Good morning, ladies and gentlemen. Welcome to North American Energy Partners Earnings Call for the Quarter Ended March 31, 2017. 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. 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 will advise participants that this call is also being webcast concurrently on the company’s website at nagc.ca.

[sic nacg.ca] I’ll now turn the conference over to David Brunetta, Director of Finance and Information Technology at North American Energy Partners Inc. Please go ahead, sir..

Thank you Carol, and good morning everyone, and thank you for joining us. Welcome to the North American Energy Partners 2017 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 assumptions. During this conference call any reference by management to EBITDA indicates consolidated EBITDA as defined in our financial statements and earnings release.

For more information about our results, please refer to our March 31, 2017 management’s discussion and analysis, which is available on SEDAR and EDGAR. On today call, Rob Butler, VP of Finance will begin by reviewing our first quarter results; Martin Ferron, President and CEO, will then provide his comments on our outlook and strategy.

Also with us on the call today are Joe Lambert, Chief Operating Officer; and Barry Palmer, Vice President of Operations. After management’s prepared section, there will be a question and answer session. I will now turn the call over to Rob..

Thank you, David and good morning, everyone. Let’s now review your consolidated results for first quarter ended March 31, 2017, compared to the quarter ended March 31, 2016. For the three months ended March 31, 2017, revenue was $92.8 million, an increase from $78.5 million over the last year.

Revenue was higher in the current period as a result of an of an expanded winter works program driven by the award of reclamation work at the Mildred Lake mine site which more than offset lower overburden removal and tailings pond support activity at the Millennium mine site.

Our ongoing Mine support activities at the Kearl mine site contributed to our revenue for both periods. Gross profit in the quarter was $23 million, or 24.8% gross profit margin, an increase from $18.4 million, or 23.5% gross profit margin during last year’s first quarter.

The higher gross profit in the current period was driven primarily by higher revenue while the improved gross profit margin was achieved through continued improvements to operating performance despite lower pricing negotiated by our customers on our long-term service agreements.

Depreciation for the quarter was $14.6 million, up slightly from $14.3 million in the same period last year.

Driving these similar depreciation costs despite the higher volume of activity in the current quarter was our ability to leverage our 2016 capital investment in equipment technology improvements which increased our haul efficiency on certain of our larger trucks or improving our haul capacity on a fleet of medium sized trucks.

We recorded operating income of $14.4 million in the quarter, an improvement from $10.7 million over the same period last year.

General and administrative expense, excluding stock-based compensation, was $6 million for the quarter, down from $6.3 million for the same period last year, reflecting the benefits gained from cost-saving initiatives implemented over the past year.

Stock-based compensation expense increased $1.1 million compared to the prior year primarily as a result of the effect of the higher share price on the carrying value of the liability classified award plans.

During the first quarter we recorded $9.6 million net income, basic income per share of $0.34 and diluted income per share of $0.31 per share, compared to $6.4 million net income last year with basic income per share of $0.20 and diluted income per share of $0.19.

The net income improvement in the current quarter was achieved despite the recording of $2.1 million in stock-based compensation expense in the current quarter, compared to $1 million in stock-based compensation expense recorded in the same period last year.

Interest expense was $1.4 million for the quarter, down from $1.7 million for the same period last year, primarily due to the redemptions of the Series 1 Debentures in prior quarters partially offset by the issuance of Convertible Debentures at the end of the current quarter.

We recorded $3.5 million of deferred income tax expense in the current period compared to the $2.6 million of deferred income tax expense recorded in the prior year driven by higher income in the current period.

The variance between the basic income per share in the current period and the basic income per share in the prior period is partially affected by almost 3.7 million share reduction in the weighted average number of issued and outstanding common shares as at March 31, 2017 compared to the prior year, driven by our normal cost issuer bid activity and an increase in the number of shares held as treasury shares in our trust as a hedge against our long term incentive plan.

The variance between the diluted income per share in the current period and the diluted income per share in the prior period is also affected by the increase in treasury shares purchased and held in the trust, stock options vested and exercisable and the weighted average effect of our newly issued convertible debentures.

On note, on February 1, 2017, we renewed a five-year master services agreement on a sole sourced, negotiated basis with a major oil sands operator for the performance of reclamation, overburden removal, mine support services and civil construction activities.

On March 15, 2017 we closed an offering for our 5.5% convertible unsecured subordinated debenture due in March 31, 2024 for gross proceeds of $40 million. We ended the quarter with net debt of $93.4 million which included $44 million of cash on hand and the addition of the $40 million convertible debentures. That summarizes our first quarter results.

