Q2 2025 North American Construction Group Ltd Earnings Call

Ina: Good morning, ladies and gentlemen. Welcome to the North American Construction Group Ltd. conference call regarding the second quarter and June 30, 2025. At this time, all participants are in 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. We are free to quote any member of management, but they are asked not to quote remarks from any other participant without the 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.

Speaker #2: Following management's prepared remarks, there will be an opportunity for analysts, shareholders, and bondholders to ask questions. The medium may monitor this call in listen-only mode.

Speaker #2: We are free to quote any member of management, but they are asked not to quote remarks from any other participant without the participant's permission.

Speaker #2: The company wishes to confirm that today's comments contain forward-looking information and that actual results could be formatively from a conclusion forecast or projection contained in that forward-looking information.

Speaker #2: 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.

Ina: 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, as well as on the company's website at nacg.ca. I will now turn the conference over to Mr. Jason Veenstra. Thank you. Please go ahead.

Speaker #2: I'll now turn the conference over to Mr. Jason Veenstra. Thank you. Please go ahead.

Speaker #3: Thanks, Ina, and good morning, everyone. Bit of a change today, as I'll start off right away with the financials and pass the call to Joe for the operational and outlook commentary.

Jason Veenstra: Thanks, Ina, and good morning, everyone. A bit of a change today as I will start off right away with the financials and pass the call to Joe Lambert for the operational and outlook commentary. Starting on slide four, the headline EBITDA number of $80 million and the correlated 21.6% margin were impacted primarily by three distinct challenges in the quarter. First, based on the strong growth in Australia, we were required to incur a higher-than-expected maintenance cost on subcontractor labor. The ramp-up curve in Australia has resulted in a lag in recruitment of our critical heavy equipment technician personnel, and the resulting contractor costs resulted in higher expenses in the quarter. Second, an abrupt stop to work in April in the oil sands region resulted in higher operational and overhead costs due to the inefficiencies associated with unplanned outages. North American Construction Group Ltd.

Speaker #3: Starting on slide four, the headline EBITDA number of $80 million and the correlated 21.6 percent margin were impacted primarily by three distinct challenges in the quarter.

Speaker #3: First, based on the strong growth in Australia, we were required to incur higher-than-expected maintenance costs on subcontractor labor. The ramp-up curve in Australia has resulted in a lag in recruitment of our critical, heavy equipment technician personnel and the resulting resulted in higher expenses in the quarter.

Speaker #3: Second, an abrupt stop to work in April in the oil sands region resulted in higher operational and overhead costs, due to the inefficiencies associated with unplanned outages.

Speaker #3: NACG has been working in the oil sands for decades, and we understand the need to be agile. But the inconsistency experienced contractor costs this quarter was abnormal and resulted in us incurring costs we normally could avoid through routine mine planning and resourcing.

Jason Veenstra: has been working in the oil sands for decades, and we understand the need to be agile, but the inconsistency experienced this quarter was abnormal and resulted in us incurring costs we normally could avoid through routine mine planning and resourcing. Thirdly, although the project team and workforce at Fargo progressed the project extremely well, they had an eventful corporate quarter as a settlement with the authority, and the finalization of an updated detailed plan to completion led to a significant margin adjustment in the quarter. For those familiar with project management, adjusting margins even slightly for a project that is 70% complete can be material. Excluding these items, EBITDA would have been well above $100 million and at our typical margin profile of around 27% to 28%.

Speaker #3: And thirdly, although the project team and workforce at Fargo progressed the project extremely well, they had an eventful corporate quarter as a settlement with the authority and the finalization of an updated detailed plan to completion led to a significant margin adjustment in the quarter.

Speaker #3: For those familiar with project management, adjusting margins even slightly for a project that is 70 percent complete can be material. Excluding these items, EBITDA would have been well above $100 million and at our typical margin profile of around 27 to 28 percent.

Speaker #3: These three challenges, drove the financial results for the quarter, but have been mitigated and addressed as Joe will describe in his prepared remarks. We included a comment here about our steady revenue growth as we posted $371 million of combined revenue which is a 12 percent increase from last Q2.

Jason Veenstra: These three challenges drove the financial results for the quarter but have been mitigated and addressed as Joe Lambert will describe in his prepared remarks. We included a comment here about our steady revenue growth as we posted $371 million of combined revenue, which is a 12% increase from last Q2. Australia, in particular, continues to impress with its consistent growth trajectory being up 7% from the first quarter of 2025 and 14% from last Q2. When we look back on Australia, the revenue of $168 million that we generated this quarter is more than double since the second quarter of 2022, three short years ago, which was $81 million on a pro forma basis. The MacKellar Group generated almost $60 million in June alone and set another company record for monthly revenue. June's strong top line bodes well heading into a second half of 2025.

Speaker #3: Australia in particular continues to impress with its consistent growth trajectory being up 7 percent from the first quarter of 2025 and 14 percent from last Q2.

Speaker #3: When we look back on Australia, the revenue of $168 million that we generated this quarter is more than double since the second quarter of 2022, three short years ago.

Speaker #3: Which was $81 million on a pro forma basis. The McKeller Group generated almost $60 million in June alone and set another company record for monthly revenue.

Speaker #3: June's strong top line bodes well heading into the second half of 2025, and this growth rate is indicative of the demand we see in Australia.

Jason Veenstra: This growth rate is indicative of the demand we see in Australia. Moving to slide five and our combined revenue and gross profits, Australia was up $21 million on a strong quarter, which benefited from growth capital being commissioned and fairly stable operating conditions. Equipment utilization in that region of 76% was strong but was slightly held back from rainy conditions in April that carried over from Q1. This top line positive variance was further bolstered by higher revenue quarter over quarter in the oil sands region, which compares favorably to last year's Q2 but was significantly impacted by inconsistent demand, primarily in April. Our share of revenue generated in the first quarter by joint ventures was down $4 million from last year, primarily due to lower scopes being completed within the Nuna Group of Companies.

Speaker #3: Moving to slide five and our combined revenue and gross profit. Australia was up $21 million on a strong quarter, which benefited from growth capital being commissioned and fairly stable operating conditions.

Speaker #3: Equipment utilization in that region of 76 percent was strong, but was slightly held back from rainy conditions in April that carried over from Q1.

Speaker #3: This top-line positive variance was further bolstered by higher revenue quarter over quarter in the oil sands region, which compares favorably to last year's Q2 but was significantly impacted by inconsistent demand, primarily in April.

Speaker #3: Our share of revenue generated in the first quarter by joint ventures was down $4 million from last year, primarily due to lower scopes being completed within the Nuna Group of companies.

Speaker #3: Fargo was consistent quarter over quarter but that consistency factored in an approximate $8 million reduction in recognized revenue based on the updated project plan.

Jason Veenstra: Fargo was consistent quarter over quarter, but that consistency factored in an approximate $8 million reduction in recognized revenue based on the updated project plan. Excluding that one-time entry, Fargo's scopes completed in the quarter were approximately 30% higher than that of Q2 2024. Combined gross profit margin of 10.7% was impacted approximately 8% by the three factors previously mentioned: subcontractor costs in Australia, operational and overhead costs in Canada from unplanned stoppages, and the Fargo settlement and updated project plan. Less prominent impacts included the continuation from Q1 into April of the rainy weather in Australia and early failures of certain components in our heavy equipment fleet in Canada. Moving to slide six, Q2 EBITDA and EBIT were down from their 2024 comparables as discussed.

Speaker #3: Excluding that one-time entry, Fargo scopes completed in the quarter were approximately 30 percent higher than that of Q4. The combined gross profit margin of 10.7 percent was impacted approximately 8 percent by the three factors previously mentioned.

Speaker #3: Subcontractor costs in Australia operational and overhead costs in Canada from unplanned stoppages and the Fargo settlement and updated project plan. Less prominent impacts included the continuation from Q1 into April of the rainy weather in Australia and early failures of certain components in our heavy equipment fleet in Canada.

Speaker #3: Moving to slide six, Q2 EBITDA and EBIT were down from their 2024 comparables as discussed. The 21.6 percent margin we achieved is not indicative of where we see our business operating at and well below the 28 percent run rate we've been on since the acquisition of the McKeller Group.

Jason Veenstra: The 21.6% margin we achieved is not indicative of where we see our business operating at and well below the 28% run rate we've been on since the acquisition of the MacKellar Group. Included in EBITDA is direct general and administrative expenses of $12 million, an equivalent to 3.6% of reported revenue, which is below the 4% target we've set for ourselves. Going from EBITDA to EBIT, we again expense depreciation equivalent to approximately 16% of combined revenue, which is higher than the 13% posted in 2024 Q2 and reflects the component issues we are experiencing in Canada. This 16% is higher than our expected run rate moving forward, given historically we've been between 13% and 14%.

