Good morning, ladies and gentlemen. Welcome to North American Energy Partners Earnings Call for the Second Quarter of 2017. 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’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 and good morning everyone, and thank you for joining us. Welcome to the North American Energy Partners 2017 second 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 second 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 the second quarter ended June 30, 2017, compared to the quarter ended June 30, 2016. For the three months of this quarter, revenue was $47.6 million, up from $24.2 million in the same period last year.

Last year’s Fort McMurray wildfire and subsequent May 3 evacuation of the city and the surrounding oil-sands sites negatively affected our activities in the prior year quarter. The wildfire shut down all of our operations in Fort McMurray area and significantly delayed the ramp up of our summer mine support activities.

Our current year revenue was driven by overburden removal work at the Millennium mine site and mine support services work at the Millennium, Kearl, Mildred Lake and Aurora mine sites. The activity in the quarter was negatively impacted by a customer's cancellation of a significant earthworks contract as a result of a plant fire.

We’re able to secure replacement work for the majority of the fleet committed to the cancelled project, but lost the early start-up advantage as we had to relocate the equipment to other sites.

Contributing to the slower spring quarter was the ever changing weather conditions during the period, which resulted in shift cancellations and continuous haul road repairs for our overburden removal work.

Complementing our results in the quarter was our continued mine support activities at the Red Chris copper mine located in northern British Columbia and mobilization activities for our new mine support service contract at the Fording River coal mine located in southeast British Columbia.

For the current quarter, gross loss was $1.2 million, down from $2.1 million gross profit in the same period last year.

The gross loss in the quarter was the result of start-up delays on new projects driven by the aforementioned earthworks contract cancellation coupled with lower productivity and haul road repairs our overburden removal work as a result of the changing weather patterns that occurred during the quarter.

Contributing to the gross loss was the effect of lower pricing negotiated by our customers on our long-term service agreements and equipment running repair as we drew down on our maintenance backlog generated from a very strong first quarter winter works program, in preparation for ramp-up activities in the second half of the year.

Prior year results did not include a similar sized drawdown of maintenance backlog, typical for the spring breakup period due to the operational shut down caused by the 2016 Fort McMurray wildfires.

For the three months ended June 30, 2017, depreciation was $8.1 million, up from $5.5 million in the same period last year reflecting this quarter’s continuous equipment activity compared to last year’s interruption of activity due to the wildfires.

During the quarter, we recorded an operating loss of $6.6 million, an increase from a $5.3 million operating loss for the same period last year. General and administrative expense, excluding stock-based compensation cost, was $4.9 million for the quarter, consistent with the $4.9 million for the same period last year.

For the most recent quarter, we recorded a $6.2 million net loss, basic loss and diluted loss per share of $0.23, compared to $4.9 million net loss and basic and diluted loss per share of $0.16 recorded for the same period last year.

Interest expense was $1.8 million for the quarter, up from $1.6 million for the same period last year, primarily due to the interest from the issuance of Convertible Debentures at the end of the prior quarter partially offset by the elimination of interest from our Series 1 Debentures redeemed in prior periods.

We recorded $2.2 million of deferred income tax benefit in the current period compared to $1.9 million deferred income tax benefit recorded in the prior year.

The variance between the basic loss per share in the current period and the basic loss per share in the prior period is partially affected by the reduction in the weighted average number of outstanding common shares, which was reduced to just over 27.2 million in the current period, compared to approximately 30.2 million last year at this time.

The reduction was driven by our recent NCIB activities and an increase in shares held as treasury shares. Of note, we ended the quarter with $34.6 million of cash on hand. As of June 30, 2017, we have purchased and subsequently cancelled over 1.1 million common shares on the TSX under previously announced NCIB.

On April 1, 2017, we entered into a partnership agreement with Dene Sky Site Services, a private First Nations business based in Janvier, Alberta. The partnership is carrying on business under the name Dene North Site Services and we will operate primarily in Northern Alberta.

We believe that this partnership will expand our services to both the oil-sands and in-situ markets and provide us with the ability to secure certain work that we may not otherwise have had the opportunity to bid or perform.

