North American Construction Group Ltd. (NOA) CEOJoseph Lamberton Q1 2021 Results - Earnings Call Transcript

North American Construction Group Ltd. (NYSE:NOA) Q1 2021 Earnings Conference Call April 29, 2021 9:00 AM ET

Company Participants

Joseph Lambert - CEO

Jason Veenstra - CFO

Conference Call Participants

Yuri Lynk - Canaccord Genuity

Bryan Fast - Raymond James

Maxim Sytchev - National Bank Financial

Tim Monachello - AltaCorp Capital

Devin Schilling - PI Financial

Operator

Good morning, ladies and gentlemen. Welcome to the North American Construction Group Earnings Call for the First Quarter ended March 31, 2021. 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 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 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 will now turn the conference over to Joe Lambert, President and CEO. Please go ahead.

Joseph Lambert

Thanks, Simon. Good morning, everyone. In this my first quarter at CEO, I was very pleased that our great team of employees mark the milestones with such a solid operational and financial performance. While our NACG operations executed our winter work proficiently and consistent with our high standards. our more recent and growing indigenous partnerships and investments in commodity, geographic diversification performed exceptionally.

Q1 was not without its challenges. Our enthusiasm for the vaccine rollout has been quelled by rising case loads. And while our business recovery and financial performance was excellent, our safety performance regression conflicts with our core values, and needs our full focus and commitment. And looking at our Slide 4, the safety slide.

NACG and our industry in general has seen an increase in our injuries and I have said many times, we can’t celebrate our financial performance if our employees are being injured. We have a strong organizational culture that wants to get this right. And we'll focus all levels of our organization until we see improvement. In NACG, we know no one goes to work trying to figure out how to hurt themselves. So we don't blame the injured party. A thorough investigation is completed after an incident and we identify root cause to build corrective action with the goal to prevent reoccurrence.

The harder part is preventing the injury in the first place. We don't need to touch the stove to know it’s hot, we will burn us. We know the hazards and we need to mitigate or remove the risk. I’ll touch on a couple of hazards that we'll be focusing on this year. There are slips, trips and falls in COVID safety. Slips trips and falls make up more than half of our reportable injuries. This past winter proved to be an especially hazardous one and that we had frequent temperature fluctuations with an unusually high amount of freeze thaw events that create poor underfoot field conditions.

To address these issues, we have implemented increased training communications and field inspections for these slip trip and fall hazards with an increased focus not just seasonally, but every ship where temperatures are expected to cross between freeze and thaw. These hazards are nothing new or unusual for the environments we work in. But we need to get more focused and proactive at how we address them. Although not a hazard that we can directly correlate to any specific injury, we know our safety protocols for dealing with the pandemic can be in direct conflict with good work past and safety communications.

Essentially what's good for addressing the pandemic or mass social distancing isolation, which is contrary to what's good for safety, which includes consistent communication and looking every employee in the eye and assessing fitness for work and clarity of task. Our focus now and going forward will be on finding new and better ways to achieve this assessment and communications necessary for good safety without putting our workers health at risk. With that, I’ll turn it over to Jason for a review of our financials before summarizing our operational performance and the outlook ahead of us.

Jason Veenstra

Thanks, Joe and good morning everyone. I’ll begin the Financial Review on Slide 9. Revenue for the quarter of $168 million was $30 million below last year's Q1 as we continue to recover from the widespread impacts of COVID-19. The prior-year variance relates to the strong quarter we had in 2020 particularly at the Fort Hills mine prior to their decision to temporarily reduce the operating capacity at that mine. The year-over-year variance represents a 15% decline in revenue, but is trending positively being 23% up from Q4 2020, and is the third quarter in a row of substantial steady increases.

The quarter enjoyed fairly standard winter weather conditions, albeit very cold in February, and the top line revenue achieved was largely as expected. The resiliency of the oil sands remained strong and as new protocols become more routine and predictable, we continue to see our productive operating hours and utilization increase. As Joe will explain later, the 66% operating utilization achieved in Q1 is trending in the right direction from the low of 24% in Q2 2020.

While of course critical to our results, reported revenue inherently lend itself to the programs where we directly provide our own heavy equipment and where we provide the labor force. Equity accounted interest like Nuna are not reported in reported revenue and our external maintenance and mine management contracts do not factor prevalently into reported revenue.