Speaker #3: Included in EBITDA is direct general and administrative expenses of $12 million and equivalent to $3.6 percent of reported revenue which is below the 4 percent target we've set for ourselves.

Speaker #3: Going from EBITDA to EBIT, we again expensed depreciation equivalent to approximately 16 percent of combined revenue. This is higher than the 13 percent posted in Q2 2024 and reflects the component issues we are experiencing in Canada.

Speaker #3: Again, this 16 percent is higher than our expected run rate moving forward, given historically we've been between 13 and 14 percent. Adjusted earnings per share for the quarter of $0.02 reflects the significant bottom line impact of the challenges we've faced.

Jason Veenstra: Adjusted earnings per share for the quarter of $0.02 reflects the significant bottom line impact of the challenges we have faced, with interest expense identical to last year and tax rates consistent as well. The average cash interest rate for Q2 was 6.4%. Moving to slide seven, I will briefly summarize our cash flow. Net cash provided by operations prior to working capital of $64 million was generated by the business, reflecting EBITDA performance net of cash interest paid. Free cash flow was neutral for the quarter based on the sustaining capital spending. Moving to slide eight, net debt levels ended the quarter at $897 million, an increase of $29 million in the quarter as gross spending required debt financing. Net debt and senior secured debt leverage ended at 2.2 times and 1.5 times, respectively. With those brief comments, I will pass the call to Joe.

Speaker #3: With interest expense identical to last year and tax rates consistent as well, the average cash interest rate for Q2 was 6.4 percent. Moving to slide seven, I'll briefly summarize our cash flow.

Speaker #3: Net cash provided by operations prior to working capital of $64 million was generated by the business, reflecting EBITDA performance net of cash interest paid.

Speaker #3: Free cash flow was neutral for the quarter based on the sustaining capital spending. Moving to slide eight, net debt level at the end of the quarter at $897 million an increase of $29 million in the quarter as gross spending required debt financing.

Speaker #3: Net debt and senior secured debt leverage ended at $2.2 times and $1.5 times, respectively. With those brief comments, I'll pass the call to Joe.

Speaker #4: Thanks, Jason. Morning, everyone. I'm going to start with a brief overview of our Q2 2025 operational performance. And then I'll conclude with our second half outlook.

Joe Lambert: Thanks, Jason. Good morning, everyone. I am going to start with a brief overview of our Q2 2025 operational performance, and then I will conclude with our second half outlook, our growth opportunities in Australia and the infrastructure markets, and our expanding bid pipeline before taking your questions. On slide 10, our Q2 trailing 12-month total recordable rate of 0.42 remains better than our industry-leading target frequency of 0.5. We continue to advance our systems and training with key focus on increased high-risk task awareness and serious accident prevention. A lot of people in our business claim safety as part of their core beliefs and culture, but when you look at their history, their promises do not match the facts. Unlike others, NACG can demonstrate 10 years of industry-leading results from 2016 to now while showing simultaneously increasing exposure hours by more than four times.

Speaker #4: Our growth opportunities in Australia and the infrastructure markets. And our expanding bid pipeline before taking your questions. On slide 10, our Q2 trailing 12-month total recordable rate of 0.42.

Speaker #4: Remains better than our industry-leading target frequency of 0.5. We continue to advance our systems and training with key focus on increased high-risk task awareness and serious accident prevention.

Speaker #4: A lot of people in our business claim safety is part of their core beliefs and culture. But when you look at their history, their promises don't match the facts.

Speaker #4: Unlike others, NACG can demonstrate 10 years of industry-leading results from 2016 to now, while simultaneously showing increasing exposure hours by more than four times.

Speaker #4: Importantly for investors, these facts readily show our customers what a strong safety culture looks like. And differentiates us from our competitors. This translates to contract wins, lower downtime, higher revenue, and lower costs.

Joe Lambert: Importantly for investors, these facts readily show our customers what a strong safety culture looks like and differentiate us from our competitors. This translates to contract wins, lower downtime, higher revenue, and lower costs. Moving to slide 11, I want to highlight some of the major achievements of Q2. The trailing 12-month revenue set another company record with Australia leading the way and continuing an impressive three-year growth rate of 28%. Just as impressive, if not more so, our business in Australia is growing at that rate and continues to improve on fleet utilization. Our Fargo flood diversion project, a highlight for our diversification efforts, enters the last year of major construction and remains on track for scheduled completion and handover to operations and maintenance teams. Soon, Fargo and the surrounding communities will have flood protection in place to quell those annual spring fears.

Speaker #4: Moving to slide 11, I want to highlight some of the major achievements of Q2. The trailing 12-month revenue set another company record, with Australia leading the way and continuing an impressive three-year growth rate of 28 percent.

Speaker #4: Just as impressive, if not more so, our business in Australia is growing at that rate and continues to improve on fleet utilization. Our Fargo flood diversion project is a highlight of our diversification efforts.

Speaker #4: Enters the last year of major construction and remains on track for scheduled completion and handover to operations and maintenance teams. Soon, Fargo and the surrounding communities will have flood protection in place to quell those annual spring fears.

Speaker #4: Our disco management approach kept administration administrative costs at 3.6 percent. Showcasing our ability to grow and support top line revenue without adding to our overheads.

Joe Lambert: Our discipline management approach kept administrative costs at 3.6%, showcasing our ability to grow and support top line revenue without adding to our overheads. Our ability to handle large civil infrastructure projects with the same operational and financial success is the key to our expansion in this segment. On the corporate front, we won the biggest contract in company history last week, shortly after our Q2 close, which drove record backlog and continued our trend of 100% renewal rate in Australia. Continuing another Australian trend, this contract renewal was achieved more than two years before the previous contract expiration. On the topic of renewals in the U.S., we also renewed our Texas Thermal Coal Mine Management contract out to 2028. Lastly, on the financial front, we completed a $225 million offering of senior unsecured notes, providing liquidity for our future growth opportunities.

Speaker #4: Our ability to handle large civil infrastructure projects with the same operational and financial success is the key to our expansion in this segment. On the corporate front, we won the biggest contracting company history last week, shortly after our Q2 close.

Speaker #4: Which drove record backlog and continued our trend of 100 percent renewal rate in Australia. Continuing another Australian trend, this contract renewal was achieved more than two years before the previous contract expiration.

Speaker #4: On the topic of renewals in the U.S., we also renewed our Texas thermal coal mine management contract out to 2028. Lastly, on the financial front, we completed a $225 million offering of senior unsecured notes, providing liquidity for our future growth opportunities.

Speaker #4: We ended Q2 with what I believe are two critical additions to our senior team. We've hired a VP of Asset Management and a VP of Infrastructure and Growth.

Joe Lambert: We ended Q2 with what I believe are two critical additions to our senior team. We have hired a Vice President of Asset Management and a Vice President of Infrastructure Growth. Stewart and Melanie are industry tops in their respective fields and will play major roles in leading our growth and diversification strategies. I expect to be sharing their accomplishments with you frequently in the coming quarters. On slide 12, we have combined the Australian and Canadian fleets to form a global utilization rate as measuring our global utilization becomes more and more important to our decision-making. A 75/25 Australia to Canada weighting was chosen as it roughly proportionates to our respective earnings expectations.

Speaker #4: Stewart and Melanie are industry tops in their respective fields and will play major roles in leading our growth and diversification strategies. I expect to be sharing their accomplishments with you frequently in the coming quarter.

Speaker #4: On slide 12, we've combined the Australian and Canadian fleets to form a global utilization rate. As measuring our global utilization becomes more and more important to our decision making.

Speaker #4: A 75/25 Australia to Canada weighting was chosen, as it's roughly proportionate to our respective earnings expectations. Despite our Q2 setbacks, our global utilization rate is trending up.

Joe Lambert: Despite our Q2 setbacks, our global utilization rate is trending up, and our continued prudent fleet management is expected to deliver utilization in the second half of the year in our target range of 75% to 80%. Moving on to our outlook for the remainder of the year, slide 14 highlights the three steps, which are mainly cost-related, that bridge our Q2 EBITDA margin results to our H2 expectations. To start, the Fargo settlement that is now behind us is one-time in nature, and we have high confidence in the forecast that estimates complete as we have thoroughly reviewed the forecast, as have our other partners. In Australia, we expect lower costs as we reduce our reliance on subcontracted skilled trades, and importantly, we are ahead of schedule on those reductions through July.

Speaker #4: And our continued prudent fleet management is expected to deliver utilization in the second half of the year in our target range of 75% to 80%.