On June 6, 2017, we expanded our activity outside of the oil-sands with the award of a contract to provide mine services at the Fording River coal mine in southeast British Columbia.

We expect to utilize the fleet of large haul trucks, shovels and excavators to support our customer’s coal mining operations including extracting and hauling coal as well as removing associated waste materials.

Finally on October 1, 2017, we entered into a new credit facility agreement with a banking syndicate led by National Bank of Canada, replacing our current Sixth Amended and Restated Credit Agreement.

The new facility provides borrowings of up to $140 million through a revolver facility with an ability to increase the maximum borrowings by an additional $25 million, subject to certain conditions. This is an increase from the $70 million revolver and $30 million term loan of our previous facility.

This facility matures on August 1, 2020, with an option to extend on an annual basis. The credit facility also allows for capital lease limit of $100 million, an increase from our $90 million under the previous facility taking our senior debt liquidity potential to 240 million of our senior debt liquidity on our existing facility, which $190 million.

Beyond the increase in senior debt liquidity, our new facility is not limited by our borrowing base, which limited our previous credit facility. In addition, the new pricing includes a 25 basis point reduction to our borrowing rate and a 5 basis point reduction to our standby fees at our current leverage ratio.

We are very encouraged by the support demonstrated by our banking syndicate with this new credit facility. We believe that this expended and less restrictive facility supports our strategic priorities and provides us with the ability to expand our liquidity in line with our growth. That summarizes our second quarter results.

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

Thank you, Rob, and good morning to everyone. I’ve been involved in the reporting of quarterly results for public companies becoming up for 20 years, so I’ve experienced a few touch quarters along the way. I can honestly say though that none were tougher than Q2 last year on this reporting period in terms of operating adversity.

As Rob mentioned, last year we had to deal with the wildfire that swept through the Wood Buffalo area and closed most of our operations down for much of the quarter. In a strange way perhaps that was straight forward to deal with. As we knew that we faced extended period of downtime due to a natural disaster.

Therefore, we are making sure that all of our field based staff were safe and helped with payments from a disaster fund that we established. We shutdown every other variable cost. In particular, we did not carry out any equipment repair and maintenance after a busy first quarter as we just did not know when the equipment would go back to work.

Q2 this year started out full of promise as we had one of significant overburden stripping contract that we could start in the period. We were aware that a plant that occurred late in Q1 at the work site, but initial reports indicated that it was not severe in terms of potential impact.

Therefore, we completed on [indiscernible] site literally within hours of starting the job when we were informed by the customer that work should be suspended. Soon afterwards the project was completely cancelled, which was an operational body blow to us as we turned down what similar work was available in a normally seasonally slow quarter.

As the period progressed, we experienced a rather unusual June and this together with extended impact from the plant fire pushed some small late quarter construction jobs into Q3. In this really tough situation, it would have been very easy to just surrender at circumstances. But I was very proud of the way that we responded.

We secured some incremental overburden stripping work at another site and then won the Fording River coal excavation project against stiff competitor opposition. We commenced mobilization for this significant job late in Q2 and expect to ramp up to full excavation rates early this month.

Successful bidding this project further demonstrates the transferability of our cost structure and expertise to other resource place. The job should add around $25 million of revenue to second half of the year.

It’s important to know that we incurred around $5 million of expense in equipment repair cost after an extremely busy Q1, getting ready for the Fording River job and other work that we expect to execute in Q3 and Q4. This being the normal way of things when it comes to the timing of equipment maintenance expenditure.

Back to the theme of revenue diversification, we were delighted to secure the Fording River coal related project and have several other business outstanding for non-oil resource jobs, two of which we have been shortlisted for. Therefore, we are encouraged by our recent degree of success.

In the medium term, earthworks on infrastructure related construction will likely also play an appreciable role in our organic growth plans. And again we are addressing several large businesses to initiate that effort. Overall, we didn’t ask for the adversity of Q2, we believe that we can still meet our growth targets for the full year.

On the last call in early May, I asserted that our combined EBITDA for Q2, Q3 this year will be higher than achieved in the same six months last year, but I still expect that to be the case. Also very significantly our EBITDA for the second half of this year will come from three oil-sand mines together with the coal mine.