But these are strong contributors to both EBITDA and EBIT and led to 26% of adjusted EBIT being generated from outside the Fort McMurray region this quarter. We remain on track for our near-term target a 45% for this full-year of 2021. We expect our reporting to change slightly in Q2 as our diversification efforts continue, and we look to accurately represent this to the readers of our financial statements.

Gross profit margin of 19% reflected an exceptional operating quarter as mentioned by Joe in his opening prepared comments. Key drivers of this margin achieved were an effective and efficient use of our fleet and moving the contract volumes during the quarter. As disclosed in our financials, the Canada Emergency Wage Subsidy program continued to support margins, and gross margin was also positively impacted by the mine management contracts which provide strong returns. These positives in the quarter were offset by continued cost impacts at the Millennium Mine as we look to improve performance of the complex operating conditions and the increasingly large heavy equipment fleet at that mine.

Included in gross profit margin was depreciation of 18.5% of revenue for the quarter. The percentage is largely related to the increased idle time due to a combination of the extremely cold weather in February, haul road conditions and unplanned maintenance. For reference, idle time as a percentage of overall equipment hours was 24% in Q1 2021 versus 17% in Q1 2020. Depreciation as a percentage of revenue is also being impacted by our increasing ultra class fleet, which consists of all trucks with load capacities greater than 320 tons.

We have been strategically investing in these haul trucks over the past two years, via equipment rebuild and Major Component overhauls. These investments result in increases to depreciable costs, which consequently drive higher depreciation as a percentage of revenue. Direct general administrative expenses in the quarter were $7 million, equivalent to 4.2% of revenue. This spending percentage is consistent with expectation and was achieved through continued cost discipline and strict attention to discretionary and non-essential spending.

All said, adjusted EBITDA of $61.1 million was just a notch over Q1 2020 and establishes a new quarterly record for NACG, which is very exciting for us, given the shocks we've absorbed over the past 12 months. This EBITDA performance is almost twice the metric we posted in Q2 2020 and reflects well the recovery we've experienced as we return to pre-pandemic form.

The Nuna Group of Companies played a significant part in this EBITDA achievement, as they posted the most active first quarter in their history, which was of course as a result of the Gold Mine contract in Northern Ontario. As shown in the financials, our share of Nuna’s revenue was $25.2 million and the 21% gross profit margin also showing the financials is a testament to a strong operational quarter during a complex ramp-up phase.

Adjusted EPS for the quarter of $0.65 was generally consistent to Q1 2020, which generated $0.70. Higher adjusted earnings this quarter were more than offset by the impact of higher shares outstanding in Q1 2021.

Interest continues to trend nicely as the 4% rate and the $4.3 million cash expense in this quarter compares favorably to the 4.5% incurred last year. We continue to benefit from both reductions in posted rates, as well as competitive rates in equipment financing.

Moving to Slide 10, I'll summarize our cash flow. Net cash provided by operations of $42 million was produced by the business and includes a negative impact of $18 million of working capital changes that impacted our free cash flow in the quarter. Sustaining maintenance capital of $42.5 million had a major impact on free cash flow. The majority of sustaining capital additions during the quarter were incurred during a busy winter season in maintaining the existing fleet. The remaining spending related to the purchase of smaller heavy equipment assets in advance of the upcoming summer construction season.

As our stakeholders are aware, sustaining capital additions are typically front weighted in the year primarily for these two reasons. As a reference, additions in the first quarters of 2020 and 2019 were 39% and 40% of full-year spending. To close out the Financial Review, we'll move on to our balance sheet on Slide 11. Liquidity of $151 million reflects our strong liquidity position, EBITDA generation offset by sustaining capital, as well as working capital has the correlated effect of consistent senior debt levels and a slight increase in net debt.

On a trailing 12-months basis, our senior leverage ratio as calculated by our credit facility was consistent at 2.1 times, which is well below our covenant of 3.0. And with those brief financial comments, I'll pass the call back over to Joe.

Joseph Lambert

Thanks, Jason. On Slide 13, you'll find our operational priorities for 2021. This slide summarizes our objectives, I'll walk through each topic in the slides that follow and finish up with our outlook. Our first priority is always the health and safety of our employees. However, since I discussed that at some length earlier, I'll move on to the drive for diversification on Slide 14. One item that deserves a bit of a clarification to prevent possible confusion is the basis for our measurement on this slide versus the customer consolidation notes in our MD&A.

