Good morning, ladies and gentlemen. Welcome to North American Energy Partners Earnings Call for the First Quarter ended March 31, 2016. At this time, all participants are in a listen-only mode. Following management's prepared remarks, there will be an opportunity for analysts, shareholders and bondholders to ask questions.

The media may monitor this call in a listen-only mode. They are free to quote any member of management, but they are asked not to quote remarks from any other participant without that participant's permission. I advise participants that this call is also being webcast concurrently on the Company's website at nacg.ca.

I will now turn the conference over to David Brunetta, Director of Investor Relations at North American Energy Partners Inc. Please go ahead, sir..

Thanks Chris. Before we get started this morning, our CEO and President, Martin Ferron, would like to say a few words about the wildfires.

Martin?.

Thanks, David. Over the last few days wildfires in northern Alberta have swept into Fort McMurray resulting in the largest fire-related evacuation in local history. Over 80,000 have been displaced from their homes and have being sheltered in numerous oil sounds work comps scattered throughout the region.

As well as in community such as Lacklafish [ph], Fort Mackay and Edmonton. The Red Cross, as well as the Canadian army and air force are being mobilized to help provide emergency aid to the region.

When North American first began to receive reports at wildfires at brief city lines, we immediately suspended operations at our Syncrude and Ruth Lake sites, and arranged transportation for staff so they could be with their families to protect their homes and belongings.

Today numerous communities have been lost to the fire with reports of 80% all homes lost in Beacon Hill and serious losses in the communities of our wetland and waterways. Thankfully only a few minor injuries have been reported, and there have been no fatalities.

Our staff are being informed not to report to work until they have been directly notified by an immediate supervisor. For the time being we will not consider a return to any oil sand sites until the fire is under control and the situation has been stabilized. So effectively, we're not working on any site right now.

In the meantime, we've been in contact with a large majority of our staff and know that they are all safe and with their families. And thus our priority right now is to take care of our workers and our many friends in Fort McMurray..

Thanks, Martin. Our thoughts and prayers are with our friends at Fort McMurray today. Returning to the call, good morning ladies and gentlemen, thank you for joining us. Welcome to the North American Energy Partners 2016 first quarter conference call. I would like to remind everyone that today's comments contain forward-looking information.

Additionally, our actual results may differ materially from expected results because of various risk factors, uncertainties and assumption. For more information, please refer to our March 31, 2016 management's discussion and analysis which is available on SEDAR and EDGAR.

On today call, Rob Butler, VP of Finance will first review our results for the quarter. Martin Ferron, President and CEO; will then provide his comments on our strategy and outlook. After management's prepared section, there will be a question-and-answer session. I now turn the call over to Rob..

Thank you, David, and good morning everybody. I'd like to echo to David and Martin's thoughts about people in Fort McMurray to stay safe. Let's now review your consolidated results for the first quarter ended March 31, 2016 compared to the quarter ended March 31, 2015. Revenue for the quarter was $78.5 million, down from $85.1 million last year.

Revenue was down due to the continuing effect of low crude oil pricing on customer spending and unfavorable weather conditions which limited our winter-work programs night shift strength certain abnormally warm days.

Mine support activity at the Kearl, Mildred Lake and Horizon mines combined with overburden removal entailing support activities, the millennium mines mitigated the completion of a site development project on the Kearl mine that has just ramped up to full production early last year.

Reclamation activity awarded at the Aurora mine in the current year fell short of the reclamation volumes performed last year at Mildred Lake and Horizon mines. Prior year volumes also included overburden removal activity under our long-term contract at the Horizon mine which was completed June 30th of last year.

Gross profit for the current quarter was $18.4 million or 23.5% of revenue, up from gross profit of $11 million, 12.9% of revenue earned last year.

A higher gross profit and growth profit margin in the current quarter is primarily a result of lower equipment costs which dropped by $9.7 million resulting in a gross profit margin increase of $10.6 million compared to the prior year.

The lower equipment costs were driven from improvements to our preventative maintenance program which increased equipment operating capacity between scheduled equipment servicing with a resulting deferral of servicing cost to future quarters.

Warmer temperatures set lowered our costs from equipment ideal time and extreme weather breakdown maintenance typically experienced in the quarter.

Technical and methodology-related innovations which helped us improve our equipment hauling capacity and utilization during less than ideal winter work operating conditions, and a reduction in our sharp overhead costs realized from cost savings initiatives.