Speaker #4: Moving on to our outlook, for the remainder of the year, slide 14 highlights the three steps which are mainly cost related that bridge our Q2 EBITDA margin results.

Speaker #4: To our H2 expectations. To start, the Fargo settlement that is now behind us is one-time in nature. And we have high confidence in the forecasted estimate to complete.

Speaker #4: As we have thoroughly reviewed the forecast, as have our other partners. In Australia, we expect lower costs as we reduce our reliance on contracted subcontracted skilled trades.

Speaker #4: And importantly, we're ahead of schedule in those reductions through July. And lastly, in our oil sands business, we expect more consistent operations as our customers have no planned plant outages.

Joe Lambert: Lastly, in our oil sand business, we expect more consistent operations as our customers have no planned plant outages in the second half of the year as historically lower weather exposure. On slide 15, we have provided an outlook for the second half of 2025 and highlighted any variance to previous H2 expectations. As I said in my letter to shareholders, we remain confident in delivering second half year results consistent with our original expectations, aside from our oil sands business. Although these oil sands changes negatively impact our second half EBITDA and EPS, the unchanged combined revenue and free cash flow expectation reaffirms a strong finish to the year and sets us up to be back on historical growth trends for 2026.

Speaker #4: In the second half of the year, as historically lower weather exposure. On slide 15, we've provided outlook for the second half of 2025 and highlighted any variance to previous H2 expectations.

Speaker #4: As I said in my letter to shareholders, we remain confident in delivering second-half year results consistent with our original expectations, aside from our oil sands business.

Speaker #4: Although these oil sands changes negatively impact our second half EBITDA and EPS, the unchanged combined revenue and free cash flow expectation reaffirms a strong finish to the year and sets us up to be back on historical growth trends for 2026.

Speaker #4: On slide 16, we highlight why our long-term growth targets remain intact. With anticipated organic revenue growth of 5 to 10 percent annually. Underpinned by ongoing Australian growth, new infrastructure projects, which are all detailed further on the next slide.

Joe Lambert: On slide 16, we highlight why our long-term growth targets remain intact with anticipated organic revenue growth of 5% to 10% annually, underpinned by ongoing Australian growth, new infrastructure projects, which I will detail further on the next slide, and new mining projects and opportunities to displace higher cost contractors in Australia and Canada that will further enhance fleet utilization and operational diversification. On slide 17, we detail the growing civil infrastructure opportunities in North America. Aging infrastructure, energy transition, climate resiliency, and tariff threats pushing nations to seek more resource independence, all fueled by federal stimulus, are driving what we believe is a vastly growing opportunity in the civil infrastructure markets, with spending uptick kicking off in 2026.

Speaker #4: And new mining projects and opportunities to displace higher-cost contractors in Australia and Canada will further enhance fleet utilization and operational diversification. On slide 17, we detail the growing civil infrastructure opportunities in North America.

Speaker #4: Aging infrastructure, energy transition, climate resiliency, and tariff threats are pushing nations to seek more resource independence. All fueled by federal stimulus, these factors are driving what we believe is a vastly growing opportunity in the civil infrastructure markets.

Speaker #4: With spending uptick kicking off in 2026, this infrastructure growth is coming off a major previous uptick in 2023. It positions us well to support major general contractors who are at capacity, either as a partner or subcontractor.

Joe Lambert: This infrastructure growth is coming off a major previous uptick in 2023 and positions us well to support major general contractors who are at capacity as either a partner or a subcontractor. We expect to have secured two strong project teams to pursue our top 10 projects before year end and maintain our plans to increase infrastructure to around 25% of our overall business by 2028. As I mentioned earlier, our Vice President of Infrastructure Growth is now in place, and although she has only been with us a bit over a month, she has hit the ground running and has already shown the skills and tenacity to fit right in at NACG. This gives me confidence in our ability to achieve our infrastructure goals. Slide 18 highlights a strong bid pipeline, including our top 20 infrastructure projects totaling around $2 billion.

Speaker #4: We expect to have secured two strong project teams to pursue our top 10 projects before year end. And maintain our plans to increase infrastructure to around 25 percent of our overall business by 2028.

Speaker #4: As I mentioned earlier, our VP of infrastructure and growth is now in place. And although she has only been with us a bit over a month, she has hit the ground running and has already shown the skills and tenacity that fit right in at NACG.

Speaker #4: This gives me confidence in our ability to achieve our infrastructure goals. Slide 18 highlights a strong bid pipeline, including our top 20 infrastructure projects totaling around $2 billion.

Speaker #4: The big blue spot in the middle is now gone, as that is the $2 billion contracted win at the Queensland coal mine we announced last week.

Joe Lambert: The big blue spot in the middle is now gone, and that is the $2 billion contracted win at the Queensland Coal Mine we announced last week. The remainder of the bid pipeline remains essentially unchanged as no other significant bids in active procurement have been awarded. Although not a sizable enough project to warrant a press release, it should also be noted that our mine management contract extension at the Texas Coal Mine never entered the bid pipeline, and we were able to negotiate that extension directly with our customer. Lastly, regarding capital allocation going forward, we have been active in our NCIB, having purchased and canceled around 680,000 shares since inception to quarter end, demonstrating our commitment to shareholder-focused allocation.

Speaker #4: The remainder of the bid pipeline remains essentially unchanged as no other significant bids in active procurement have been awarded. Although not a sizable enough project to warrant a press release, it should also be noted that our mine management contract extension at the Texas coal mine never entered the bid pipeline and we were able to negotiate that extension directly with our customer.

Speaker #4: Lastly, regarding capital allocation going forward, we have been active in our NCIB, having purchased and canceled around 680 thousand shares since inception two quarter end.

Speaker #4: Demonstrating our commitment to shareholder focused allocation. We have increased liquidity with our high yield rate and an expected midpoint of 100 million in free cash flow for the second half of the year.

Joe Lambert: We have increased liquidity with our high yield rate and an expected midpoint of $100 million in free cash flow for the second half of the year, which gives us confidence to continue investing in shareholder-friendly ways, provides us funds should we need to settle our remaining convertible debt with cash, which is now a current liability due to the end of Q1 2026, and provides additional funding should we need letters of credit for future infrastructure bids or find other high-return investment opportunities. In summary, while Q2 was not an easy time for us, we are looking forward to a strong back half of the year and are excited to share more operational updates with you as we move towards the end of the year. With that, I will open up for any questions you may have.

Speaker #4: Which gives us confidence to continue investing in shareholder friendly ways. Provides us funds should we need to settle our remaining convertible debt with cash.

Speaker #4: Which is now a current liability due to the end of Q1 2026. It provides additional funding should we need letters of credit for future infrastructure bids.

Speaker #4: Or find other high-return investment opportunities. In summary, while Q2 was not an easy time for us, we were looking forward to a strong back half of the year and are excited to share more operational updates with you as we move towards the end of the year.

Speaker #4: With that, I'll open up for any questions you may have.

Speaker #2: Thank you. We will now begin the question and answer question. To ask a question, please press star one on your touchstone phone and if you wish to withdraw your question, you can press star then the number two.

Joe Lambert: Thank you. We will now begin the question and answer question. To ask a question, please press star one on your touchtone phone. If you wish to withdraw your question, you can press star, then the number two. Once you have completed your question and would like to return to the queue, please press star one again. If you are using a speaker phone, please lift the handset before pressing any keys. One moment, please, for your first question. Thank you. Your first question comes from the line of Aaron McNeil from TD Cowen. Please go ahead.

Speaker #2: Once you have completed your question and would like to return to the queue, please press star one again. If you are using a speakerphone, please lift the handset before pressing any keys.

Speaker #2: One moment please for your first question. Thank you, and your first question comes from the line of Aaron McNeil from TD Cowen. Please go ahead.

Speaker #5: Hey, morning all. Thanks for taking my question.

Aaron McNeil: Hey, morning all. Thanks for taking my question.

Speaker #6: Morning, Aaron.

Kevin Geaney: Morning, Aaron.

Aaron McNeil: Morning, Aaron.

Speaker #5: Jason, you sort of alluded to it in the prepared remarks. I'm hoping you can help us a bit with sort of future free cash flow generation.

Kevin Geaney: Veenstra, you sort of alluded to it in the prepared remarks. I am hoping you can help us a bit with sort of future free cash flow generation. I know there is no guidance out for 2026 yet, but I am hoping you can just quantify the challenges this year, including the Fargo flood diversion project settlement, the margins in Australia and Canada, at least to the extent that you do not expect them to recur next year. Then just give us a sense of what you expect will be the big moving pieces on free cash flow generation. I am thinking about, again, Australian margins, sustaining growth capital, or anything else you think is relevant.