Since a large portion of our work outside of oil sands is performed through partnerships and management contracts, the reported revenue is not indicative to the earnings contributions. As an example, in our 2020 annual report, you’ll see that 96% of our reported revenue was earned with our top four clients in oil sands. However, all of our diversifying projects are within either the remaining 4% of revenue or the equity account of joint ventures and constituted 35% of our adjusted EBIT generated last year. Jason has confirmed but we'll endeavor in Q2 to provide more clarity and transparency to these items.

With that clarification, I'll get back to the diversification subject. The acceleration part of this slide is where we expect to continue the momentum of synergies with our Nuna Group of Companies, as evidenced by the recent commencement ramp-up at the Ontario Gold Mine, combined with two recent tenders submitted through partnerships for multi-year mining contracts in Quebec.

In addition, we're finalizing our tenders partner in a major earthworks infrastructure project in the U.S. With this diversification focus, we expect to continue to meet our oil sands customer needs with high utilization of our large fleet while at the same time of proven utilization of smaller fleet outside of oil sands, and reduced the consolidation risk by having more customers, and more commodity markets and geographic regions.

We’ll also continue to pursue diversification in low capital intensity growth areas such as the U.S. mine management contracts, and major earthworks infrastructure projects. These contracts generally have fleets provided, and as such don't affect our operating utilization measures, but they offer low to no capital entry and diversification into other commodities and regions.

The next slide 15 highlights the bid pipeline that drives our confidence in our diversification success, and has led to the increase in EBIT target to 50% by the end of 2022. The bid pipeline shows increasing demand and the expanding opportunities and other resources and geographic regions where commodity prices are as strong as we've seen in a decade. Our recent contract win, project commencement and continuing ramp-up of our JV with Nuna adds to our confidence and most recently we have the two tender submissions through a partnership with a multi-year mining contracts in Quebec.

This is especially notable as this Quebec market has proven difficult to enter and these would be our first projects ever in Quebec. Lastly, but most probably most importantly, we simply believe in our strategy and that a safe low cost experienced contractor with strong indigenous partnerships, an extensive and well maintained fleet and a commitment to sustainability will have significant competitive advantage to win our fair share of these tenders.

Our equipment utilization priority on Slide 16 links closely to our diversification objectives as we seek gains in utilization with smaller end of the fleet, which is uncommitted and under utilizing oil sands. Without rehashing all the history here just wanted to note that the fleet utilization began to get back to normal at 58% in Q4 last year, with average utilization growing nicely to 66% in Q1, with a March monthly peak of 70%, which exactly matches the full-quarter Q1 2020 average.

In addition to getting back to an above the trend line, we also believe our increasing diversification and counter cyclical summerworks such as Ontario Gold Mine will continue to lessen the Q2 and Q3 troughs, and provide more consistent overall improved fleet utilization. One new addition to potential utilization improvements is the Fleet Telematics Program described on the following Slide 17. The Telematics program is a result of many years of product research and testing, and is the largest investment in fleet monitoring technology NACG has ever made. It is the first tool we believe will perform all the operations and machine health monitoring we need across all makes and models of equipment.

We expect to operate the system with our own resources. But our installed setup operation future development is also being supported by both Caterpillar. As you can see from the slide data, there are many areas of direct benefit operations, maintenance and sustainability. Over the next two years, we expect installed Telematics across our entire large equipment fleet, and advance the analytics development into artificial intelligence and machine learning.

We have an excellent team with great support. I look forward to sharing with you the benefits we have received as we implement and develop the system.

Moving on to the next slide in our sustainability update. I'm very pleased on the progress we have made in just two months since our inaugural sustainability report. In particular, we have had great success and growing our indigenous partnerships with a 52% increase in year-over-year quarterly revenue. We have also recently completed our first sale of a second life rebuilt 400 ton haul truck to our Mikisew Partnership, which we’re confident will be an excellent investment.

Rebuilding an ultra class haul truck and investing that asset in our indigenous partnership fits nicely within our sustainability strategy. I’m likewise pleased in the progress we have made in promoting inclusivity and diversity in our workforce and our policies promoting volunteer work through paid time off. In addition to these areas, we're looking at new policies promoting electric vehicles and also looking at research and development of hydrogen fuels, which I hope to share more with you in the coming months.

