North American Construction Group - Earnings Call - Q1 2025

Transcript

Operator (participant)

Good morning, ladies and gentlemen. Welcome to the North American Construction Group conference call regarding the first quarter ended March 31, 2025. At this time, all participants are in listen-only mode. Following management-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 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.

Additional information about those material factors is contained in the company's most recent management discussion and analysis, which is available on SEDAR and EDGAR, as well as on the company's website at nacg.ca. I'll now turn the conference over to Joe Lambert, President and CEO. Please go ahead.

Joe Lambert (President and CEO)

Thanks, Jennifer. Good morning, everyone, and thanks for joining our call today. I'm going to start with a brief overview of our Q1 2025 operational performance. Before, I'll hand it over to Jason for the financials, and then I'll conclude with the operational priorities: a review of our growth opportunities in Australia and the infrastructure markets, our expanding bid pipeline, our backlog, and our outlook for the remainder of 2025 before taking your questions. On slide three, our Q1 trailing 12-month total recordable rate of 0.34 improves upon our Q4 results and remains better than our industry-leading target frequency of 0.5. We continue to advance our systems and training with a key focus on human and organizational performance principles, commonly called HOP, and look to continue to trend with our ultimate goal of getting everyone home safe. On slide four, we highlight some of the major achievements of Q1.

While we struggled to overcome the weather impacts to our business, we were able to achieve some meaningful accomplishments. We expanded our heavy equipment fleet in Australia by over 10%, boosting capacity to meet growing demand. In Canada's oil sands, we achieved an impressive 68% equipment utilization rate in the quarter, with February peaking at 70%, reflecting our focus on operational efficiency. Early-stage development and heavy civil infrastructure work began at a major copper mine in New South Wales, positioning us for long-term value in the critical mineral sector. The Fargo project continued to advance, surpassing 65% completion, with final construction now underway in Q2. Financially, we reached a new milestone, with trailing 12-month combined revenue hitting a record $1.5 billion. Our discipline management approach kept administrative costs at 3.9%, meeting our internal targets.

Additionally, our parts and components supply and services agreement with Finning delivered a full quarter of impact, effectively combining our in-house capabilities with their expertise to drive improving costs and equipment utilization. Moving on to slide five, you can see that the Q1 utilization of 68% was the same in both Canada and Australia. Our Canadian fleet improved our best quarterly utilization since the winter of 2022-2023, and while we expect Canadian utilization to drop modestly in Q2, we also fully expect it to then trend back up, approaching our 75% target by year-end. Australia took a major hit in Q1 due to rain impacts, but we remain confident in our ability to hit our target range of 85% in late Q2 to early Q3. With that, I'll hand it over to Jason for the Q1 financials.

Jason Veenstra (CFO)

Thanks, Joe, and good morning, everyone. Starting on slide seven, the headline EBITDA number of $100 million and the correlated 25.5% margin were both negatively impacted by the weather in Australia and Canada, which Joe mentioned and will be reviewed in the next slide. We included a comment here about our steady growth since the second quarter of 2024, which was our weakest revenue quarter post the MacKellar acquisition. We generated $330 million of combined revenue in that quarter after absorbing a 25% reduction in Canada from the first quarter. Since that time, our combined revenue has been steadily climbing, and the $392 million of revenue this quarter represents an overall increase of 18%. Importantly, when just looking at Australia and Canada, it represents a 25% increase in just three quarters.

When looking one level further, the Canadian operations posted an encouraging top line of $178 million this quarter, which is impressively 45% higher than the second quarter of 2024. Moving to slide eight and our combined revenue and gross profit. MacKellar Group and DGI Trading, which we combine as Heavy Equipment Australia in our results, were up $24 million on a quarter which was impacted by heavy rains in February and March, and during which MacKellar posted equipment utilization of 68%, their lowest mark since acquisition. The reason for the quarter-over-quarter increase is due to the 25% increase in fleet capacity since March of last year, with 10% of that increase coming since year-end. This top line positive variance was further bolstered by higher revenue in the oil sands region and, as previously mentioned, was importantly and significantly up from the fourth quarter.