Speaker #5: I know there's no guidance out for 2026 yet, but I'm hoping you can just quantify the challenges this year including the Fargo settlement, the margins, and Australia and Canada.

Speaker #5: At least to the extent that you don't expect them to recur next year. And then just give us a sense of what you expect will be the big moving pieces on free cash flow generation.

Speaker #5: I'm thinking about, you know, again, Australian margins, sustaining growth capital, or anything else you think is relevant and, again, like not to put too fine a point on it, I just want to think about sort of the moving pieces there and if you can give any visibility to an improvement in free cash flow in '26.

Kevin Geaney: Again, not to put too fine a point on it, I just want to think about sort of the moving pieces there and if you can give any visibility to an improvement in free cash flow in 2026.

Speaker #3: Yeah, as far as it relates to the second half, we see about a $20 million working capital good guy in the second half from collections that slipped from June into July.

Jason Veenstra: As far as it relates to the second half, we see about a $20 million working capital good guy in the second half from collections that slip from June into July. That sort of reconciles the reduction in EBITDA, but the consistency in free cash flow. As far as the first half goes, the EBITDA difference from expectation to actual fell to free cash flow, essentially. CapEx came in slightly higher than expectation, about $10 million higher, but the primary driver of the free cash flow difference is the difference in EBITDA. The joint venture, the Fargo flood diversion project settlement and the $8 million impact, we do collect from Fargo on a percentage of completion basis, so that does have an impact on free cash flow as well. Essentially, the EBITDA impact does fall to free cash flow for the first half.

Speaker #3: So that sort of reconciles the, you know, reduction in EBITDA but the consistency in free cash flow. And as far as the first half goes, the, you know, the EBITDA difference from expectation to actual fell to free cash flow essentially.

Speaker #3: So CapEx came in slightly higher than expectation, about $10 million higher. But the primary driver of the free cash flow difference is the difference in EBITDA JV.

Speaker #3: The Fargo settlement and the $8 million impact we do collect from Fargo on a percentage of completion basis. So that does have an impact on free cash flow as well.

Speaker #3: So essentially the EBITDA impact does fall to free cash flow. For the first half.

Speaker #5: Right. I'm just thinking more about 2026. Like I guess not to put too fine a point on it, but like you know the sustaining capital is higher, growth capital is higher.

Kevin Geaney: Right. I am just thinking more about 2026. I guess not to put too fine a point on it, but the sustaining capital is higher, growth capital is higher. Are those the right, is the run rate this year something that we should think about into next year?

Speaker #5: Are those sort of the right, you know, is the run rate this year something that we should think about into next year?

Speaker #3: No, we would expect 2026 sustaining CapEx range to be the 180 to 200 that we had for this year. Some of the component issues we experienced in Canada were driving that overage and we don't expect those to happen again in 2026.

Jason Veenstra: No, we would expect 2026 sustaining CapEx range to be the $180 million to $200 million that we had for this year. Some of the component issues we experienced in Canada were driving that overage, and we do not expect those to happen again in 2026. We would expect a similar free cash flow target, call it $130 million to $150 million for 2026, when we guide in October.

Speaker #3: So we would expect a similar free cash flow target call it 130 to 150 for 2026. When we guide in October.

Speaker #5: Got it. And then Joe, one for you. You know, I'm just looking at not the Q2 presentation but the August investor presentation that just hit your website.

Kevin Geaney: Got it. Joe, one for you. I am just looking at not the Q2 presentation, but the August investor presentation that just hit your website. You speak to 15% Australia growth in 2024, 25% in 2025, and then a consolidated long-term growth rate of 5% to 10%. I can realize that is a top-line target, but how is the Australian labor strategy evolving? What do you think is a practical ceiling on your potential revenue growth in Australia before you get into the negative margin outcomes that we saw with Q2?

Speaker #5: You speak to 15 percent Australia growth in 2024, 2025 percent in 2025, and then a consolidated, you know, long-term growth rate of 5 to 10 percent.

Speaker #5: So you know, I can realize that the top line target, but how's the Australian labor strategy evolving? And what do you think is a practical sort of ceiling on your potential revenue growth in Australia before you start to get into the, you know, the negative margin outcomes that we saw with Q2?

Speaker #3: Well, I think

Speaker #4: Managing a 5% to 10% growth rate is very reasonable. Obviously, we've had a bit higher than that. You know, we also started the copper mine up in New South Wales, which wasn't an area we had been operating in previously.

Joe Lambert: I think managing a 5% to 10% growth rate is very reasonable. Obviously, we have had a bit higher than that. We also started the copper mine up in New South Wales. That was not an area we had been operating in previously. This skilled trades is an issue that always rises its head in our business at certain times. We react to it fairly quickly. I think we have been through this before. They are reoccurring items, and we have addressed it. I feel very comfortable that we will have worked our way out of this in the second half of the year down there. So, like I said, I think we already had a good head start on it in July. At a lower growth rate, it is much easier to manage.

Speaker #4: This, you know, skilled trades isn't an issue that it always rises its head in our business at certain times. We react to it fairly quickly.

Speaker #4: You know, I think we've been through this before. They're recurring items, and you know we've addressed it. I feel very comfortable that we'll have worked our way out of this in the second half of the year down there.

Speaker #4: Like I said, I think we already had a good head start on it in July. And then at a lower growth rate, it's much easier to manage.

Speaker #4: You know, the higher the growth rate in any particular area, the more pressure it puts on any kind of hard to get trades like that.

Joe Lambert: The higher the growth rate in any particular area, the more pressure it puts on any kind of hard-to-get trades like that.

Speaker #5: Gotcha. Okay, thanks. I'll turn it back.

Kevin Geaney: Gotcha. Okay, thanks. I will turn it back.

Speaker #3: Thanks.

Jason Veenstra: Thanks.

Speaker #2: Thank you. Your next question comes from the line of Kevin Deaney from Thomson Davis. Please go ahead.

Joe Lambert: Thank you. Your next question comes from the line of Kevin Geaney from Thomson J. Davis. Please go ahead.

Speaker #7: Good morning, Joe, Jason. It's Kevin on for Adam.

Kevin Geaney: Good morning, Joe, Jason. It's Kevin on for Aaron.

Speaker #3: Hi Hi Kevin.

Speaker #7: Despite the shutdown, revenue growth in Canada was still strong. I think about 20 percent year-over-year. But revenue would have been even stronger without the shutdown?

Jason Veenstra: Hi, Kevin.

Kevin Geaney: Despite the shutdown, revenue growth in Canada was still strong, about 20% year over year. Would revenue have been even stronger without the shutdown, or did the shutdown impact costs more than sales?

Speaker #7: Or did the shutdown impact costs more than the sales?

Speaker #4: Revenue was a direct relationship to revenue. And the costs, the inefficiency is when you have those kind of abrupt shutdowns, you know, laying people off and hiring them back on takes time and money.

Joe Lambert: Revenue, it was a direct relationship to revenue. The cost and the inefficiency is when you have those kind of abrupt shutdowns. Laying people off and hiring them back on takes time and money and carryover of overheads. You do not want to lay off your entire staff and then try and bring them back three weeks later or a month later. Those were direct impacts. We do not see that happen again because it was predominantly related to their timing of a turnaround, a major turnaround in their plant.

Speaker #4: And carryover of overheads. You know, you don't want to lay off your entire staff and then try and bring them back three weeks later or a month later.

Speaker #4: So yeah, those were direct impacts. And we don't see that happening again because it was predominantly related to their timing of a turnaround, major turnaround in their plant.

Speaker #7: Do you think you guys think that that turnaround was just a one time off turnaround or in that oil sands will be smoother in H2?

Kevin Geaney: Do you guys think that turnaround was just a one-time off turnaround or in that oil sands will be smoother in H2?

Speaker #4: I think generally about every three or four years. But, you know, we actually met with them in early May and had discussions on what those impacts were to us.

Joe Lambert: They generally do those about every three or four years. We actually met with them in early May and had discussions on what those impacts were to us and how it negatively impacted them. I think we have a good understanding and relationship that hopefully the next one that happens to be three years down the road or whatever, that we have plans in place to schedule around it to where you do not have an abrupt shutdown of work and then bring it back online. That is very expensive and it creates issues across the board, operationally, safety costs. We have had those discussions and I think our clients understand it. It was an unfortunate situation in Q2 and hopefully we can plan our way around it in the future.

Speaker #4: And how it negatively impacted them. And I think we've got a good understanding and relationship that hopefully we the next one that happens, be it three years down the road or whatever, that we've got plans in place to schedule around it to where you don't have an as abrupt you know, a shutdown of work.