In our outlook on Slide 19, we have meaningfully increased our EBITDA and free cash flow ranges based on Q1 results in our most recent forecast. The record Q1, we posted combined with our contracted backlog gives us the confidence to increase these ranges early in the year here. Included in the free cash flow, we moved the bottom line of sustaining capital up a bit with the approval of the Telematics program. On the capital allocation front, debt reduction and share buybacks remain high in the list of capital allocation priorities, with growth capital being allocated to the highly accretive shop expansion, which broke ground earlier this month.

As highlighted in the materials, we remain vigilant for accretive M&A, which is admittedly difficult in this environment, but it's definitely not impossible. Despite the obvious criteria of being accretive on a standalone basis, our M&A filter is also focused on fit synergies, and vertical integration to ensure further upside moving forward. I'll now hand the call back to the operator for the Q&A session.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] After a brief pause, we will begin the Q&A session. Your first question comes from the line of Yuri Lynk with Canaccord. Your line is open.

Yuri Lynk

Good morning, guys. Nice quarter.

Joseph Lambert

Thanks, Yuri.

Yuri Lynk

Joe, just on the guidance. So I understand you're taking it up a little bit in terms of EBITDA and free cash flow. And that's nice to see. Just is that more because the first quarter came in a little bit better than you expected? Or do you have more confidence in the back half of the year, just a little more color on the reasoning of that?

Joseph Lambert

I'd say it's both of those, Yuri, obviously the first quarter is in the book. So that's locked in. But as we progress these three months, we also have higher visibility on our work for the year in our backlog. So both of those contributed to pumping it up.

Yuri Lynk

Okay. Any more detail you can give on the opportunities in Quebec, that you had referenced?

Joseph Lambert

Brownfield expansions of, of existing mine sites is looking for some increased mining of satellite deposits very much like I outlined in the previous call. So, with high metal prices, and guys looking to mine satellite pits, and produce a bit more, why their commodity price is high. Their three to five year mining contracts, typical drill blast load haul, truck shovel operations, any moment to cover on that Yuri or?

Yuri Lynk

Would that be something you're pursuing with Nuna or?

Joseph Lambert

No, it's actually another partner, a group we worked with before, who was well established in Quebec, and has all the systems and processes we would be used to in French language also.

Yuri Lynk

Yes, that always helps.

Joseph Lambert

Yes, and we're a Quebec based workforce in camp.

Yuri Lynk

Okay, interesting. I’ll turn it over there guys.

Operator

Your next question comes from the line of Bryan Fast. Go ahead, your line is open.

Bryan Fast

Thanks, good morning guys.

Joseph Lambert

Good morning, Bryan.

Bryan Fast

So you've done a good job at controlling the costs within your control, like. But where are you experiencing inflationary pressures, I guess outside of your control? And then how have you been able to mitigate those?

Joseph Lambert

I can't say, I have noticed anywhere inflationary at this point, Bryan, I think mostly because probably 95% of our fuel as an example is provided through our clients. So we don't see that impact. And we don't use a lot of materials in our work, it's labor and equipment are 90% of our business, and those have been very steady on a cost. I'd say that the biggest inflationary impact on equipment would be the U.S. dollar exchange rate and because of a lot of our suppliers out of the U.S., and that's actually been fairly positive with the exchange going up to 0.8 roughly right now.

So I don't think we've felt any escalation I know I've seen what two by forecast, but we don't use a lot of men at work.

Bryan Fast

That's fair enough. Thanks, Joe. And then just given how this third wave has flared up, I guess particularly at Northern Alberta, have you had any issues with labor availability there?

Joseph Lambert

We haven't seen an impact. And I think to explain that a little bit, Bryan is it the biggest impacts thus aren't really totally driven by a positive case. It's actually how well we’re able to isolate it. So, our biggest impact is where we have a positive case or somebody who and they expose themselves to many people on our cruise, so that one person could work 20 people being sent home for isolation for two weeks as an example, if they're on the bus or in close proximity.