Our share of revenue generated in the first quarter by joint ventures was consistent with last year, as higher scopes in the Fargo-Moorhead project were mostly offset by lower scopes within the Nuna Group of Companies, as well as the discontinuation of the Brake Supply joint venture. Before getting into the weather, our reported combined gross profit margin of 13.2% was impacted by unusually high early component failures in Canada, which we have adjusted for in the adjusted EBITDA margins. Excluding these abnormally high component failures, which we have addressed through the reorganization of our component supply approach, overall combined gross profit was approximately 14%, and Canada's gross profit margin was approximately 8%. As mentioned, the weather significantly impacted gross margins, with the dual impacts of lower top line revenue not covering overheads and the increased costs incurred during idle time.

In Australia, the consistent rain resulted in poor utilization as equipment remained parked for significant amounts of time, particularly at the Carmichael Mine, and this was compounded by increased costs incurred for site cleanup and dewatering activities. In Canada, February was the month that had the most serious impact on operations, with the extreme cold requiring both equipment to be idled for extended periods of time, as well as the incurrence of costs to keep personnel and equipment warm. All told, it is estimated, based on historical precedent, that the weather impacted gross margins by between 5% and 7% in the quarter. Moving to slide nine, Q1 EBITDA essentially matched last year, as the revenue increase was fully offset by operational challenges. As mentioned, the 25.5% margin we achieved reflected the weather we were required to operate through.

This margin level is not indicative of where we see our business operating at, with cumulative EBITDA margin since the MacKellar acquisition at 29%, which covers over $2 billion in revenue in an eventful 18-month timeframe. Included in EBITDA is general administrative expenses of $1.1 million in the quarter, an equivalent to 3.3% of reported revenue, which is below the 4% target we have set for ourselves. Going from EBITDA to EBIT, we expense depreciation equivalent to 16% of combined revenue, which is much higher than the 14% posted in 2024 Q4 and reflects the high idle hours incurred in Canada, particularly in February. Again, this 16% is much higher than our expected run rate moving forward, given we have been at approximately 14% since the MacKellar acquisition in 2023 Q4, and we fully expect 2025 to finish in that range.

Adjusted earnings per share for the quarter of $0.52 reflects the steady EBITDA performance but was significantly impacted by the $11 million of increased depreciation, which is equivalent to $0.30 per share. Interest and taxes were generally consistent with last year, and the average cash interest rate for Q4 was 6%. Moving to slide 10, I'll briefly summarize our cash flow. Net cash provided by operations prior to working capital of $76 million was generated by the business, reflecting EBITDA performance net of cash interest paid. Free cash flow usage was impacted by our front-loaded capital maintenance programs, as well as a $25 million draw on working capital accounts.

Moving to slide 11, net debt levels ended the quarter at $867 million, an increase of $11 million in the quarter, as the free cash flow usage and growth spending required debt financing but was mostly offset by the $73 million of the ventures that were converted into shares during the quarter. Net debt and senior secured debt leverage ended at 2.2 times and 1.8 times. Of note, in subsequent to quarter end, we issued $225 million of 7.75% senior unsecured notes, which had no impact on net debt leverage ratio but decreases pro forma senior debt leverage to 1.3 times. ROIC of 10.6% as at March 31st decreased more than a percentage point in the quarter, as the high depreciation and capital spending in the quarter, with normalized levels having resulted in an approximate 12% ROIC.

As we get the full trailing 12 benefit of the increased Australian fleet and with the Fargo project achieving certain financial milestones, we expect to see a trend back to our company target of 15%. With that, I'll pass the call back to Joe.