Speaker #4: And then bring it back online. So that's very expensive and it creates issues across the board. Operationally safety costs. And so you know, we've had those discussions and I think our clients understand it.

Speaker #4: It was an unfortunate situation in Q2. And hopefully we can plan our way around it in the future.

Speaker #7: I appreciate the color on that. And then maybe for you, Jason, on the guidance. How are you guys looking at Q3 versus Q4? Are you expecting strong results in Q4?

Kevin Geaney: I appreciate the color on that. Then maybe for you, Jason, on the guidance, how are you guys looking at Q3 versus Q4? Are you expecting strong results in Q4 or Q3? Or should they look relatively similar from an EBITDA standpoint?

Speaker #7: Or Q3? And then, should they look relatively similar from an EBITDA standpoint?

Speaker #3: Yeah, there are some puts and takes, but it's basically flat quarter over quarter. You know, with Fargo, it will be a little stronger in Q3, but Australia is going to be stronger in Q4.

Jason Veenstra: Yeah, there are some puts and takes, but it is basically flat quarter over quarter. With Fargo, it will be a little stronger in Q3, but Australia is going to be stronger in Q4. So, it works out to pretty much equal quarters from an EBITDA and EPS perspective.

Speaker #3: So it's it works out to pretty much equal quarters from an EBITDA and EPS perspective.

Speaker #7: Perfect. I'll turn it over. Thanks, guys.

Kevin Geaney: Perfect. I will turn it over. Thanks, guys.

Speaker #2: Thank you, and your next question comes from the line of Prem Kumar. Please go ahead.

Joe Lambert: Thank you. Your next question comes from the line of Prem Kumar. Please go ahead.

Speaker #8: Hey, good morning team. I had a couple of questions. So please bear with me. My first question's on if you could expand on any changes to your OEM partnerships you mentioned in the letter that you've expanded your partnership with OEM and dealer networks.

Prem Kumar: Hey, good morning, team. I had a couple of questions, so please bear with me. My first question is on if you could expand on any changes to your OEM partnerships. You mentioned in the letter that you have expanded your partnership with OEM and dealer networks. Can you please kind of help us explain what those changes are? Also, are there any changes to your physical network in Fort Mac over the last quarter or so with regard to these partnerships? Thank you.

Speaker #8: Can you please kind of help us explain what those changes are? And also have you are there any changes to your physical network in Fort Fort Mac?

Speaker #8: Or the last quarter or so? With regard to like these partnerships? Thank you.

Speaker #4: Yeah, you know, we've I think this was actually something we transitioned to last year was a partnership with our Caterpillar dealer. In a component remanufacturing site for a certain portion of our components.

Joe Lambert: Yeah, you know, I think this was actually something we transitioned to last year, was a partnership with our Caterpillar dealer in a component remanufacturing side for a certain portion of our components. That's gone very well, actually. That was the driver for switching to that, was based on the component issues we were having last year. We've had some lesser component issues that Jason mentioned. Those were actually in some of the OEM products. They weren't the same components as we were talking about last year. We do have, we've had a very positive response from our dealer. Right now, it's basically making sure parts are available and on the shelf for any issues and then troubleshooting that to prevent reoccurrence. You know, those partnerships are very strong for us with our major Caterpillar dealer.

Speaker #4: That's gone very well. Actually, that's that was the driver switching to that was based on the component issues we were having last year. We've had some lesser component issues that Jason mentioned those were actually in some of the OEM products.

Speaker #4: They weren't the same components as we're talking about last year. And we do have we've had a very positive response from our from our dealer in right now it's basically making sure parts are available and on the shelf for any issues.

Speaker #4: And then troubleshooting that to prevent reoccurrence. You know, those partnerships are very strong for us with our major Caterpillar dealer.

Speaker #8: Okay. And so no changes to your existing footprint in Fort Mac other than just other than this partnership with OEMs?

Prem Kumar: Okay. So no changes to your existing footprint in Fort Mac other than this partnership with OEMs?

Speaker #4: Yeah, we have the same relationships with clients in our equipment dealers as we've had in the past.

Joe Lambert: Yeah, we have the same relationships with clients and our equipment dealers that we've had in the past.

Speaker #8: Okay. And then can you please expand on the contract you're able to choose in Australia? I was a little surprised back, I guess based on your commentary from the past, where you mentioned you're seeing growth in Australia. I was kind of hoping you would be prepared for the exceptional growth in Australia.

Prem Kumar: Okay. Can you please expand on the contract labor issues in Australia? I was a little surprised, I guess, based on your commentary from the past where you mentioned you have seen growth in Australia. I was kind of hoping you would be prepared for the exceptional growth in Australia. The labor issue took me by surprise. Could you please expand on that, please?

Speaker #8: So the the labor issue took me by surprise. So could you please expand on that please?

Speaker #4: Yeah, you know, for the 40 years I’ve been in the industry, Prem, there are certain skilled trades that are always difficult for us. It’s heavy equipment technicians.

Joe Lambert: Yeah, you know, for the 40 years I've been in the industry, the service skilled trades are always difficult. With us, it's heavy equipment technicians. You know, we've built systems around how we increase and develop our own mechanics. You know, when you have a very high growth rate, you go into new areas like we did in Australia, it's often difficult to find those guys. We react very quickly. In the near term, you subcontract out those services. It's not an unusual event in our industry, but it's one we learn to react to. It's much easier when you're on a 5% or 10% growth rate than when you're on a 20% to 30% growth rate. It's not something we're ill-prepared for. It's just harder to do with that kind of growth than with a lower rate of growth.

Speaker #4: And you know, we've built systems around how we increase and develop our own mechanics. And you know, when you have a very high growth rate and you go into new areas like we did in Australia, it's often difficult to find those guys.

Speaker #4: And we react very quickly. But in the near term, you subcontract out those services. It's not an unusual event in their industry.

Speaker #4: But it's one we learned to react to, and it's much easier when you're on a 5% or 10% growth rate than when you're on a 20% to 30% growth rate.

Speaker #4: So it's not something we're ill-prepared for. It's just harder to do with that kind of growth than with a lower rate of growth. And it's an area where we have our HR team focused on how we develop and access those people faster when we need them for fast growth.

Joe Lambert: It's an area where we have our HR team focused on how we develop and access those people faster when we need them for fast growth. You know, we'll be, it's always an issue in the industry, has been forever. It's the guys that react quickly and then develop long-term solutions, which I think we've demonstrated we can do.

Speaker #4: So you know, it's always an issue in the industry. It has been forever. And so the guys that react quickly and then develop long-term solutions, which I think we've demonstrated we can do.

Speaker #8: Okay. And then on your contract backlog, any concerns about having like around 50 percent of the backlog coming from like one site? I think in Australia.

Prem Kumar: Okay. On your contract backlog, any concerns about having around 50% of the backlog coming from one site in Australia?

Speaker #4: You know, I think that's our biggest client right now. And we've signed a five-year term. So it's fresh in the books. So you know, it's just the timing of things.

Joe Lambert: You know, I think that is our biggest client right now. We have signed a five-year term, so it is fresh in the books. You know, it is just the timing of things. As we, you know, when we get two years in on that contract, something else will be on the top. Hopefully, a big infrastructure project is my expectations. So, you know, it is just at this point in time, just because we were only awarded that contract a week ago, it sits that high in the backlog percentages. As we advance and renew and win others, you will see that percentage drop. No, it does not worry me.

Speaker #4: As we know, when we get two years into that contract, something else will be on top. Hopefully, a big infrastructure project is my expectation.

Speaker #4: So I you know, it's just at this point in time just because we're only awarded that contract a week ago. It sits that high in the backlog percentages.

Speaker #4: As we advance and renew and win others, you'll see that percentage drop. So no, it doesn't worry me.

Speaker #8: Okay. I was just two more and I'm and I apologize for asking. Quite a few questions today.

Prem Kumar: Okay. I had just two more, and I apologize for asking quite a few questions today.

Speaker #4: You're right. Do I get to the bonus round, Prem?

Joe Lambert: are too ready until I get to the bonus round, Fred.

Speaker #8: So So and I just want to ask like so how are the prospects in infrastructure works shaping up? I think you talked about hiring the new head of infrastructure and then the VP as well.

Prem Kumar: I just want to ask, how are the prospects in infrastructure work shaping up? I think you talked about hiring the new head of infrastructure and the Vice President as well. Could you expand on the progress on building up the team and where in the process are you guys right now?

Speaker #8: So could you expand on like how you're like the progress on building out the team and then you know, where in the process are you guys right now?