So that's the areas where we try and mitigate the risk. So even if you had like a doubling or two positive cases, if you've kept those isolated, it will be two, it won't be the 20 that were associated on a bus ride or something like that. So the areas where we focus are really in keeping that isolation and the quarantine separating of the people. So, we really haven't seen any increase in impacts in our workforce with the recent up tick.

Bryan Fast

Okay, fair enough. That's it for me. Thanks.

Joseph Lambert

Welcome.

Operator

Your next question comes from the line of Maxim Sytchev. Your line is open.

Maxim Sytchev

Hi, good morning, gentlemen.

Joseph Lambert

Good morning.

Maxim Sytchev

Joe, I guess a quick question and a follow-up on Quebec contracts. So are these two separate I guess instances, if you could win one, lose another one, or it'll come sort of comes in one bucket?

Joseph Lambert

These are two separate instances, two different clients and two different mine sites. And, but they're very similar mining support contracts, load haul dump.

Maxim Sytchev

Okay, that's helpful. Thank you very much. And then in terms of when I look on Page 17 of the preserve utilization metrics. So, the peak was sort of 82%, is it fair to say like I mean, I know obviously everybody calculates the utilization rates differently. That's kind of low 80s is basically sort of as high as you can get, given sort of all the moving parts within your fleet, or how should we think about this? I mean, can it structurally go higher?

Joseph Lambert

It could go higher, but we do see it as fairly close to a practical limit, if it was 85%, or 86%, or 87%, I think everything went right, you tilt your head just right, you could get there. But we looked at it from, so I think in that range, we've just looked at our historical numbers. And when we've been flat out, kind of where we've gotten to when at full demand into Q1 or whatever. And that's kind of how we came up with that practical limit. The numerator is the same and everybody's analysis, just matter what you want to use in the denominator. So we kind of use that number based on where we think the practical limit is.

Maxim Sytchev

All right, okay, makes sense. And then I was wondering if you don't mind maybe building on the Fleet Telematics program potential upsides? And I guess, especially what that means for efficiency cost, and maybe potentially the margin profile down the line, if it's possible?

Joseph Lambert

Yes, I mean this is a very, I could totally geek out on because I love this Telematics program and

where we got to with it, because we've spent a long time on this. So you're monitoring, there's dozens of sensors. And on this equipment, it's as complex as any new electric vehicle or anything else. So being able to monitor all the machine health, from the maintenance side, it gives you an opportunity and an ability to predict failures before they become bigger issues.

And so if we can do that, the intention is we improve our availability, we lower our costs, we make our components last longer. And that maintenance side especially when it comes to the AI and the machine learning side, and being able to set up parameters in establishing your particular environment and not just the generalized parameter.

So that'd be like knowing exactly at what temperature you should intervene on an engine, and those kinds of things. And on the operating side, you can monitor every move of a machine. So when it comes to training, when it comes to monitoring and getting more proficient and efficient in operating and preventing damage, being able to monitor those machines real time, location, knowing speed, everything gives us a great opportunity to improve our training and our operator capabilities.

And then last, but certainly not least, on the sustainability side, being of the monitor or fuel burn, these are all pointing to making assets last longer, and improving on a fuel burn, which in our idle time is an example, earlier where Jason talked about, the increase in our idle time over winter, if we can, when we have 20% to 25% of our equipment hours being in idle because of temperatures, we can get a little better shutting that down and saving 5% or 10% of the hours and without impacting our operations efficiency, that could relate to a 5% to 10% reduction in fuel burn, which obviously would reduce the emissions.

So, it's just an all around great opportunity with this. And I don't have a lot of tangibles to show you yet. But as we get this in and implemented over this year, I really look forward to showing you what we're getting out of it, because it's a pretty amazing system.

Maxim Sytchev

Yes, I know that sounds pretty exciting. Thanks for that. And maybe just one last question. You talked about potentially looking at M&A as capital deployment strategy, any potential updates there in terms of what you guys are potentially looking at? Thanks.

Joseph Lambert

I’d just say, the items that kind of fit into our wheelhouse in our strategy. And whether it's whole companies or bolt-ons, vertically integrates with our maintenance, having the same culture being gives us the diversification we're looking for in commodity and geography. Those are all areas, we're looking at opportunities.

Maxim Sytchev

Okay. Okay. That's super helpful. Thank you so much.

Joseph Lambert

Thanks.

Operator

Your next question comes from the line of Tim Monachello, your line is open.