I will now turn the call over to Martin for his remarks..

Thanks Rob, and good morning to everybody. At this time last year we announced an excellent result of $25.9 of EBITDA for Q1 which possibly took many observers by surprise. Another outstanding performance may have been viewed by some as a one-off even a fluke outcome.

Well, the even better results for Q1, 2017 hopefully demonstrated that we can consistently produce exceptional numbers given the right volume of mix of work opportunities. Outside piloted in the earnings release the results were achieved despite pricing being around 10% than in the same quarter last year.

So we continued to improve our operational execution on the basis of cost leadership, a methodology innovations and a market place that is in clear recovery mode. Of particular note is that we managed to produce over 25 million of operating cash flow in the quarter even after building more than 5 million of working capital.

Also the time of the corresponding earnings call last year we were just beginning to deal with the implications of the terrible wildfire that was to sweep through the Wood Buffalo area. This natural disaster severely disrupted our operations for Q2 and Q3 of 2016 such that we only added EBITDA of $1.7 million in Q2 and $9 million in Q3.

We then went on to produce $13.5 million of EBITDA in Q4 to lead to a total of $50.1 million of EBITDA for 2016. While this year we are again going to be impacted by fire, this time a plant fire of one of our busiest work sites.

This situation has led to the cancellation of an overburden stripping contract worth around $45 million in revenue, which we were all set to kick off in Q2. Now while this is a extremely frustrating situation, we believe that we can still achieve better than our original EBITDA expectations for 2017 as laid out last November.

At that time, we forecast 15% growth in EBITDA over 2016 levels. Since then oil prices have stabilized at around US$50 a barrel and our customers have reduced cash operating cost of around US$17 a barrel largely driven by the huge economies of production scale available on the oil sand mines.

The drive for maximum production growth has brought about improved opportunities for us like the reclamation project that really helped our Q1 performance.

The overburden stripping contract was going to be a second sequential search opportunity and the key point here that there will be many more of these type of opportunities to come especially if oil prices increase even a little bit. We’re also seeing a much improved opportunities to work outside the oil sands which were not available last year.

We have several bids in place, the copper or met [ph] coal related projects and expect award news in the coming weeks, so potential work to start in late Q2. All-in-all the market place [Indiscernible] is much better than last year and the fire situation is not as severe.

So we expect a high [Indiscernible] perform EBITDA levels for Q2 and Q3 compared to 2016, while already being ahead by over $4 million at Q1. Other highlights and event for this quarter were the formation of the Dene North joint venture principally to address the Site of these support services market which we think is really good growth prospects.

Secondly, the initiation of the provision of equipment maintenance support the third parties, we plan to ramp up this slowly and carefully into a significant aspect of our business.

Thirdly, the issue of $40 million of convertible debentures to provide further growth capital, we deployed several million dollars of this to improve the mix and cost basis of our equipment fleets by buying further assets of the stress [ph] prices from our competitor exiting the heavy equipment space.

While that’s pretty much of it for now as I prepare to let our Q1 numbers do most of the talking, I will just mention that due in April we pretty much completed the buy back of the 820,000 shares under our extended NCIB and we’ll be looking to buy another 840,000 shares starting in June. So finish the 820, look first to buy maybe another 840 in June.

With that, I’ll hand the call back to Carol the operator for the Q&A segment. Thank you..

Thank you. [Operator Instructions] Our first question this morning comes from Yuri Lynk from Canaccord. Please go ahead..

Good morning, good morning guys..

Morning, Yuri..

Good quarter, Martin.

What is the bigger picture, what do you make of the consolidation amongst your oil sands clients that we’ve seen over the last couple of months particularly interested to hear your thoughts on the Jackpine and Muskeg River Mine sites where you haven’t been active in a number of years, so just wondering if change in ownership could maybe alter that situation in your favour..

Yes. I think overall it will be a good thing for us. I think it’s always much better to work with somebody who is committed to what they doing. I think the previous owner who was just kind of pleasing at basic levels. I think the new owner will go in there and improve that situation and drive the economies of scale that we’re seeing at other mines.

And we do a lot of work for that new owner. So given the fact that we’re doing nothing for the previous owner I think the situation should get better for us..

Okay.

Any specific discussions with the customer yet on bringing you on the sites or is it still too early?.

No. They haven’t promised the deal yet. I think they are focusing on taking on the employees that they need from the previous owner and just getting them enhance on the asset. So they’re in planning mode and I'm sure will help them a lot..

Okay. Just a second one from me, it sounds like the contract that was cancelled is not coming back, which seems a bit counterintuitive to me. I means is that the case or is that you likely to see that work come back at another time.

