In the latest earnings call for Badger Infrastructure Solutions (ticker: BAD), the company reported a record third-quarter revenue of $209.4 million, marking a 7% increase from the previous year. This growth was primarily fueled by a 10% surge in the U.S. operations. The company's adjusted EBITDA also showed an 11% increase, reaching a margin of 27.8%. Despite a 12% decline in Canadian revenue, Badger Infrastructure Solutions remains optimistic about a recovery in 2025, as delayed projects are expected to commence.
The company has expanded its fleet by adding 111 trucks, now totaling 1,625 units, and has adjusted its growth target to between 7% and 10%. The call highlighted the company's diverse project involvement across North America, including renewable energy, infrastructure maintenance, and hurricane recovery efforts, as well as the expansion of its normal course issuer bid.
Key Takeaways
- Record Q3 revenue of $209.4 million, a 7% year-over-year increase, with a 10% growth in U.S. operations.
- Adjusted EBITDA up by 11%, reaching a 27.8% margin.
- Canadian revenue declined by 12%, with a recovery expected in 2025.
- Fleet expansion included 111 new trucks, for a total of 1,625 units.
- Company remains optimistic about growth, with a diverse range of projects in North America.
Company Outlook
- Badger Infrastructure Solutions is optimistic about its growth trajectory, expecting a strong second half of 2025.
- The company's projects on the Eastern Seaboard and Southern regions of the U.S. continue to show strength.
- Political changes in the U.S. are not expected to hinder operations, with potential opportunities in renewable energy or oil and gas, depending on the administration.
Bearish Highlights
- A decline in Canadian revenue by 12% has posed challenges, though a rebound is anticipated.
- The federal excise tax complicates the potential relocation of trucks from Canada to the U.S.
- Utilization rates have experienced the most significant decline, particularly in Canada.
Bullish Highlights
- Company has maintained stable pricing despite utilization challenges.
- Growth in U.S. operations is robust, contributing significantly to revenue.
- The company is actively involved in renewable energy, infrastructure maintenance, and hurricane recovery projects.
Misses
- Delays in certain projects due to uncertainties over preferred energy technologies.
Q&A Highlights
- Rob Blackadar discussed the potential for using excess manufacturing capacity for truck leasing.
- The company has reviewed its 2025 budget, with optimism for revenue growth targets.
- Pricing stability is a focus, with U.S. inflation at around 3%, to protect margins.
In conclusion, Badger Infrastructure Solutions has demonstrated resilience and adaptability in its operations, with a strong focus on maintaining pricing stability and capitalizing on diverse project opportunities. The company's strategic fleet expansion and ability to navigate political landscapes underscore its commitment to growth and operational excellence. The management team expressed appreciation for the support of its customers, employees, suppliers, and shareholders, which continues to be pivotal for the company's success.
Full transcript - None (BADFF) Q3 2024:
Operator: Good day and thank you for standing by. Welcome to the Badger Infrastructure Solutions 2024 Third Quarter Results Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Anne Foster, Director of Investor Relations. Please go ahead.
Anne Foster: Thank you, Michelle. Good morning, everyone and welcome to our third quarter 2024 earnings call. Joining me on the call this morning are Badger’s President and CEO, Rob Blackadar and our CFO, Rob Dawson. Badger’s 2024 third quarter earnings release, MD&A and financial statements were released after market close yesterday and are available on the Investors section of Badger’s website and on SEDAR. We are required to note that some of the statements made today may contain forward-looking information. In fact, all statements made today, which are not statements of historical fact, are considered to be forward-looking statements. We make these forward-looking statements based on certain assumptions that we consider to be reasonable. However, forward-looking statements are always subject to certain risks and uncertainties, and undue reliance should not be placed on them as actual results may differ materially from those expressed or implied. For more information about material assumptions, risks and uncertainties that may be relevant to such forward-looking statements please refer to Badger’s 2023 MD&A along with the 2023 AIF. I will now turn the call over to Rob Blackadar.