Joe Lambert (President and CEO)

Thanks, Jason. On slide 13, we highlight our 2025 priorities. These priorities remain unchanged. Safety is our social license to operate and our moral obligation to our employees and will forever be our highest priority. Equipment is our largest, most controllable cost, and high utilization drives return on capital and financial performance. Geographic and commodity diversification is both our growth engine and opportunity to engage underutilized assets and increase the stability and consistency of our business. Customer satisfaction, especially with our Queensland and Alberta markets, in which we have worked continuously for many decades, is what drives our expectations for 100% renewal rates in those markets and opportunities to increase scope with expected increase in client production forecasts.

As we have grown, we have also relied on expanded and upgraded systems to increase our management information, cost monitoring, and ability to enter new markets, such as unit rate work in Australia, which we have had recent success with our win and smooth startup of the copper mine in New South Wales. Lastly, we continue to look to improve and expand our internal maintenance skills, both to improve our internal costs and also to expand our revenue streams through external customers. As I have stated previously, we believe our in-house component rebuilds, whole machine rebuilds, telematics, and strategic partnerships with OEM Dealer will provide increasing opportunity for external maintenance sales. I do not have a slide specifically on tariffs, but this is as good a place as any to clarify. We have had two vendors identify increases in cost due to tariffs.

One is a U.S. engine manufacturer who had advised of a 3%-4% increase due to tariffs, which isn't far beyond normal expected annual increases. The other is a U.S.-based tire manufacturer for our ultra-class truck tires, which has a 25% tariff increase in price. While we're researching other suppliers, there are limited ultra-class tire manufacturers. Overall, we expect the tariffs to potentially raise our internal costs less than one half of 1% over the next year or so should the tariffs remain in place. We continue to monitor the potential impacts of U.S. tariffs, but at this point, believe it's negligible. On slide 14, we highlight the growing civil infrastructure spend in our key markets of the U.S., Canada, and Australia.

Aging infrastructure, energy transition, climate resiliency, and tariff threats pushing nations to seek more resource independence are all driving what we believe is a vastly growing opportunity in the civil infrastructure markets. We see the desired speed for development also lowering the risk for contractors. The growing opportunity and lower risk is why we believe we can build our infrastructure business to about 25% of our overall business in the next three years. We have a new executive member starting with us in a couple of months, and she will be leading our infrastructure business in what we see as an exciting area for growth. Stay tuned as we provide more information and analysis on this expanding infrastructure market over the summer. On slide 15, we highlight what we believe is our biggest organic growth opportunity going forward, and that is our continued expansion in Australia.

The Australian contractor marketplace is massive and growing. Western Australia, in particular, is 50% of the active mines in the entire country, and we have less than a 1% share of that market. We have just started to see initial tender packages and budgetary proposals coming out of Western Australia and believe we will begin to receive RFPs in late Q2, early Q3 for 2026 project starts. Slide 16 highlights a strong bid pipeline of $15 billion, with a massive increase around $4 billion in our upcoming infrastructure opportunities. The addition of a major equipment operator labor supply tender in oil sands continues strong activity and diversified resources in Canada and a couple of major opportunities for early renewal extensions and expansions with our existing Queensland clients in Australia. We have had a 100% success rate in renewals with our Queensland clients and look to continue that trend.

Moving to slide 17, with the Q1 typical quarterly backlog consumption, our pro forma backlog now sits at $3.2 billion and is a decrease of about $300 million from our year-end 2024 backlog. With the previously mentioned activity level in our bid pipeline, we expect our backlog to hit a record $4 billion mid-year this year and demonstrate increasing geographic and resource diversification. On slide 18, we have provided our outlook for 2025 with unchanged key metrics from year-end. We believe we can make up for the Q1 weather impacts in both Australia and Canada over the course of the year and expect the summer construction activity in North America will be busy, particularly in Q3. We also expect that the growth assets we have added into our Australian operations will be fully operational by the beginning of Q3, providing what will be another busy second half of our year.