Around 25% of that EBITDA should come from the two non-oil field related projects. Rob also covered the details another really exciting recent development this is negotiation of a new bank credit facility. From my perspective, I just wanted to add three banks competed very aggressively to lead the syndicate and the view was well oversubscribed.

Each bank involved stated that they have known the way we run our business in an extremely cyclical operating environment and each wanted to be part of our growth plans. Going forward, we have no borrowing base and much improved liquidity which we will continue to monitor very carefully.

I cannot resist though the temptation to point out that our total available liquidity is now higher than our market capitalization. That point leads me to close with an update on our latest [indiscernible] program. As of market close yesterday with just over 400,000 shares left to buy before the program close on August 07.

Reasonable size block trades have been in short supply in recent weeks and so we’ve been just mopping up our proportion of the daily volume. If we complete this current volume, we will import and cancel around 8.5 million shares in total since we started our buys in late 2013.

In addition, the trustee of our long term incentive hedging plan has brought about 2.7 million shares which are held in Treasury. All the while we have maintained a very strong balance sheet despite fires, floods and an enduring massive cyclical downturn in our core business.

I remain very bullish on our future and I’ve taken my personal stake in the company to over 5% in recent weeks. With that, I’ll hand the call back to Dennis for any questions. Thank you..

[Operator Instructions] Your first question comes from Maxim Sytchev with National Bank. Your line is open..

Hi, good morning..

Good morning, Max..

Martin, I was wondering if you don’t mind please update us how we should be thinking about CapEx in the back half of this year because I know you’re guiding on the net basis and I’m just trying to see if you’re also assuming some asset divestitures in the back half or you feel kind of happy with your footprint right now?.

The only divestiture will be end of life assets sent through auction in the normal course of business. In terms of total CapEx, I’ll be using $35 million of sustaining and $15 million of growth, another $15 million coming from the convertible offering that we made earlier this year..

Okay, that’s helpful.

And then the $15 million of growth, is that in relation to non-oil sands work? Is that where they’ve been deployed?.

Yes, it turns out several of the assets that we bought with our $15 million are on the floating job. So yes it’s definitely linked to the growth that we see in non-oil sands activity..

And then just Fort Hills is going to be ramping up later this year. We assume that you’re going to get work obviously on that site.

Will you have to buy incremental gear for that project or do you have all the yellow iron at hand right now for 2018?.

Yes, we believe that we have the assets to address that opportunity. We’re obviously very busy with the heavy assets in Q1. I would expect activity at Fort Hills to be outside that busy season. So hopefully we have the tools to address that incremental demand..

Okay. That’s very helpful. And then, Martin, maybe any updates in terms of how you think about potential deploying some of the growth capital. I mean I know that you have signed JV with a First Nations firm. Is there anything else that’s peaking your interest right now? It feels like a bias market still..

I’d like to start off by saying we’re very happy with the progress that we are making on our organic growth plan. The diversification outside the oil sands is going extremely well. We’ve got our JV as you mentioned to address in two projects. We are bidding infrastructure projects.

So all of this will bring a lot of growth without much incremental capital. So while that’s going on, I’m content to just screen opportunities on the acquisition side. So obviously the recent downturn in stock prices, our own in particular, again gives us a very low multiple I think around 2.9 for 2018 that we calculated.

So we are in a position again that similar capital will likely go to another buyback. We’ll assess that next week when the [indiscernible] finishes and we’ll just keep buying until we get the appreciation of what we’re doing..

Okay. Now that’s helpful. That’s it from me right now. Thank you very much..

Thank you, Max..

[Operator Instructions] Your next question comes from Ben Cherniavsky with Raymond James. Your line is open..

Good morning guys..

Good morning, Ben..

I’m just trying to clarify, hopefully you can just clarify some of the language in your MD&A and your discussion here just around the drawdown of maintenance backlog.

Is that you’re basically doing, maintenance work in the quarter that incurred cost in preparation for work in the back half of the year?.

Yes, run and repairs of expense, right..

What’s the maintenance backlog goes? You’re just saying that all the work that you had determined you needed to do..