Speaker #4: Yeah, if you look at that slide on the infrastructure, it actually lists our top 10 projects. And what we're seeing is a significant increase in infrastructure projects that really fit in our wheelhouse, which are ones that have major earthworks.

Joe Lambert: If you look at that slide on the infrastructure, it actually lists our top 10 projects. What we are seeing is a significant increase in infrastructure projects that really fit in our wheelhouse, which are ones that have major earthworks. We are seeing it across Canada and the U.S., seeing just getting into the Australian side as well. There is a lot of pumped hydro kind of earthwork stuff around the energy transition. There is a lot of stuff like Fargo, climate resiliency projects where areas that used to flood once every 20 years are flooding every four years. Now they want to build flood diversions or beef up their levees.

Speaker #4: And we're seeing it cross Canada and the US. I'm seeing just getting into Australian side as well. So there's a lot of pumped hydro kind of earthwork stuff around the energy transition.

Speaker #4: There's a lot of stuff like Fargo you know, climate resiliency projects where areas that used to flood once every 20 years are flooding every four years.

Speaker #4: And now they want to build flood diversions or beef up their levees. And then we see a lot of infrastructure building access into like in Canada you know, access up to the ring of fire or the Graves Bay Arctic port.

Joe Lambert: Then we see a lot of infrastructure building access into, like in Canada, access up to the Ring of Fire or the Grades Bay Arctic port. There are opportunities, and those fit into our wheelhouse as far as building that infrastructure, those roadways, those access ways through remote Arctic areas. You can see the project list on that slide, but if you go look at them, what you will find is they are very much earthworks oriented. Historically, we never saw this level of earthworks side in the infrastructure. Where we sit right now is putting together project teams. We are going to look at partners similar to the guys we have at Fargo. They are actually on in Shikuna Minui. We will look at partners that fit those particular projects well that we think have the highest rating, if you would, in teams.

Speaker #4: There's opportunities and those fit into our wheelhouse as far as building that infrastructure. Those roadways, those access ways. Through remote Arctic areas. You know, so you can see the project list on that slide.

Speaker #4: But if you go look at it, what you'll find is they're they're very much earthworks oriented. Historically, we never saw this level of earthworks side in the infrastructure.

Speaker #4: And where we sit right now is putting together project teams. So we're going to look at partners similar to the guys we have at Fargo.

Speaker #4: They're actually on in Chacuna Manoi. We'll look at partners that fit those particular projects well that we think have the highest rating, if you would, in teams.

Speaker #4: And then we're going to look to team with them by the end of the year, have two of them and then take those team in we expect to win a couple of projects in F25 percent of our work in the next couple of years.

Joe Lambert: Then we are going to look at a team with them by the end of the year, have two of them, and then take those teams. We expect to win a couple of projects and have 25% of our work in the next couple of years.

Speaker #8: Okay. Thank you. I'll ask my last question. So for with regard to free cash flow, I think Jason mentioned normalized for maybe like next year free cash flow would be about 120 to 150 million.

Prem Kumar: Okay. Thank you. I will ask my last question. With regard to free cash flow, I think Jason Veenstra mentioned normalized for maybe next year, free cash flow would be about $120 million to $150 million. Looking at some of your older presentations, like some 2023, what you were guiding just for the Canadian division was around $100 million to $115 million free cash flow. Then came the MacKellar Group acquisition. I am a little surprised that your combined normalized free cash flow for next year or for a normalized year is almost as close to your upper guidance for just the Canadian division just about a year and a half, two years ago.

Speaker #8: Looking at some of your older presentations, like those from 2023, what you were guiding just for the Canadian division was around $100 million to $115 million in free cash flow.

Speaker #8: And then came the McKeller acquisition. So I'm a little surprised that, you know, your combined normalized free cash flow for next year or for a normalized year is almost as close to your upper guidance for just the Canadian division just about a year and a half, two years ago.

Speaker #8: And also considering the fact that over the last 12 months you've had free cash flow of 20 million. For a company with a replaceable asset value of over 4 billion.

Prem Kumar: Also, considering the fact that over the last 12 months, you have had free cash flow of $20 million for a company with a replaceable asset value of over $4 billion. That is, in my opinion, pretty poor returns for a high $4 billion asset. I think the market agrees too, especially with regard to where the share price is now. Can you expand, can you help me with regard to the free cash flow? What is the team doing to improve that? I guess does the team also have the same notion on the free cash flow being low right now?

Speaker #8: That's in my opinion pretty poor returns for a high 4 billion asset. And I think the market agrees too. Like especially with regard to where the share price is now.

Speaker #8: Can you expand like can you help me with regard to like the free cash flow? What's the team doing to like improve that? I guess does the team also like have the same notion on the free cash flow being low right now?

Speaker #4: Absolutely. We think it's low. And that's but you know, we've seen coming back that midpoint of 100 million over the next six months. You know, there's a lot more questions in that than I can answer.

Joe Lambert: Absolutely. We think it's low. That's, but you know, we see coming back to that midpoint of $100 million over the next six months. You know, there's a lot more questions in that than I can answer, Graham, but yeah, we're very confident in our free cash flow projections and it growing, going into and going back to normal in 2026.

Speaker #4: Prem, but yeah, we're very confident in our free cash flow projections. And it growing going back to normal in 2026.

Speaker #8: Okay. Thank you so much. I'll end it with that.

Prem Kumar: Okay. Thank you so much. I'll end it with that.

Speaker #3: No worries. Thank you.

Jason Veenstra: No worries. Thank you.

Speaker #2: Thank you and your next question comes from the line of Shan Jack from Raymond James. Please go ahead.

Joe Lambert: Thank you. Your next question comes from the line of Sean Jack from Raymond James. Please go ahead.

Speaker #7: Morning, guys. Just wanted to ask one question on Australia. Just wondering how we should be thinking about gross margin moving into the back half here.

Kevin Geaney: Morning, guys. Just wanted to ask one question on Australia. I was just wondering how we should be thinking about gross margin moving into the back half here. It seems like efforts have definitely been taken to mitigate the skilled trade stuff. Are we going to be looking at a more gradual improvement, kind of a step change in the third quarter? Any color would be great.

Speaker #7: Seems like efforts have definitely been taken to mitigate the skilled trade stuff. But are we going to be looking at a more gradual improvement?

Speaker #7: Kind of a step change in the third quarter? Any color would be great.

Speaker #4: Yeah, I don't know what the number was. It's been a half. Jason, you'll have to answer that. But we expect to be back to what we'd originally projected in our original guidance.

Joe Lambert: I do not know what the number was. They have taken the last answer to that, but we expect to be back to what we originally projected in our original guidance.

Speaker #3: Yeah, so we're in the low 20 percent range for gross profit margin, Sean. As Joe mentioned in his prepared remarks, the subcontractor issue is rectifying quickly.

Jason Veenstra: We are in the low 20% for gross profit margin, Sean. As Joe Lambert mentioned in his prepared remarks, the subcontractor issue is rectifying quickly. We got through most of it in July. We expect to be a percentage up in Q4 over Q3. Low 20% is the expectation for Australia.

Speaker #3: You know, we got through most of it in July. So we expect to be, you know, a percentage up in Q4 over Q3. But yeah, low 20 percent is the expectation for Australia.

Speaker #7: Okay, perfect. One more for me. So you guys also just talked about kind of putting the project teams together on the infrastructure side. And kind of getting the right people in place.

Kevin Geaney: Okay, perfect. One more for me. You guys also just talked about kind of putting the project teams together on the infrastructure side and getting the right people in place. Wondering if you guys have any visibility on what that sort of bid pipeline looks like right now from a timing perspective. How early could investors see, you know, realistically new projects from the infrastructure side coming into the fold?

Speaker #7: Wondering if you guys have any visibility on what that sort of bid pipeline looks like right now from a timing perspective? How early could investors see you know, realistically new projects from the infrastructure side coming into the fold?

Speaker #4: Well, they're actually some that are on very fast tracks. And additionally, looking at ones that we may not be part of the bid team, but we can look at from a subcontractor standpoint.

Joe Lambert: There are actually some that are on very fast tracks. Additionally, in looking at ones that we may not be part of the bid team, we can look at from a subcontractor standpoint. Those opportunities could be as early as summer of 2026. Most of the other ones where you are actually bidding as a team, a design-build kind of thing, I would say probably more out into the 2027 standpoint. If you look at the bid pipeline, those light blue dots in the very bottom line, those are where those projects are expected to start. Some of them are starting with just engineering and design, and that construction could be out. You could win a project in 2026, but it might just be engineering and design. You do not start the construction until 2027.