Rob Blackadar: Thank you, Anne. Good morning, everyone and thank you for joining our 2024 third quarter earnings call. By the way, we’re taking this call or making this call from our Indianapolis headquarters, and we’re in the middle of a pretty good rainstorm. So, if you hear a little background noise or whatever, that’s what you may be hearing. Before we get into the results, I’d like to take a moment to talk about safety, which is how we start all of our team meetings here at Badger. As we transition into the colder months, it’s important for our teams to prepare for winter weather conditions. Here at Badger, our operators take precautionary measures, including making sure our vehicles are winter-ready and driving according to conditions, our operators’ dress in layers wearing insulated gloves and waterproof footwear. And finally, we keep our work areas clear of snow and ice to prevent slips and falls. We appreciate everyone’s efforts to keep each other safe for this upcoming winter season. Now on to the quarterly results. Our 2023 results showed continued growth in revenue, gross profit and adjusted EBITDA. Our record top line revenue of $209.4 million grew by 7% company-wide over the prior year, driven by a 10% year-over-year increase in the United States. We continue to see growth in adjusted EBITDA track higher than our revenue growth, demonstrating solid flow-through, up 11% year-over-year, driven by customer pricing and stability in our G&A support functions. Our adjusted EBITDA margin was 27.8%, up from 26.9% in 2023. Operationally, in the United States, our Eastern and Southern regions continue to experience strong growth in both local customer and project-based work. The slowdown in growth in California, the Southwest market and parts of the Upper Midwest and Mid-Atlantic markets continued in Q3. We believe more clarity from the U.S. elections will allow for certain project-specific investments to commence. We expect to see movement on these projects when a new administration is in place. In our Canadian markets, revenue was down 12% compared to 2023. We have seen a pickup in some regions, particularly in Ontario with continued positive results in the Prairies. As we have discussed all year, we continue to expect certain delayed projects in Central and Western Canada to start in the first half of 2025. Overall, Canada’s results are expected to begin to recover in 2025 as activity levels improve and the deferred projects get underway. In my closing remarks, I will cover some of the key projects and industry sectors that Badger has been having success with across North America. We achieved revenue per truck per month of $46,851 in Q3, down slightly from the previous year due primarily to the slowdown in the Canadian market. Revenue per truck in the U.S. for the quarter was relatively flat compared to the last year. We added a net 111 trucks to our fleet year-over-year while holding RPT relatively stable, and we continue to make good progress on our commercial and pricing initiatives. The Red Deer plant manufactured 48 hydrovacs this quarter and 159 year-to-date. As we noted last quarter, we are moderating our rate of truck builds and now expect to be at the low end of our full year guidance for fleet growth, which we previously announced to come in at 7% to 10% growth over the prior year. This will be accomplished by building to the low end of our original truck build range and tracking to the high end of our retirement range. We retired 7 units in the quarter and 78 units year-to-date within our range of 70 to 90 units for the full year. We ended the quarter with 1,625 hydrovacs in our fleet, growing our fleet by 7% since Q3 of last year. Also of note, we announced that TSX has accepted our notice of intention to increase our normal course issuer bid. I’ll now turn the call over to Rob Dawson to discuss our Q3 financial results in more detail.
Rob Dawson: Thanks, Rob. As you saw in our third quarter release, the team delivered another quarter of solid results. Revenue grew 7%, driven by our U.S. operations, which was up 10%. Our Canadian operations continued in line with the first half trend, down 12% from last year due to the reasons Rob mentioned earlier. As Rob discussed, Canadian revenue is expected to start to recover in 2025. We remain encouraged with the overall strength in our U.S. operations. Our gross profit margins were largely unchanged from last year at 32.5% compared to 32.1% last year, with the continued execution of our commercial and pricing strategy, offsetting slightly lower fleet utilization. The trend in our adjusted EBITDA margins continued to improve at 27.8% compared with 26.9% in Q3 2023, we are starting to realize the value in the efficiency and scalability changes we are making to our G&A support functions. Consequently, our 4-quarter trailing adjusted EBITDA margins continue to grow, in line with our long-term objectives, even during a period of slightly below trend revenue growth. General and administrative expenses were $9.8 million or 4.7% of revenue, down from $10.1 million or 5.2% of revenue last year. As indicated last quarter, overall 2024 G&A spending is expected to largely be in line with the prior year. Adjusted earnings per share, was $0.73 per share, up 6% compared to last year. With year-to-date revenue up 9%, adjusted EBITDA up 14% and adjusted earnings per share up 11%, we are encouraged by the continued scalability and growth in margins across our business. Now on to the balance sheet. Our capital allocation priorities are unchanged to utilize our cash flows from operations to fund growth in our fleet and our hydrovac services operations. We continue to maintain a strong flexible balance sheet to support this organic growth and commercial strategy. In that regard, our compliance leverage ended the quarter at a strong 1.5x debt to EBITDA. With ample balance sheet capacity and over 4 years of remaining term, we have plenty of flexibility to execute our plans. As well, during the quarter, we purchased and canceled 44,400 common shares under the newly instituted NCIB at a weighted average price per share of CAD 36.95. As Rob mentioned, we intend to expand our NCIB going forward. I will now turn things back over to Rob Blackadar for some final comments. Rob?