Lastly, regarding capital allocation going forward, we have been active in our NCIB, having purchased and canceled 250,000 shares since inception to quarter end, demonstrating our commitment to shareholder-focused allocation. We have increased liquidity with our high-yield raise, which gives us confidence to continue investing in our NCIB and provides us funds should we need to settle or remain convertible debt with cash, which is now a current liability. The high yield also provides additional funding should we need letters of credit for future infrastructure bids or find other high-return investment opportunities. Q1 weather dragged down our start of the year, but we see great opportunities, improved financial performance, and continued shareholder-friendly investments going forward. With that, I'll open up for any questions you may have.

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your telephone keypad. You will hear a prompt that your hand has been raised, and should you wish to cancel your request, please press star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Adam Thalhimer from Thompson Davis. Please go ahead.

Adam Thalhimer (Director of Research)

Hey, good morning, guys.

Joe Lambert (President and CEO)

Morning, Adam.

Adam Thalhimer (Director of Research)

Can you help us a little bit, thinking about seasonality for the rest of the year? I'm curious, how you guys think Q2 might trend versus Q1 from a top-line and an EBITDA perspective.

Jason Veenstra (CFO)

Yeah, I can take that one, Adam. We actually see top-line and EBITDA being quite consistent with Q1. The oil sands is seasonally slower. You know, it's less of an impact in our more diversified business, but we see utilization of the oil sands coming down a little bit. But with lower depreciation, we see on the EPS side a nice increase in Q2. Top-line and EBITDA consistent with Q1.

Adam Thalhimer (Director of Research)

Great. Joe, can you just expand? You talked about a new hire on the infrastructure side and just maybe what you're seeing for large infrastructure bidding in the U.S. and Canada.

Joe Lambert (President and CEO)

Yeah, I mean, predominantly what we're looking at recently has been a big increase in P3s in the U.S. The ones we're looking at are, there's a couple of dozen, actually. It's all around energy transition and climate resiliency. So there's quite a few pumped hydro projects. We're seeing quite a few dam construction levee raises around flooding. We see a lot of water retention in the Western U.S. And, you know, we've really just got into the business development side of this, which is the big ad you're seeing. Those are all P3 projects. About half of them are the U.S. Corps of Engineers. And, yeah, we've got what we think is a great leader for that business and our overall business development, starting here at the beginning of July. You know, we think those are great opportunities.

We also see them as lower risk in the form of contracts that are coming out. Most of the stuff you'll see on our bid chart is actually from the P3 conference in Dallas in the U.S., and that's really what's driving that part of the business.

Adam Thalhimer (Director of Research)

Is that in your $4 billion backlog expectation by mid-year, or would that be later this year?

Joe Lambert (President and CEO)

No, that wouldn't be in mid-year. That wouldn't be in this year at all. It's their longer lead times. They'd be more in the 2027 kind of range on average. And, you know, if you look at that bid chart, the two that are the furthest to the right on the bid pipeline are both flood protection jobs from the Cc`orps of Engineers. There is some potential for some earlier, but that's kind of the time frame we're looking at is around 2027 for most of these to kick off.

Adam Thalhimer (Director of Research)

Perfect. I'll turn it over. Thanks, guys.

Jason Veenstra (CFO)

Thank you, Adam.

Operator (participant)

Thank you. Your next question comes from the line of John Gibson from BMO Capital Markets. Please go ahead.

John Gibson (Director of Equity Research)

Morning, guys. Thanks for taking my questions. Just first, I wonder if you could quantify the financial impact of the rainy weather in Australia in Q1.

Jason Veenstra (CFO)

Yeah, we put it at about 5%-7% of gross profit margin in Australia. Was your question just on Australia, John?

John Gibson (Director of Equity Research)

Yeah. I guess just what a normalized quarter would have been, you know, absent the severe weather impact.

Jason Veenstra (CFO)

Yeah. So, you know, we're kind of in the $10 million range in Australia. You know, they're normally at about 25% gross profit margin. They came in at 16% or 17%. So, you know, that kind of order of magnitude.

John Gibson (Director of Equity Research)

Okay, great. And then, second one for me, just your oil sands work, you know, continues to improve. I guess what's what's changed here is that the new contract structures are just a bit of a pickup from some work that was, delayed last year.