Contributing to the growth profit in gross profit margin was a reduction in project cost driven by a reduction in project overheads, and an improvement to project efficiencies partially as a result of our ability to achieve more effective project plans on our winter work.

So lower equipment and project costs were partially offset by higher depreciation charges driven by an increased demand for larger capacity equipment fleet. For the three-months ended March 31, 2016, depreciation $14.3 million, up from $11.5 million in the same period last year.

Operating income for the current quarter was $10.7 million compared to an operating income of $2.2 million last year. General and administrative expenses excluding stock-based compensation was $6.3 for the quarter, down from $8.2 million for the same period last year.

Current expense reflects benefits gained from restructuring and cost saving initiatives implemented over the past year, partially offset by $0.2 million in restructuring charges and $0.4 million increase in the short-term incentive program expense. Prior year expense included $1.4 million in restructuring charges.

Stock-based compensation expense increased $0.8 million compared to the prior year driven by an increase in the share price during the current quarter. We recorded a net income of $6.4 million in the current quarter with a basic income per share of $0.20 and diluted income per share of $0.19.

Compared to last year's net loss of $0.5 million with a basic and diluted loss per share of $0.01. Total interest expense was $1.7 million for the current quarter, down from $2.6 million last year.

Interest on our Series One debentures dropped to $0.5 million during the three-months ended March 31, 2016 from $1.3 million in the corresponding period last year. As a result of their redemption and repurchase at $38.8 million of Series One debentures during the prior year.

Interest on our credit facility increased by $0.4 million during the three-months ended March 31, 2016 from $0.2 million in prior year as a result of the initial $30 million borrowing under the term loan of our credit facility. So part of the aforementioned series one debenture redemption and repurchase.

This was offset by reduced pricing negotiated in July of 2015 under credit facility. Interest on our capital lease obligations of $0.8 million in three months was lower than the previous period.

Lower current quarter interest resulted from a reduction in capital lease obligations as compared to the previous year and favorable pricing secured during recent additions. Of note, we ended the quarter with $38 million of cash-on-hand and we reduced our net debt to$68 million from $79 million at the end of last year.

That summarizes our first quarter results. I will now turn the call over to Martin for his remarks..

Thanks, Rob. We're now in the seventh quarter of this brutal cyclical downturn in the oil industry. Service companies like us have been faced with twin challenges of providing both considerable pricing concessions and dealing with much less activity caused by significantly reduced customer spending.

In other words, we've got to defy the economies of scale and scope to lower the cost of our customers. We had to do that last year and we're in the midst of doing it again now, even with further activity drops. Faced with this extremely tough operating environments, we are completely focused on cost, job execution, and innovation.

So positively respond to our talk customers and be a key part of the solution for them. We want to be the low cost safest and best performing contractor for the type of work.

Results this quarter obviously show that we are making headway on our objective as from 8% less revenue than in the corresponding quarter last year we made 75% more EBITDA after pricing concessions. Such is the measure of that achievement I would be surprised if any other or service company will match it. It will be interesting to see if I am right.

Now you've heard me talk about cost in every earnings call since I joined the company. So you know that I regard cost management as a never-ending crusade. There are always more cost balance to be won. Innovation help by necessity was also a key driver of performance.

We've introduced many good ideas into our operating and maintenance practices over the years, and these together with a couple new ones this quarter made a major difference. Finally, we performed the work available to us extremely well, constantly learning from our past experiences.

The high quality of our project execution is also tested by the recent award of a prestigious National Safety Trophy, the John T Ryan Prize issued by the Canadian Institute of Mines.

We try really hard to make sure that each of our of valuable employees gets home safely at the end of every shift, and it's extremely gratifying to be recognized with success due to that effort. As expressed in the earnings release, I'm pleased that the Q1 performance bodes well when market conditions return to normal.

We have produced $60 million of EBITDA over the training twelve months in this downturn. And recall that in Q3 '14 we made $22 million of EBITDA from summer season construction work and it's the type of job there has been a short supply in this downturn.

Therefore, when normal construction work resumes, we believe that our existing fleet can generate around $75 million of annual EBITDA, that's without growth capital. Of course, we have the balance sheet to support growth capital and we plan to use it wisely. Unfortunately market conditions are very far from normal again this year.