Rob Blackadar: Thanks, Rob. So, before we open it up for questions, a few last comments. In the context of our end market headwinds that have developed over the past few quarters, we continue to be pleased with our performance on both the top line and scaling to the bottom line. Our commercial strategy execution continues to help Badger capitalize on various projects, including data center construction builds, microchip manufacturing plants, energy and power grid hardening projects and several other infrastructure projects. We continue to bid and win light rail transit, wastewater treatment plant facilities and stadium projects all across North America. We are also seeing good growth in ongoing infrastructure maintenance and renewal work across our footprint. Badger is the only vertically integrated hydrovac services company that can simultaneously support all of these diverse projects while also supporting our local market customers. A great example of this was our ability to mobilize and support the recovery efforts from the most recent hurricanes that hit the Southeast United States. While this did not have an impact on our Q3 results due to the timing of the hurricanes, Badger was able to work closely with our utility customers to get power restored in a safe, efficient manner for the communities in which we operate. I’m very proud of our local sales, national accounts and operations teams who are helping to grow Badger to new heights by supporting our local communities and key projects and customers. So, with those comments, let’s turn it back to the operator for questions. Operator?
Operator: [Operator Instructions] Our first question is going to come from the line of Krista Friesen with CIBC. Your line is open. Please go ahead.
Krista Friesen: Good morning. Thanks for taking my question.
Rob Blackadar: Good morning Krista.
Krista Friesen: I was just wondering if you could maybe walk through a little bit more of what you are seeing on the demand in the areas you called out in the U.S. And maybe if you can walk through what your end markets there are specifically and how you might expect that to play out, whether it’s a Republican or Democratic win on Tuesday? Thank you.
Rob Blackadar: Yes. And by the way, I probably speak for a lot of Americans who may be listening that everyone is ready for this political season to be done and wrapped. It’s been a long season here. I don’t give out specific either cities, markets, really more specific than what we shared in the commentary for competitive reasons because we have several competitors who do listen to our calls. But specifically, I can share with you and maybe give you more color as to some of the – what we are seeing is there are certain markets that are more favorable, and I could use – I referenced California. And I guess a little bit more specificity, Krista, would be like Southern California. There are several renewable energy type projects, think in terms of like solar and wind and some other renewable green energy type projects that right now aren’t – even though they are on the books, they are ready to go, I think people are hesitant to get those underway and started where we would start to work for those – on those projects because people are hesitant to see who is – which party or which technology or in technology is going to be more in favor. When you ask – and we get asked this regularly, what happens if the Democrats win, what happens if the Republicans win, Badger does work, and we have done very successful work under both types of administrations. But for example, we believe that if the Democrats were to win some of those renewable energy type projects, I am speaking of like solar, wind and other alternative green energies, we believe that would be very much in favor and the Democrats support that type of technology. We do a lot of business in solar fields, and that would immediately open us up to doing more business because all of those renewable green energy type technologies have to be tied into the grid, and that’s Badger’s sweet spot of how we can do that safely for our customers. If the Republicans were to win and this concept of really accelerating oil and gas and accelerating energy independence throughout the United States, we believe we would see a lot more support for pipeline and oil and gas projects all throughout the United States. And we have seen that in the past with some Republican administrations. And obviously, we do a lot of business in that space as well. So, either way, we are comfortable once – as we just discussed, but once Tuesday is over, a new administration gets into power and depending on what happens with Congress, kind of keeping going with the projects. Some other areas to point out, though, and again, I pointed out some successes, but the Eastern Seaboard and the Southern regions that we have, some of the Southern areas continue to be very robust and not seeing a lot of slowdown at all, so really encouraged by that, Krista. So, again, I apologize I can’t give you more specific cities or anything like that. We just don’t feel comfortable in releasing that, so.
Krista Friesen: Thank you. That was helpful. And maybe just one more for me, you are guiding to the lower end of your truck build this year, is there any discussions around using some of that capacity to manufacture trucks to lease?
Rob Blackadar: Yes. So, we have had a lot of discussions internally with some of the leaders within the business on what the overall capacity of the manufacturing plant is and what we – and we believe we have a lot of additional capacity available to us within the manufacturing plant. We have contemplated back and forth, do we do something additional with it, do we consider using our trucks externally, do we manufacture something additional, etcetera. We are underway with doing – Rob and I are working on some strategic initiatives along those lines of evaluating that. We are not really at a place today to announce anything or discuss anything. But we do think about that additional capacity as a big asset that the company has and how we can best leverage it and monetize it. So, I don’t know if you want to add anything to that, Rob?
Rob Dawson: No, I have nothing to add to that. I think that’s a good comment.
Rob Blackadar: But again, your comment, we certainly – that’s one consideration. But if you think about a really well-run manufacturing plant and its ability to – like what you could do with that, either additional products, more volume, etcetera, we have a lot of opportunity in front of us there, so.
Krista Friesen: Okay. Thank you. Congrats on the quarter and I will turn back in the queue.
Rob Blackadar: Thanks Krista.
Operator: [Operator Instructions] Our next question comes from the line of Ian Gillies with Stifel. Your line is open. Please go ahead.
Ian Gillies: Good morning everyone.
Rob Blackadar: Hi. Good morning Ian.