You would assume that work needs to get done at some point?.

This exact piece of work will not come back, because what harm is our customer’s, fleets of equipment, large trucks and shovels that they normally used for oil mining. So doing a complete shutdown of the mine we're looking for things to do with those assets. So they’re likely or I think almost certain to do that piece of work that was slated for us.

But the point I was making in my prepared remarks is that the piece of work came from this drive for a maximum production. It was an extra work and I think we’ll see many of these types of opportunities going forward.

When, I'm not certain, but given that we’ve seen two in the last six months, the reclamation project and this always overburden stripping opportunity. I think we’ll see such opportunities at other mines also. So, it is frustrating that we’ve lost this one piece of work, but I think others will follow in the future..

Okay. I will turn it over there. Thanks very much..

Thanks, Yuri..

Our next question comes from Ben Cherniavsky from Raymond James. Please go ahead..

Good morning..

Good morning, Ben..

What is your fleet utilization rate like right now both in the larger and the smaller segment?.

So, obviously end of the first quarter, the utilization of the heavy fleet was pretty much 100%. Obviously in spring break-up, that falls to may be 20%. So, on the light side, no work in the first quarter because its earthmoving rather than construction season. We expect those assets to go to work as Q2 unfolds.

Certainly be a lot busy in Q3, little early to say exactly how busy, because we’re still waiting on some awards, but we’re expecting better utilization of the light fleet this year than we achieve last year. And then, in Q4 the heavy equipment utilization will increase again on a seasonal basis.

So it’s the usual partnering with I think more work for the light fleet this year than last..

Thinking more on a seasonally adjusted basis or year-over-year just trying to get a sense of your capacity, what kind of operating leverage is left by utilizing idle fleet and where whether if you might have to spend money on to capture any future revenue opportunities?.

No. We’ve got. Very large operating leverage to any sort of return to a normal construction market. In Q3, 2014 which was the last time we saw normal construction activity. I believe that we posted about 26 million of revenue.

So you’ve not given the start [ph] we’ve had to this year whether its works, but coming into a normal seasoning slow Q2 which will be a lot better than last year because of the wildfire. I don't think it we’ll do anything like the 2025 in Q3, but certainly I think we’ll improve on last year’s numbers.

And same for Q4, I think it will be a little better. I can’t give you exact utilization numbers on individual part of the fleets, we don’t track it, we don’t to expand, but hopefully I’ll give you some color there..

Okay.

Well, I guess maybe just trying to get a sense of the capital needs, Joe [ph], you probably don’t -- I understand you don’t track utilization rate to a certain number, but you must have a sense of what kind of idle capacity you have left before you’d have to go and increase your CapEx?.

Well, to achieve our top target here we are talking about 30 million of maintenance capital, and we intend to deploy about 12.5 of growth capital. The 12.5 won’t kick-in in terms of return on a full basis this year. That will certainly help next year. So, to achieve the target those were the capital numbers..

And then, so, maybe I’ll ask in the different way. How would you – because clearly the markets have recovered, people are feeling better, you guys have just stated that. But how does this compare to where if you, I think you said Q2 versus Q3 of 2014 might be the last sort of good normalized quarter before the downturn.

How would you describe the market today versus than?.

Well, it’s somewhere in between – last year there was no construction activity whatsoever because of the wildfire. Plus the market for services outside the oil sands was pretty much nonexistent. We own [ph] our copper mine in BC. We hope to stay on that one copper mine this year.

And we’re also hopeful of picking up a couple of further contracts outside the oil sands. Inside the oil sands, we’re expecting based on bidding activity the construction effort to be greater than last year. So pending awards is sought to put a number on that, but certainly better than last year's the color I can give you..

Well, if everyone acknowledges last year was the bottom, I guess, just trying to get a sense of how far off the bottom we are and how much more we get to recover that running quantitatively or qualitatively, I don’t know..

I would say, we’re about 25% between the bottom and the good numbers of Q3 2014..

So we’re about 25% off the bottom, we’re 25% away from that top?.

The first one, yes, okay..

The first one, yes, okay. Okay. That’s helpful. And I know in the past you guys have spent a lot of time while your numbers clearly reflect your cost improvements, I know we've been through the maintenance yard and understand what you've done there. I’ve seen some of the changes you’ve made obviously in management and office space et cetera.

But can you help us – can you shed any more light on some examples or you and just anecdotes of where you guys have improved your cost structure been more competitive. What exactly have you done? Reducing costs is a bit of a motherhood statement, I’m not, obviously you guys have achieve that.