Yes. You have to think that Q1 we just flat-out busy with large assets right. There is no time to address any repairs that you’d like to do to address future work. You can continue doing existing work but you want to get the equipment ready for the future.

So we build our backlog of things in Q1 but we normally do in Q2 and I think the point we were making on the call was that you didn’t see that last year because it wasn’t a normal year..

And is that largely explained I supposed to have along with the set up cost of the contract that was then cancelled.

But does that explain how you had lower EBITDA margins on substantially higher revenue this period?.

Yes, absolutely. We have incremental repair cost plus we were getting ready to mobilize and do work that all occur in Q3 and Q4. Just losing that stripping contract was a really tough thing to us in light of the start of the quarter and we incurred some cost recovering from that..

And I guess you spoke to it a little bit in your commentary about how the rest of the year is going to stack up with EBITDA and such, but the numbers in this period were substantially lower than I had expected.

Just in terms of the sequence of events when you had press released the contract that you won for $45 million in January and then in April when you said it’s been cancelled. The indication was that the market had improved so much since the beginning of the year that you could make up for the loss contract.

Did the second quarter churn out – when you issued that press release it was the beginning of the second quarter, so do the churn out along the lines of what you expected such that you could still make up that EBITDA or is this in any way more difficult with weather and other variables that you now think that the makeup is going to be more difficult even despite some of the contracts you’ve won since then..

Yes, I say that our language has been very consistent. We talk about the whole year. It’s very difficult to manage just 90 days when you get jobs cancelled and you get more rain drops than normal and mobilizing for new work. So our commentary has been all about the whole year.

Despite everything that Q2 through at us which was a lot more than we expected in early Q2, we still think and believe that we’re going to meet our growth targets which I think is pretty amazing. So that’s kind of the consistent message we’re trying to deliver..

And how did – what’s changed even since the beginning of the second quarter to give you that kind of confidence because clearly what seems like this was more difficult quarter than you’d even anticipated at the start of the quarter as you say.

So other things must have improved sequentially to give you more confidence you can make up for the loss ground you didn’t anticipate?.

Yes. So at the start of the second quarter, pretty much after two weeks, we knew that big job has been cancelled. But we did not know how serious the fire event at the worksite was, okay. It seems escalate in terms of impact as the quarter went on. So some of the work that we expected to start in late Q2 were pushed into Q3. So that was a change.

On the positive side, we didn’t expect to win the Fording River because it didn’t come up until middle of Q2. It was literally bid and awarded within a couple of weeks. So there were kind of puts and takes and that’s the nature of contracting.

As I say when you’re judged in 90 days things can go a little wrong and that’s what happened, but it was a really tough quarter operationally..

Okay. Thanks. That’s all I’ve got..

Your next question comes from Maxim Sytchev with National Bank. Your line is open..

Hi, Martin, just – couple of very quick follow-ups. I think in your discussion around kind of assumptions around outlook, it feels that the cancelled project in its potential is going to be coming back next year.

Is that an accurate understanding or this was something very specific that maybe it’s not going to be coming back?.

I think work of a similar nature maybe at other sites will occur next year. The specific work has gone away. So as customers are really ramping up production, they are creating more over burden to strip and more recognition to do more tailings to mining.

So we’ll see work like the reclamation project we did in Q1 unlike this overburden stripping contract that was cancelled at other sites likely..

Okay, that’s helpful.

And then actually talking about clients now that some of the assets in the oil sands have been reshuffled, what are you hearing from them in terms of how they view the supply chain on the services side? What is the way to color on that front?.

I think it’s too early to say, Max. The buyers are still getting their answer on the assets with those acquired. I’m sure they will plan things quickly and share those plans with us. We are expecting incremental opportunity on the assets that Canadian Natural bought. I know they reported this morning. I went through their release quickly.

Wasn’t much detail there but I expect them to pass them reclamation to do this winter on those new assets and that is incremental work or opportunity for us..

Okay, that’s very helpful. Thank you very much..

There are no further questions queued at this time. I turn the call back over to presenters..

Okay. That’s it for today. Appreciate everybody joining and look forward to speaking to you next time. Thank you..

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