Tim Monachello

First question here just on the backlog, know it’s a nice up tick in the equity investee portion of that backlog. I'm curious if there's any read throughs there to the diversification, was there any new Awards Won in the quarter that weren't mentioned?

Jason Veenstra

Tim, it’s Jason. I can take that one. That's just an update to the Gold Mine project at Nuna. So there's no new contracts in there. But as we've understood that opportunity better, we've able to increase that backlog number.

Tim Monachello

So, has the scope of that project increased?

Jason Veenstra

Yes, it has. Just with the ramp-up and just understanding the scope of work more clearly, the gross number has increased from what we kind of communicated back in October. So, we do see that through the backlog number.

Tim Monachello

Okay. Would that be mostly related to, I guess the timeline of the project being extended? Or do you expect that the quarterly revenue run rate should increase for that project?

Jason Veenstra

I'd say it's a little bit of each, there was some slight scope increase, but there's some also some timing expansion on that. So it, I wouldn't say either of them are significant, it'll be spread out over 28 months, 30 months.

Tim Monachello

Okay, got it. Second question for you, is just around Slide 15. And if I look at this Slide 15 from this quarter and Slide 22 from last quarter, it seems that the project outlook has materially accelerated, most of the projects last quarter were sort of in that 12 to 18 month timeframe or longer, now it seems that most of the project are before the 12 month time period. So I guess I was hoping for some commentary around how you're viewing this outlook and what's driving that acceleration?

Jason Veenstra

The same dots of moving more than the three months that are in there but a couple of ones I mentioned are pretty quick turnarounds like these two partnerships in Quebec are, we just got them in Q1 and we're bidding them and we expect the awards will occur in Q2. So they're pretty quick turnarounds because they have starts that are going to be in 2021. So I guess the few we've added on are more near-term and there was I think one we pulled off that was a bit further out that we don't think it's going to happen though.

Tim Monachello

Okay. Would I guess in terms of those Quebec projects, are you able to speak to the size of those?

Jason Veenstra

They're in the range, total revenue, we're in a partnership with them that would be between $100 million and $300 million at this point is where we're looking at them. And they're stretched out over three to five year contracts.

Tim Monachello

Okay.

Jason Veenstra

I guess the other thing you would see there, Tim, is we've had significant tenders coming in within the oil sands, also just in the last month. So some of those red dots there that are brought forward were just tender package. And that's pretty typical that we'll see them come out in kind of the February, March timeframe for oil sands major projects work. Sorry, I interrupted your other question there, Tim?

Tim Monachello

You just said $100 million to $300 million, I was curious if that was cumulative, between the two projects or $100 million to $300 million per project?

Jason Veenstra

No, one of them will be around $100 million and the other one will be around $300 million. So cumulatively, it'll be $400 million if we fortunate enough to win them both.

Tim Monachello

Great, and if you did win those two projects, would there be any expansion to the CapEx program for 2021? Or could you do this within the current fleet?

Jason Veenstra

We're looking at doing this with our current fleet. And the smaller-end, like I said in our diversification strategy fits extremely well. So these are 100 and 150 ton trucks, which are the small end of our oil sands fleet. But when you get into those areas, it's a bigger, those are considered large trucks in those applications. So I think we actually have an opportunity and advantage and being our small trucks are big over there, or bigger.

Tim Monachello

Okay, great. And then just a follow-on your last comment around the oil sands activity. Is there any if you could just characterize what you're seeing in terms of early insights into summer civil construction programs?

Joseph Lambert

Yes, we've had a couple of large bid packages that actually extend over multiple years on several scopes from summer construction. So we’re seeing what we think is an up tick. We'll continue to see summer civil work come out between now and the end of May, even for June kind of starts. But everybody in oil sands is running at full capacity, the curtailments aren't there anymore. And we're seeing scope packages come out more like what we'd say is average, although I can't remember what average years are anymore. It's been so long since we've had two in a row.

Tim Monachello

Great, okay, that's helpful. If you were to win something sizable, do you think that would be something you'd press release? Or would that just flow into quarterly results?

Joseph Lambert

I'm sure we would, especially if it is you need, like an entry into Quebec, something like that. I'm sure we would press release those. And those are significant enough size or do you mean in oil?