Speaker #4: Those opportunities could be as early as summer of 2026. You know, most of the other ones where you're actually bidding as a team, you know, a design-build kind of thing, I'd say probably more out into the 2027 standpoint.

Speaker #4: And like if you look at the bid pipeline, those light blue dots in the very bottom line, those are where those projects are expected to start.

Speaker #4: But some of them are starting with just engineering and design. The construction could be out. So you could win a project in 2026, but it might just be engineering and design.

Speaker #4: You don't start the construction until 2027. So there is some opportunity for 2026, but I think the biggest ones are in 2027.

Joe Lambert: So there is some opportunity for 2026, but I think the biggest ones are in 2027.

Speaker #7: Perfect. That's all from me, guys. Thanks.

Kevin Geaney: Perfect. That's all for me, guys. Thanks.

Speaker #3: Thanks, Sean. Thanks, Sean.

Jason Veenstra: Thanks, Sean.

Kevin Geaney: Thanks for having me.

Speaker #2: Thank you and your next question comes from the line of Kazim Nakvi from National Bank Financial. Please go ahead.

Joe Lambert: Thank you. Your next question comes from the line of Kazim Nakvi from National Bank Financial. Please go ahead.

Speaker #8: Good morning, guys. Kazim here on for Maxim.

Kevin Geaney: Good morning, guys. Kazim here on for Maxim.

Speaker #3: Morning, Kazim.

Jason Veenstra: Morning, Kazim.

Speaker #8: I just most of the questions have been asked. I just was wondering like what the JV forecast adjustment for Fargo means for the future profitability of that JV.

Kevin Geaney: Most of the questions I have been asked. I was wondering what the joint venture forecast adjustment for Fargo means for the future profitability of that joint venture. Do you guys expect it to be profitable for the year? What should we expect going forward for 2026?

Speaker #8: Do you expect it to be profitable for the year? And what should we expect going forward for 2026?

Speaker #4: Yeah, the changes made for the end result of the project. So, yeah, we expect to maintain that margin. Hopefully, we can improve upon it. But we're very confident in where that margin sits.

Joe Lambert: That change is made for the end result of the project. We expect to maintain that margin, hopefully improve upon it. We are very confident in where that margin sits. We reviewed that forecast. This was also part of the overall agreement we made with the authority that settled all the old claims. We do not have anything hanging over us from the past now, and we are just looking forward to complete it. We are in the last kind of quartile of that work and expect to hand it over to kind of operations and maintenance at the end of next construction season next year.

Speaker #4: We've reviewed that forecast. This was also you know, part of the overall agreement we made with the authority that settled all the old claims so we don't have anything hanging over us from the past now.

Speaker #4: And we're just looking forward to complete it. And we're in the last kind of quartile of that work. And expect to hand it over to kind of operations and maintenance at the end of next construction season next year.

Speaker #8: Great. Thank you. And I think.

Kevin Geaney: Great. Thank you. I think.

Joe Lambert: That was our project too, Kazim. It was not a major loss of margin. It is just the fact that you are 70% complete that it made a big impact in Q2.

Speaker #3: Project too, Kazim. You know, we're it.

Speaker #4: wasn't a major loss of margin. It's just the fact that you're 70 percent complete that it made a big impact in Q2.

Speaker #8: Great. So it's just more like a one-time thing and.

Kevin Geaney: Great. So, it's just more like a one-time thing.

Speaker #4: Absolutely.

Joe Lambert: Absolutely.

Speaker #3: Correct.

Kevin Geaney: Okay, great. I think you already touched upon this about the Australian labor issues. Should we assume that this will not continue on in 2026, or is this the new steady-state margin given that labor costs have gone up?

Speaker #8: Okay. Great. And like I think you already touched upon this issue regarding Australian labor. But should we assume this will not continue in 2026?

Speaker #8: Or is this the new steady state margin given that you know, labor costs have gone up?

Speaker #4: No, we wouldn't expect this in 2026. It's always cyclical, and skilled trades are always an issue in our industry. They just come up.

Joe Lambert: No, we wouldn't expect this in 2026. It's always cyclical, and skilled trades are always an issue in our industry. They just come up. It just puts more pressure on you when you have a high growth rate. But you know, adapting and growing and building our own development processes in our HR, we've demonstrated this in the past. We felt these pressures before, and we know how to deal with it. I don't expect this to reoccur in 2026, no.

Speaker #4: It just it puts more pressure on you when you have a high growth rate. And but you know, adapting and growing and building our own development processes and our HR we've demonstrated this in the past.

Speaker #4: We've felt these pressures before, and we know how to deal with it. So, I don't expect this to reoccur in 2026, no.

Speaker #8: Thank you. That's it for me.

Kevin Geaney: Thank you. That's it for me.

Speaker #3: Okay.

Speaker #2: Thank you. Your next question comes from the line of Chris Thompson from Bank of Commerce. Please go ahead.

Joe Lambert: Okay.

Joe Lambert: Thank you. Your next question comes from the line of Quince Thompson from Bank of Commerce. Please go ahead.

Speaker #7: Hey, good morning, guys. Yeah, I'll start on the four guidance for the oil sands. It looks like you lowered your margin expectation there for H2, but I'm just a bit confused because I was under the impression that the Q2 turnaround activity was really the cause of that impact.

Kevin Geaney: Hey, good morning, guys. I will start on the core guidance for the oil sands. It looks like you lowered your margin expectation there for H2, but I am just a bit confused because I was under the impression that the Q2 turnaround activity was really the cause of that impact this quarter and that that was behind us. It feels like that may not be the case. How should we think about that for 2026 margins in the oil sand?

Speaker #7: This quarter and that that was behind us. But it feels like that may not be the case. And then how should we think about that for 2026 margins in the oil sands?

Speaker #4: That is behind us. But I do think we had some issues with some of components, some different components. And so and we have lower revenue projections in the second half we always did.

Joe Lambert: That is behind us. I do think we had some issues with some of components, some different components. We have lower revenue projections in the second half. We always did, so there is not the same efficiency. These component issues, which we have rectified as far as the impacts to us operationally, our dealers have responded by putting parts on the shelf. It is probably another six months before we get the solutions in place to prevent reoccurrence. I would not expect that to continue on into 2026. I would expect we are back at normal margins, very similar, my guess, to what we started the year with as far as our expectations.

Speaker #4: So there's not the same efficiency. And then these component issues, which we've rectified as far as the impact to us operationally our dealers have responded by putting parts on the shelf.

Speaker #4: But it's probably another six months before we get the solutions in place that prevent reoccurrence. But I wouldn't expect that to continue on into 2026.

Speaker #4: And I would expect we're back at normal margins, very similar, my guess, to what we started the year with as far as our expectations.

Speaker #7: Okay, so the impact for H2 margin Joe is purely parts related?

Kevin Geaney: The impact for H2 margin, Joe, is purely parts related?

Speaker #4: Well, it's we have a lower revenue per month if you would than we did in H1. And so there's a little bit of loss of efficiency and overheads in that.

Joe Lambert: We have a lower revenue per month, if you would, than we did in H1. There is a little bit of loss of efficiency and overheads in that. There are still some component-related issues, and they are different than what we had last year. We have the OEMs involved in this, where previous ones I spoke about last year were actually partnerships we had that were not with OEMs or OEM dealers. They have already reacted. We have what we would call stage one, which is containment of an issue. Then we are going to resolve to prevent it and put a solution in place. They are actively working on that with our team.

Speaker #4: But there is still some component related issues. And they're different than what we had last year. And we have the OEMs involved in this.

Speaker #4: Where previous ones I spoke about last year were actually partnerships we had that weren't with OEMs or OEM dealers. And so they've already reacted.

Speaker #4: We have what we would call Stage One, which is containment of an issue. Then we're going to resolve it to prevent it and put a solution in place. They're actively working on that with our team.

Speaker #7: Okay. And then thinking back to the oil sands contract that you had won in late 2024, the committee spend was $500 million. And you'd expected that represents a third of the total work to be performed across the mine site.

Kevin Geaney: Okay. Thinking back to the oil sands contract that you had won in late 2024, the committed spend was $500 million. You had expected that represents a third of the total work to be performed across the mine site. How much of that $500 million committed spend have you already worked through? How confident are you in that one-third assumption that you originally went in with?

Speaker #7: So, how much of that $500 million committed spend have you already worked through? And how confident are you in that one-third assumption that you originally went in with?

Speaker #4: I'm confident in the one-third as far as the amount of work that gets done every year. The amount that comes in backlog at any one time is the same for us; their commitment to us is the same as our commitment to them. I actually don't think the backlog burn changes the total amount of revenue we do with those clients.