I’m just trying to get more granular on some of the actions you’ve taken.

How sustainable that is?.

Yes. For us it’s been big driver for us for several years now, but lately last year unless we’ve introduced some methodology innovations that have really helped us, become a local productive on certain aspects of our work especially in the earthmoving space. So effectively we’re getting a lot more out of smaller assets than perhaps our competition is.

I don’t really want to go into too much more detail not that, because as you say, I’d like to sustain this advantage as long as possible. So we’re being pretty smart and let’s say getting the best out our assets in terms of productivity on unit rate work that largely drove our progress in Q1..

So, lot of processes in the copper bidding processes and operating processes things like that..

Also equipment modifications where we are carrying more with smaller pieces of equipment..

I see. Okay. That's helpful. Thanks very much. Good numbers..

Thank you..

Our next question comes from Maxim Sytchev from National Bank Financial. Please go ahead..

Hi. Good morning, gentlemen..

Good morning, Max..

Martin, just wanted to follow-up on the copper opportunity, so the comment that you're making of waging something from an incremental press release, is that in relation to the DC mine or is it outside of outside of Canada?.

No. The Red Chris copper mining that we were on last year. We’ve got a Letter of Intent to carry on this year, so that’s a given. We're expecting an award on an additional copper mine in BC. We’re on a pretty small shortlist for that work and now we expect to hear in the next two or three weeks. We’re also bidding other work.

Met coal is really taken off lately. So that could be an opportunity for us. So, overall the market for our services outside the oil sands, a lot more robust than it was at this point last year..

Yes. That’s right. And then in terms of on the infrastructure side, Martin, any updates on that front in terms of you developing your partnership relationships and so forth.

Anything you can share with us?.

What I see there is that we continue to look for specific types of infrastructure project that involves larger earthwork scopes. They’re not going to come along frequently. We’re bidding the Fargo-Moorhead [ph] project as you know.

The time line for that is going back four months, but number of bidders has dropped by one to three from four, so that’s helpful. So we’re looking to form other partnerships and we’re in discussions with several other potential groups that we’re just waiting for the right sort of opportunity that come along to address..

Okay. That’s helpful.

And then just a quick question on your cash flow statement, when I look at the disposal of plant and equipment to the tune of $9.5 million, I'm just wondering what type of assets do you to get rid of? Was it end-of-life type things or just some access equipment?.

Yes. Those aren’t disposables. Max, those are kind of say leaseback financial transactions..

Right. Okay. That’s helpful.

And then lastly, I had a question in terms of deploying some of your growth capital, any update there in terms of maybe the expectations of sellers or how should we think about your capital development strategy right now?.

Yes. We’re still looking at a lot of opportunities that certainly planning to distress them in the marketplace. As I mentioned, we probably spent over $10 million buying heavy equipment from one competitor that’s leaving the space, very good prices, plus financing from them. So a great deal for us.

I think we’ll see other such opportunities as the year progresses here. I think we’re still being very careful and conservative and just waiting for the right sort of deal to come along. But it is great to have the dry powder in order to address those..

Right. And obviously the balance sheet is in great shape. So that makes lot of sense. Okay. That’s excellent. That’s it from me. Thank you..

Thanks, Max..

[Operator Instructions] Our next question comes from [Indiscernible] from Thomas Holdings. Please go ahead..

Hi, Martin.

I was wondering how much larger you is on your nearest competitor?.

In the earthmoving space we have one competitor that’s comparable in terms of fleet size. But I focus just on earthmoving. I don’t do any construction work. The other competitor is a larger Canadian industrial [Indiscernible] that have a mining segment. So there’s a more diversified.

Again that fleets on the heavy end is probably similar to us and they do have some construction equipment. So all-in-all I think we’ve got two competitors that are similar in capability, but probably do a little less work than us on the earthmoving side..

Okay. And then the banks, I’m guessing you are pretty stringent with you know keeping our capital that – project. They just give like some stressed [ph] competition number or they already – those companies already know who to call to buy equipment at $0.20, $0.30 a dollar or whatever..

Yes, we can track certainly public company situations and we keep our eyes open for private situations. So between the two there is the several opportunities that we are tracking as you say I think the buying stocks still going to be aggressive in terms of margin net the credit facilities..

Okay, great..

Thanks, Glen..

Thank you..

And we have no questions left in queue at this time. I would now like to turn the call back over to Mr. Ferron for closing remarks..

Well thanks everybody for joining us today. We look forward to speaking to you again in early August. Thanks..

Thank you. This concludes the North American Energy Partners Conference Call. You may now disconnect..