Joe Lambert (President and CEO)

You know, it's very similar top-line. I think we're getting a bit more efficient in the operations there. Obviously, Q1, we had a big hit on the cold weather. When it gets extremely cold, like in that minus 25 degrees Celsius or colder, you just got to leave equipment running because if you turn it off, it's very difficult to get them started again. You know, other than that, I think we're seeing very strong demand. Q2 is usually our weakest quarter in oil sands, and then we think we're going to finish strong there and look forward to the projections for next year. We think with production continuing to increase in oil sands and material movements, we'll follow, and we see modest growth potential year on year in the oil sands as well.

John Gibson (Director of Equity Research)

Okay, great. Congrats on the solid quarter in light of some tough operating conditions, alternate factor.

Jason Veenstra (CFO)

Thanks, John.

Operator (participant)

Thank you. Your next question comes from the line of [Frami Podia]. Please go ahead.

Hey, good morning, guys. Hope you're having a good day.

Joe and Jason and the whole team, thanks for your time. I was coming through the financials and saw that the subcontractor services increased a good bit. Looks like from $59.6 million ballpark to $75.6 million, comparing 2024 Q1 to 2025 Q1. How would you comment on that? What was the reason for the increase?

Jason Veenstra (CFO)

Yeah, so that's all Australia-driven, and we're doing some new work in Australia that requires subcontractor services, particularly at that copper mine in Australia, as well as the rainy weather required some, you know, services to be brought into sites that we coded as subcontractor. About $18 million of that increase is MacKellar related, and, you know, it is a kind of a run rate that we would expect to see. We do enjoy a margin on that subcontractor work, so it's all kind of part of the different scopes, year-over-year.

Adam Thalhimer (Director of Research)

Okay, got it. My second question is, I think that you guys are doing an excellent job as far as management is concerned, but how do you respond to any investors who might be losing confidence in management's ability to execute based on, I guess, repeated issues related to climate and weather?

Joe Lambert (President and CEO)

I, you know, I think our job is to deliver results that we say we're going to get. Yeah, in Q1 was a bit down due to weather, and we need to deliver into the yearly guidance, and that's our expectation. I think any market is just expecting you to, if you put up a number, that you hit it or beat it. That's our internal expectations as well.

Excellent. Thank you guys so much. Hope you have a good day.

Thank you, Ram.

Operator (participant)

Thank you. Your next question comes from the line of Chris Thompson from CIBC. Please go ahead.

Chris Thompson (Director)

Hey, good morning, guys.

Jason Veenstra (CFO)

Morning, Chris.

Chris Thompson (Director)

Last quarter, you put out a bit of guidance on the quarterly cadence of EBITDA. You kind of framed it as, you know, percentage of your guidance per quarter. Just wondering if you could reiterate that for us going forward.

Jason Veenstra (CFO)

Yeah, Chris, just as mentioned in a previous call, I think, you know, we didn't put that in Joe's shareholder letter this quarter, but we do see Q2 looking a lot like Q1 on the EBITDA perspective. I think as far as first half, second half, the way we see it is on the EBITDA anyway, that, you know, about 55% being in the second half of the year, with 45% in the first half. That's kind of the cadence we're seeing right now. Q3 will be a little bit up on Q4, but yeah, you're getting into the ones and two percentages at that point.

Chris Thompson (Director)

Okay. And then just with respect to the guidance, when you set it back in December, these weather impacts would have been, you know, unforeseeable. You talk about your run rate EBITDA margin being about 3% higher than what you put up in the quarter. You know, that implies there's potential slack in the guide. I'm just wondering, given the context of that, you know, how should we be thinking about the guide? Even the range, are you feeling like you'd be leaning more to the lower end of the range after the tough Q1?