And we're expecting a very slow Q2 which will likely mark the low point of our revenues in this downturn. Q2 is always our slowest quarter due to spring breakup but that came earlier this year and the slow activity levels will be further exacerbated by our planned maintenance period at a key mindset.

Further reductions in customer spending on a course of this devastating wildfire incident which is going to cause stoppages at all our sites for who knows how long, we'll see, we'll pull back on that when we know. This is truly the forecast what Q3 will bring as we normally complete the key bids for summer construction work in April and May.

At this stage it would be no surprise that activity levels are lower than last year as customers throughout have reduced spending, even with an improving oil price setting. All-in-all, we're very glad for the head start we've made to what will likely be a tougher year in 2015.

Turning to the balance sheet, we ended the quarter with $38 million of cash and lower net by around $10 million from prior quarter and levels after paying our dividend and buying over a million shares for cancellation on treasury purposes.

In April, we also further lowered our costs of debt by calling half of the remaining high interest rate debentures. Clearly our contribution is very sound, almost two years into a downtown that has decimated the fortunes of many industry participants.

Strangely enough though, to me anyways, it is we that have the stock-trading multiples of a deeply distressed company. Our enterprise value-to-EBITDA multiple is around 2.6 on a trailing twelve-month basis. And based on analysts' consensus of $45 million of EBITDA, about $3.5 million for 2016.

Elsewhere in oil services universe, I see some part of multiples and more than hundred. Also our stock price to tangible book value per share is $0.5 when we have demonstrated means of monetizing assets well above that level. I want to give you another example of that.

If you refer to the significant events section of the MD&A, you'll see that we expect to receive $4.7 million of cash by using four trucks as collateral for an equipment financing arrangements.

Our profits of interest to note that we swapped/exchanged five under-utilized dozers with the book value of around $4 million to obtain the four trucks which we had on rental to help with our winter work. Therefore, we will effectively turn $4 million of book value in the $4.7 million of cash for a multiple of $1.01 when our stock is trading at $0.5.

The cash generated by the two equipment financing deals, we have completed in the last few months has been used to support our NCIB activities and to hedge our long-term incentive program. Therefore we're using the arbitrage between the stock market valuation of our equipment and at value we can monetize assets to benefit of our shareholders.

With that I'd like to turn the call back to Chris, the operator, for any questions. Thank you..

Thank you. [Operator Instructions] The first question is from Ben Tritiaski [ph] with Raymond James. Your line is open..

Hi guys, good morning. Sorry to hear about what's happening up in Fort [ph]. I hope that all works out.

The transaction you just mentioned, Martin, about how -- what you're doing with your fleet and crystallizing from value, what other options have you got to try and service the value and the stock? I mean you've done the buyback and such, the market just doesn't seem to want to recognize anything that you're doing.

So do you just wait this out for the market to be more efficient or are there other options that you could pursue at a strategic level or even maybe some big ones like the sale of the company or something?.

Well, this is great question, Ben. I think we are faced with extremely negative sentiment towards the oil sands right now. I've been in that situation before when -- whatever you do positive, never gets rewarded and I feel that process we're is not situation now.

So while we trade at these multiples, I think we continue to buy back stock as we've been doing, I think that rewards shareholders. I don't see us gaining sale more at these prices.

As a company, I believe that if we continue performing the way we are, the negative sentiment will eventually turn and hopefully we'll get the recognition that we deserve..

Great. So while you do -- you've done a great job there and deserve more recognition for sure. On the -- I'm curious also about the earn out on the piling business.

Is that effectively been -- is that definitively, I'd say written-off as out like that's not going to happen at this stage?.

Yes, I would say if it was a three year announce but the first two years were pivotal. And since we didn't get anything then, it's very unlikely that we'd get anything in the third. So I think that would be a thing of the past pretty soon..

But you were doing some reviews with them and there was still sort of some debate over what the numbers really were and that sort of thing; is that all been resolved?.

Yes, it was over the first year performance, and we did scrutinize it as best we could but unfortunately their performance fell below the levels that so that would give us any earn out, the market declined rapidly fall, unfortunately..

It's probably good thing you don't own it right now. Yeah exactly. Is there. And i know..

Yes, exactly..

Is there -- and I know, your business is very -- frankly, it's been very difficult to forecast and the commentary around the second quarter on the heels of a first quarter that was really so much better than expected, and lots of inherent lumpiness.