Tim Monachello

Yes, more in oil sands.

Joseph Lambert

I don't know if we would, I think it's just a matter of if it was going to be a significant change to what we would normally expect. If something came up that was unusual, and a large dollar amount, I think we would. But if it was just winning a bit more summer work than a normal year, I don't think that would constitute press releases.

Tim Monachello

Right, okay would that be the main driver of the I guess the range of your within your guidance?

Joseph Lambert

Our main drivers are Q1 being in the books, and then what we know about but we're cooking any big wins in there. And I think we're fairly conservative on, if it's in tender, we don't look at it backlog. So let's just really look at more work in hand or what typical work we would expect in our existing contracts.

So, we haven't booked, I don't roll the dice on those ones as far as bids, there wouldn't be in there.

Tim Monachello

Okay, and sorry, last one for me not trying to monopolize call here but just around the adjacent shop expansion. I'm curious if you could just speak a little bit about, how that third-party maintenance business is progressing. And if that shop expansion, do you expect that to drive higher revenues in that third-party maintenance business?

Joseph Lambert

Absolutely, it gives us four more bays. It gives us a cold storage facility. They highlight into the back of there, so it just gives us more capacity to do things. We didn't have a tremendous amount of third-party in the first quarter. But we did have a pretty peak quarter and our component remanufacturing for our own use, which actually is kind of self fulfilling.

That's why we didn't do a lot of external stuff as we're doing mostly for ourselves, which is where you see the high capital spend, a lot of that was us doing our own components. But you will see this sale of the second life rebuild to our Mikisew partnership, I think Jason does that get booked as external maintenance or that rebuilder.

So I'm not sure how that, I don't want to put Jason on the spot here. But, I guess suffice to say, Tim that we expect, we expect the shop expansion to give us more opportunity for external maintenance, along with being able to do more of our own, and we've had great success and getting skilled workforce in here and expanding on that. I think we've almost tripled what we originally had in here from when we entered the building, just over two odd years ago.

Tim Monachello

Got you. Well, I appreciate you guys answering my questions. And I'll turn it back.

Joseph Lambert

Thanks.

Operator

Your next question comes from the line of Devin Schilling, your line is open.

Devin Schilling

Yes, good morning guys. And congrats on the strong quarter here.

Joseph Lambert

Thanks, Devin.

Devin Schilling

Yes, just looking here, it looks like you guys added some equipment in Q1 ‘20 pieces to the smaller fleet. Is this largely or the old project in Ontario, or other potential work on the Horizon?

Joseph Lambert

Yes, I'm not exactly sure which slide but I think these are just, these are single life assets that we turn through. We don't do engines, and I think that's predominantly on those single life assets. And we typically get them over the winter, because that's when our peak usages. And so you're just saying I'm purchased into the fleet in Q1.

Again tying back to the same reason why Q1 capital, it's sustaining capital, and those ones even though you're replacing a unit, but we would have a small excavator. And that's why there's so many of them to, if there's 25, 410 ton trucks, you'd notice that a lot more than numbers, because it'd be a bigger number.

Devin Schilling

Okay, yes, that's helpful. Thanks. And also here, one of your operational priorities for the year is following your dealer provided maintenance work, can you just maybe remind me how much of this maintenance work is still being outsourced at that time?

Joseph Lambert

I give a rough number that maybe 5% to 10% of our workforce support comes out of

vendors and predominantly we try and limit that to warranty work. But we've had great success in our development of our apprentice program and recruiting of HETs, I think year-on-year then Q1, we more than doubled our own field maintenance mechanics, which every one of those guys is offsetting, could be offsetting a vendor that we might have had in Q1 last year.

Devin Schilling

Okay, that's very helpful. Thanks a lot, guys. I'll turn it over.

Joseph Lambert

Thanks, Devin.

Operator

This concludes the Q&A section of the call and I’ll pass the call over to Joe Lambert, President and CEO for closing comments.

Joseph Lambert

Thanks, Simon. And my thanks to all of you for joining us today and for continued interest in our growth and diversification journey. I'm very excited about our opportunity to advance our business in 2021 and what we all hope and expect to be a much healthier and more stable environment.

Operator

Thank you, ladies and gentlemen. This concludes the North American Construction Group’s Q1 2021 conference call. Thank you for participating. You may now disconnect.