Joe Lambert (President and CEO)

Yeah, you know, I guess it depends on how you look at the law of averages, Chris. I think, you know, we're expecting average weather becomes average weather. I think that's a reasonable expectation. I, you know, if you project the weather in Q1 through the rest of the year, I'm generally, you know, two and three are, you know, we're obviously not running into idle issues even if we get rain in Q2 and Q3. You know, we had a colder Q1. Do you expect a warmer Q4? The law of average would suggest so. You know, I don't think we project our guidance with any kind of slack or anything else. We project the midpoint is what we think is our 50% probability number and the range where we think the volatility of that is.

You know, I fully expect to deliver into the range. If we have worse than average weather for the year, we'll be in the lower end of it, probably. You know, I, you know, we go by the law of averages. We forecast on average weather, and so I expect we're going to be close to average when the year ends.

Chris Thompson (Director)

Got it. Okay. And then just touching on the weather, you know, looking at rainfall data, in Queensland, it looked like April was still, you know, relatively high versus historics. I mean, significantly less rain compared to February and March. So I'm just wondering, like, you know, do you expect a bit of a gross margin headwind, in Australia for part of Q2, or is, you know, the general drying trend enough that you're not seeing those kind of impacts?

Joe Lambert (President and CEO)

I'm impressed that you're following the Australian weather that closely. Yeah, Chris, April started with some rain continuing into it in Australia. Again, we think, you know, by the end of the quarter and by mid-year, those things will average out. It was just a late rainy season in Australia and a very rainy season. You know, they're measuring rainfalls in feet. That's just pretty crazy down there. I mean, yeah, there was a bit of disruption to the beginning of April, but we think that'll work its way out through the year.

Chris Thompson (Director)

Okay.

Joe Lambert (President and CEO)

You know, and eventually, we had a very warm April in oil sands. Even March, we had an early spring breakup. I think Q2 looks better in the oil sands side as far as not having to deal with the spring breakup in Q2 because it all kind of occurred in Q1.

Chris Thompson (Director)

Got it. Okay. And then just touching on the oil sands, you mentioned that there was additional work at Millennium and then lower scopes at Fort Hills. I'm just wondering if you could give us some color on what's driving that.

Joe Lambert (President and CEO)

I think, was that a quarter-over-quarter? Yeah. You know, we've seen pretty consistent demand. We've moved some fleet between sites. You know, they recently had some scheduled shutdowns and turnarounds on specific sites, and those usually create some near-term impacts and maybe some shuffling around sites. Overall, we're seeing strong demand for our services across the oil sands. You know, it's typically a Q2 low in the oil sands, and I think we'll be typical of that, and then it starts to ramp up again and peak in Q4.

Chris Thompson (Director)

Okay. Last question for me. Just on the NCIB, Joe, I'm just wondering, you know, what's just given where the share price has gone over the last few months, like, how much flexibility are you guys willing to have with respect to your debt target? Like, can you, you know, can you lean on the NCIB a little harder in the near term and then, you know, maybe sacrifice, like, 0.1 of a turn on the debt side, in exchange? Maybe just figuring how you guys are thinking about that.

Joe Lambert (President and CEO)

Yeah, I think it's these, at the pricing and what we think is the return on our, what we think is our intrinsic value, yeah, I think we could lean on a little more. I don't, you know, it just depends on where it goes. We have, obviously, we have a lot more liquidity with the high-yield raise that we just did. We'll look at it opportunistically and do what we think is the right investment. Right now, I'd say buying our shares is the best investment we have out there.

Chris Thompson (Director)

Great. Okay. Thank you, guys. I'll hand it back.

Operator (participant)

Thank you. Your next question comes from the line of Devin Schilling from Ventum Financial. Please go ahead.

Devin Schilling (Equity Research Analyst)

Hi, guys. Good morning.

Joe Lambert (President and CEO)

Morning, Devin.

Devin Schilling (Equity Research Analyst)

I see, a couple of contracts up for renewal here in 2025. Any updates on these two renewals on timing and maybe expectations on any potential scope changes?