Is there anything you can tell us that helps us sort of get a better idea of what we should expect in the second quarter for that matter, for the year like what -- what is the first quarter look like.

How unusually good was this for? How much timing issues, I don't know if you quantify them but just anything that might help us kind of model expectations..

Yes, the first quarter -- I read a report last night saying that deferral of maintenance cost was a huge driver of our overall performance and that's just not true. We just performed extremely well and we introduce some innovations and -- I think that given the similar work next year we could perform better.

Why I say better is because profits were more normal winter weather conditions next year. One of our competitors reported last night and their mining division was swept by 400 basis points of margin because of warm weather. You know what, I think that's two, and we still performed the way we did.

We had to rent additional trucks because we certainly worked day shifts, that really hurt, it probably cost us a couple of million dollars. So the maintenance deferrals are always with us if we fully utilize.

We just pushed maintenance into the future quarters and practice and if there is a number we put on that, it would be a couple of million dollars also. So there were many more positive things in Q1 than negative things. Q2 as I've said is going to be really, really quiet.

It normally is but this year -- especially with the fire now, I hate even try and guess what our revenue would be. Maybe it could be as low as $30 million. We'll just have to see what the impact of this fire is. But for the whole year I'm still pretty hopeful that we can meet analysts objectives.

We're obviously off to a good start and I'd like to thank that we've got the time and the opportunity to meet those objectives..

So based on consensus that you reviewed, you think what you've exceeded in the first quarter might equal what you meant in the second and anyone who has had certain targets for the year might not have to make major revision at this point?.

I wouldn't expect to see any significant revisions to the upside. So I'm hopeful that we got three quarters here to make the difference between what we've done in the first what's expected of us for the remainder of the year..

Okay, that's great. Thanks very much..

[Operator Instructions] The next question is from Keith Ferent [ph] with Clarity Asset Management. Your line is open..

Yes, good morning. I'm just trying to wrap my head around this huge piece on the EBITDA side and I'm wondering if you can give me a little bit more color there because there was no way I was expecting something that big.

And I'm just wondering that I have to do with -- the type of work you're doing right now is it just recurring revenues low cost, that sort of thing and it's -- that sort of margin is not standard going forward, am I right?.

Yes, as I just mentioned, certainly the mix of work really helped. We were flat out busy with our assets rights. So that always provides the best margin for us. But we also introduced a couple of really good innovations that helped with our operating performance. We become very good I think at planned maintenance which reduced our on-site repair costs.

And we just did a really good job of planning the work. So every year if we do similar activities, we're going to learn and we're going to improve. And you really saw us not recover off the ball this quarter I think..

Yes, indeed.

I just -- one more on the top line, on the revenue side, your customer -- are you seeing these customers increasing production in this oil price environment just to help them out and which should translate into higher revenues for you guys?.

Yes, that's definitely the case. If you look at our outlook section, we cover that point in some detail. We are seeing our customers ramping up production in order to lower their operating cost per barrel. So over the medium-term we would expect the volumes of recurring work to expand..

And that's a type of work where you see that the higher margin?.

The part of it, yes, for sure..

Okay, and lastly on the diversification of way from the oil sands, are you seeing any opportunities on the M&A front because you do have a very strong balance sheet and it seems to me you should be able to find -- your pipeline should be growing a little bit or are you seeing that or any color on that?.

Yes, I'm screening a lot of deals, I've done a lot of acquisitions in my time. I've chosen to be patient so a far. I'm kind of adverse to doing -- polluted to you. I'm not seeing any other company out there that's cheaper than us. So that's why we're focus on buying ourselves piece by piece here as best we can..

It's just that where I'm going is on the value creation for shareholders.

I understand stock buybacks are normally good but your stock is excessively in liquid and I'm wondering if that's sort of counterintuitive?.

Well, with our buybacks, we will have no problem processing shares already and at a certain point liquidity is definitely an issue but I do believe that the sentiment will turn and we'll get better recognition for us to say what we're doing..

All right, thank you very much. And again, congratulations, this was a very excellent quarter..

Thank you very much, appreciate it..

We're showing no further questions at this time. I'll turn the call back over to the presenters for any closing remarks..

Well, appreciate everybody calling in today and look forward to talking to you again next time. Thank you..

Thank you. This includes the North American Energy Partners conference call..