking to you next quarter.
Ladies and gentlemen, this concludes the conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.