Joe Lambert: I'm confident in the one-third as far as the amount of work that gets done every year, the amount that comes at backlog at any one time, and it's the same for us that their commitment to us is the same as our commitment to them. I actually don't think the backlog burn changes the total amount of revenue we do with those clients. I don't know, Jason Veenstra, what's the number we've gone through? $150 or so?

Speaker #4: But I don't know, Jason, what's the number we've gone through? 150 or so?

Speaker #3: Yeah, 100.

Kevin Geaney: Yeah.

Speaker #4: Yeah, so somewhere in that $150 to $200 million range. You know, I talked about it. The backlog will probably consume faster, and we look at that as a good opportunity going forward to talk to our clients about increasing those commitments over these four years.

Jason Veenstra: One of them.

Joe Lambert: Somewhere in that $150 million to $200 million range. I talked about it. The backlog will probably consume faster. We look at that as a good opportunity going forward to talk to our clients about increasing those commitments over these four years.

Speaker #4: Because it's.

Speaker #7: Okay, and then in terms of the. In terms of maybe just addressing the volatility that you've experienced with your oil sands work, I mean, going forward, is there a way to shift the way these contracts are structured to help guard against this volatility?

Kevin Geaney: Okay. In terms of maybe just addressing the volatility that you have experienced with your oil sands work, going forward, is there a way to shift the way these contracts are structured to help guard against this volatility? I guess, what is the long-term solution to try and manage the amount of volatility we have seen in that contract?

Speaker #7: I guess like what's the long-term solution to try and manage this the amount of the amount of volatility we've seen in that contract?

Speaker #4: For us, it's really about maintaining a good open relationship with our clients so that we can communicate and plan together. That didn't occur in this instance very well.

Joe Lambert: For us, it is really maintaining a good open relationship with our clients so that we can communicate and plan together. That did not occur in this instance very well. We had discussions afterwards, and I think we have reset that. From a contracting standpoint, for contractors to get more leverage is when we have higher demand than supply. Then you can get stronger in your terms and conditions. It is just a matter of where that sits in the market at the time, like any other contracting business.

Speaker #4: We had discussions afterwards. And I think we've reset that. And then you know, from a contracting standpoint, it's you know, for contractors to get more leverage is when we have higher demand and then supply.

Speaker #4: And then you can get stronger in your terms and conditions. You know, it's just a matter of where that sits in the market at the time.

Speaker #4: Like any other contracting business.

Speaker #7: Okay, and then just last one on the oil sands. Slide 23, you highlighted the replacement value of the fleet overall. Can you break out for us what the replacement value is for your oil sand fleet?

Kevin Geaney: Okay. Then just last one on the oil sands side, 2023, you highlighted replacement value of the fleet overall. Can you break out for us what the replacement value is for your oil sands fleet?

Speaker #4: Yeah, I'm sure Jason could get that to you. Chris, I don't know if he knows it off the top of his head, but.

Joe Lambert: Yeah, I am sure Jason, you get that to you, Chris. I do not know if he knows it off the top of his head, but.

Speaker #3: Sure, no problem.

Kevin Geaney: Sure. No problem. Last question, just on Australia. When I look back at 2023, it looks like gross profit margins were pretty strong, like mid-20s to low 30s. For H2 25, we are talking about low 20s. I am just wondering what has changed in the business that has seen that margin shrink over time.

Speaker #7: Okay, and then last question just on Australia. When I look back at 2023, it looks like gross profit margins were pretty strong, like mid-20s to low-30s.

Speaker #7: And now for H2 2025, we're talking about low 20s. So I'm just wondering what's changed in the business that has seen that margin shrink over time?

Speaker #4: I don't have the exact bridge for you. I know what the difference is. And you know, we've expanded some of those marketplaces and added maintenance labor.

Joe Lambert: I do not have the exact bridge for you. I know what the difference is. We have expanded some of those marketplaces and added maintenance labor. It is just a mix of work. Your highest margin, if you do a straight dry rental, I do not know if you are familiar with that term, Chris, but if you just rent a truck, it does have the highest margins because that, if you rent that truck and you provide maintenance for it and the labor, the margins on labor are not as high. It is really just a mix of work. It is not the same work having reduced margins.

Speaker #4: So it's just a mix of work. Your highest margin, if you do a straight dry rental, I don't know if you're familiar with that term, Chris, but if you just rent a truck that'll have the highest margins because that and you know, now if you rent that truck and you provide maintenance for it and the labor the margins on labor aren't as high.

Speaker #4: So, it's really just a mix of work. It's not the same work having reduced margins.

Speaker #7: Okay, that's good. Thanks for clarifying that. I'll turn it back. Thank you.

Kevin Geaney: that is good. Thanks for clarifying that. I will turn it back. Thank you.

Speaker #3: Sure.

Speaker #2: Thank you once again. That is time one to ask a question. And your next question comes from the line of Kevin Gainey from Thomson Davis.

Joe Lambert: Thank you once again. That is Tarin Wong to ask a question. Your next question comes from the line of Kevin Geaney from Thomson J. Davis. Please go ahead. Hey,

Speaker #2: Please go ahead.

Speaker #8: Hey, guys. I appreciate you letting me jump back in. I just wanted to ask, has there been any thought or continuation of thought on moving more heavy equipment from Canada to Australia?

Ina: guys. Appreciate you letting me jump back in. I just wanted to ask, has there been any thought or continuation of thought on moving more heavy equipment from Canada to Australia?

Speaker #4: Absolutely. We've moved some small pieces. Actually, we've got four more trucks we're shipping over there right now. It's not a huge amount of gear.

Joe Lambert: Absolutely. We have moved some small pieces. Actually, we have got four more trucks we are shipping over there right now. It is not a huge amount of year. If you look at the bid pipeline, Kevin Geaney, you will see a big blue dot on the top row. It is in 2027. That is probably our biggest opportunity to move a good chunk of fleet that is not committed in Canada right now. That would be our biggest opportunities. We are still moving a few pieces here and there. We are bidding other work outside of oil sands that we look to use and increase our utilization of our smaller end fleet. Oil sands demand is still very strong. It is a business that we still see staying at that level of revenue for years to come.

Speaker #4: If you look at the bid pipeline, Kevin, and you'll see a big blue dot on the top row. It's in 2027. And that's our probably our biggest opportunity to move a good chunk of fleet.

Speaker #4: That isn't committed in Canada, right now. And so that would be our biggest opportunities. We're still moving a few pieces here and there. And we're bidding other work outside of oil sands.

Joe Lambert: We will look to take our fleet and right-size it to maximize our utilization and return. Those kind of opportunities like that big blue dot in 2027 you will see are the biggest ones we see. We see more of them coming up, actually.

Ina: You guys wouldn't preemptively move it. You would wait until you win the contract?

Joe Lambert: Yeah, we, no, it is they are very high cost to move stuff. It is not the, and it takes a significant amount of time to get it overseas. So, no, we would have won a contract, you know, six months, eight months in advance of when we would shift the fleet. It takes about roughly six months between tear down, get it over there, and get it set up. You know, we have moved 30-odd pieces over there now, so we are pretty familiar with that process. So, we would expect that big, that big blue dot that starts in 2027, we would expect to win that in mid-2026, such that we would have time to move equipment over.

Ina: Thanks, Joe. I appreciate the color. Then maybe just quickly on Nuna, what is the outlook for revenue at Nuna going forward?

Joe Lambert: I think it is pretty modest this year, but it is pretty much on plan. There are real big opportunities coming up, even on the infrastructure side, which we would probably partner with them on in some of these northern opportunities. As an example, if you are familiar with the Grays Bay Arctic port and some of the Arctic jobs that are up there, a Baffinland iron mine, those are all Nunavut and Kitikmeot territory, in particular for Grays Bay. We see great opportunities for us and for Nuna Group of Companies in those. Just on the northern mining side, we are seeing more mines start to get permitted and expand. That is generally a slow process. Any of that stuff, this was always anticipated to be kind of a trough year for Nuna Group of Companies just because of the way the industry dollars were looking to be spent.

Joe Lambert: We see from 2026 out, there are some great opportunities for them to continue to grow.

Ina: Thanks, guys. I appreciate the color.

David Brown: Thank you, Kevin. Thanks, Kevin.

Jason Veenstra: Thank you. This concludes the Q&A section of the call. I will pass the call over to Joe Lambert, President and CEO, for closing remarks.

Joe Lambert: Thanks again, everyone, for joining us today. We look forward to providing next updates on our closing of our Q3 results.

Jason Veenstra: Thank you. This concludes the North American Construction Group Ltd. conference call regarding the second quarter ended June 30, 2025. You may now all disconnect.