Joe Lambert (President and CEO)

Yeah, the first one, it's in the middle row there. That's the earlier one, is actually a negotiated early renewal. We've been very successful with these. Devin, like I said before, our, you know, you can't be any more successful. We've had a 100% renewal rate. The second one is actually an expansion, which is in the top line there, is an expansion of an existing operation where we're looking to potentially increase our scope. That one, we'll know more towards the end of the year. The one in the middle, the early renewal potential, we should know in the next quarter or so. That's really the driver for what I said is going to be an increase to $4 billion in our backlog. I'm highly confident in our ability.

Obviously, a record of 100% renewal feeds that confidence.

Devin Schilling (Equity Research Analyst)

Okay. Yeah, no, that's helpful. I believe in the past, you guys mentioned a large infrastructure opportunity. I believe it was in California that you were aiming to qualify for. Any updates on that project?

Joe Lambert (President and CEO)

Yeah, we were unsuccessful in that prequal, but we have had quite a few other projects. Our feedback on that was, California was looking for California experience. And obviously, we have not got a lot of experience in that area. We have got a lot of dam building experience, but we have not done it in California. Unfortunately, that was a weakness in that particular tender. You know, from what we have added and the information we have seen now in these large earthworks projects, like picking up two dozen projects that we follow now on infrastructure earthworks, bigger earthworks in the next three years, of which, you know, we have added, I do not know, three, four, or five that you will see on the bid pipeline, which would generate about $4 billion backlog. I, you know, we want to win every bid, but obviously, that does not happen.

Yeah, we see plenty of backfilling for the one that we just did not qualify for. I think with this new exec we are adding on and our focus in the infrastructure side and expansion, you know, I look forward to much success in that market.

Devin Schilling (Equity Research Analyst)

Okay. Yeah, no, that's a great update. I'll jump back in the queue. Thank you.

Operator (participant)

Thank you once again. Should you have any questions, please press star one on your telephone keypad. Your next question comes from the line of Maxim Sytchev from National Bank Financial. Please go ahead.

Hello. Good morning, gentlemen. It's Casvin here on.

Hi. It's Casvin here on for Maxim, guys.

[audio distortion]

My question is regarding the technician count. You've mentioned in the past that it's been a bottleneck. I'm just wondering for both your regions in Canada and Australia, is that still the case? If so, how much shortfall in technician count do you think you have? Is it still a factor preventing you to reach your respective utilization targets in both regions, or is the gap mostly because of weather in your business?

Joe Lambert (President and CEO)

Starting with the end, the gap would be because more of weather. You know, Australia, we've got very full demand in Australia in long-term contracts. I think the consistency of how equipment stays on sites and the consistency of our labor workforce, especially our skilled labor and the mechanics, we've been very successful in attracting and retaining maintenance personnel. I think, you know, skilled trades are an issue around the world, but I think we manage it extremely well in Australia. That is why, you know, between that, the high demand and the weather, you'll see that utilization target is at 85%. You know, we're very confident in that. We've been right in that range, obviously not the last quarter, but before that.

In Fort McMurray in the oil sands, we're getting, you know, when we get into that close to 70% range and above, that means we're full on demand. Getting from 70%-75% is the efficiency of our skilled labor workforce. You know, we've put in systems and processes and developed things like our apprentice program over the years to address this. Now is the time to deliver. As you look to get from that high 60s to the mid-70s towards the year end, that's really where you're testing your abilities in that. You know, we're confident we've got the systems and the processes in place now. When the high demand's there, we'll get into that range of utilization. It's not hindering us at any point right now.

As we go forward, we think we've got the systems and processes as far as attracting and retaining skilled workforce in place both in Australia and in Canada.

Thank you, guys. Yeah, that's helpful. That's it for me.

Jason Veenstra (CFO)

No worries.

Operator (participant)

Thank you. There are no further questions at this time. I will now hand the call back to Joe Lambert for any closing remarks.

Joe Lambert (President and CEO)

Thank you very much, Jennifer, and thanks again, everyone, for joining us today. We look forward to providing the next update upon our closing of our second quarter results.

Operator (participant)

Thank you. This concludes today's call. Thank you for participating. You may all disconnect.