Ian Gillies: I am just curious on how you are thinking about transferring trucks perhaps from Canada to the U.S., and how that may impact your CapEx for ‘25? It’s a bit of a circular reference, but can you maybe talk a bit about that?
Rob Blackadar: Sure. So, if you remember on the last call, we were asked a similar question is, why don’t you just move the trucks South of the border if Canada is softer right now and in that way, you could soak up some of the demand that you have in the United States. And I shared in that response that we are hesitant to do that. Initially, we always really want to evaluate could we use those anywhere else in Canada or could we soak up additional capacity or even consider accelerating some retirements in Canada specifically, still keeping within our range, but leveraging it that way. The reason we are hesitant to move them South of the border, Ian, is because in the U.S., you have to pay a Federal excise tax of about 12% of the first cost of the truck. And whenever you have used trucks to pay the 12% on the initial cost, even though it might be a 5-year-old truck, it is really hard to swallow because it actually makes your return profile a lot less on that particular truck, that asset. Since that time, though, again, we have had another quarter to kind of contemplate that. And I think we have started to move a handful of trucks South of the border and we probably will continue to review that. I don’t think it’s going to materially change our truck build schedule for next year. And I think it’s some opportunity somewhat, but we – as we look and talk to our customers as well as a lot of data sources that we use, and I know most people on the call, Ian, know we look at Dodge, we look at tech reports and Industrial Information Resources or IIR. We deal with a lot of industry groups that advise us on what’s happening within the bidding markets of excavation as well as the projects being led. And we feel that the second half of next year is going to be pretty strong. And so because of that, again, we may move some trucks South, but we also believe, as I have said in the remarks, Canada is going to be starting to hit some of the larger projects again. So, I am not sure how much. And Rob, I don’t know if you want to add anything to that or?
Rob Dawson: Yes. I think the comment that Canada is a bit over-fleeted, I think is a fair comment. And if you looked at the numbers, there has been a lot of de-fleeting in Canada already this year. And as Rob said, we are constantly evaluating the quality of trucks and the ability for us to move further trucks down into the busy areas in the United States such that we can move to higher utilization areas. It’s a steady drip. I wouldn’t be expecting any sudden big change, but it’s something that’s being evaluated continually.
Ian Gillies: That’s helpful. As we think about the next few quarters, and you have talked a little bit about some pockets of weakness in the U.S., are you seeing it have a detrimental impact on pricing yet, or is it really just a utilization issue at this point?
Rob Blackadar: Yes. So far, it’s – our pricing has held in there pretty well. Rob and I were actually discussing in the last couple of days that pricing has held in pretty well. Utilization has probably taken the biggest hit. Again, like we said in the comments, Canada helped to drive some of that utilization softness. But in those certain pockets, Ian, that you are referencing, it’s not – if the projects are just on hold or they are just not – they are waiting on to see, okay, what technology is going to be more in favor from an energy perspective, it’s not a pricing situation. And so we can – we could lower prices or do anything, and it’s not going to make those projects start. And so we have actually held pretty tight with our pricing and again, continue to see success with that.
Rob Dawson: It’s very different with inflation in the States than in Canada, for sure. Canada has come down a fair bit, but it’s still 3% in the United States or just at the start of a rate cutting cycle. And so – and pricing, when inflation is 3% and even if it holds in it possibly rising, who knows, pricing is always going to be a big component of our commercial strategy to make sure that we are not going backwards on margin.
Ian Gillies: No, that’s helpful. And if I could perhaps sneak in one more, it would seem to me that we are in an air pocket just given infrastructure spending trends in the U.S. But do you think next year, you can get back into the defined revenue growth ranges that you laid out at the Investor Day? It would seem to require some pretty healthy growth in the back half of the year.
Rob Blackadar: Yes. So, we just reviewed our 2025 plan or budget with our Board of Directors yesterday, Ian. And certainly, as I have said a bit ago in the previous question, all the signs are pointing to the back half of the year being solid and really starting to come back alive to the markets that we have had even as recently as Q3, Q4 of last year and into Q1 of this year, that coming back alive in the second half of next year. But that is our plan and when we have pulled and received the budget from a lot of our field teams, unsolicited by Rob and myself, that’s how they actually built their plans as well. And it does – again, we don’t give out guidance on revenue. We don’t give out guidance on EBITDA, just really our truck builds and our retirements. But it does suggest we are back into that range in the back half there.
Ian Gillies: Okay. Thank you very much. I appreciate that. I will turn the call back over.
Operator: Thank you. And I am showing no further questions at this time. And I would like to hand the conference back over to Rob Blackadar for any closing remarks.
Rob Blackadar: Thank you, operator. On behalf of all of us at Badger, we want to thank you – say thank you to our customers, our employees, suppliers and shareholders for your ongoing support that drives Badger’s success. Operator, you may now end the call. Thank you.
Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.
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