Black Diamond Group Limited (BDI) Earnings Call Transcript

Ladies and gentlemen, welcome to the Black Diamond Group Third Quarter 2026 Results. [Operator Instructions] I will now turn the call over to Emma Covenden. You may begin.

Good morning, and welcome to Black Diamond Group's Third Quarter 2026 Results Conference Call. With me this morning, we have Chief Executive Officer, Trevor Haynes; Chief Financial Officer, Toby LaBrie; Chief Operating Officer of Workforce Solutions, Mike Ridley; President of Royal Camp Services, Jon Warren; and Chief Financial Officer of LodgeLink, Jason Zhang. Please be reminded that our discussions today may include forward-looking statements regarding Black Diamond's future results and that such statements are subject to a number of risks and uncertainties. Actual financial and operational results may differ materially from these forward-looking expectations. Management may also reference various non-GAAP financial measures in today's call such as adjusted EBITDA, adjusted EPS or net debt. For more information on these terms and others, please review the sections of Black Diamond's Third Quarter 2026 Management Discussion and Analysis entitled Forward-Looking Statements, Risks and Uncertainties and non-GAAP Financial Measures. This quarter's MD&A, financial statements and press release may be found on the company's website and also on the SEDAR+ website. Dollar amounts discussed in today's call are expressed in Canadian dollars unless noted otherwise and may be rounded. The format for today will be similar to prior conference calls. Trevor will start with a high-level overview of the company's performance and highlights from the quarter, including commentary on current market conditions. Trevor will then pass the call over to Toby for a more detailed review of our financial performance before we open the line for questions. With that, I'll turn the call over to Trevor.

Thank you, Emma, and good morning, everyone. We appreciate you taking the time to join us today. Yesterday, we reported strong third quarter results, reflecting continued growth across the platform and building momentum as we head into the final quarter of the year and look ahead to 2027. Revenue reached an all-time quarterly record of $159.9 million, an increase of 52% from the comparative quarter, while adjusted EBITDA increased 33% to $42.3 million. Record rental revenue of $48.9 million was up 18% from the comparative quarter, while contracted future rental revenue remained robust at $152.3 million at quarter end, down 4% from the comparative quarter. Based on our continued growth, strong free cash flow generation and confidence in the long-term outlook for the business, we announced a 22% increase in our quarterly dividend to $0.055 per share, marking the sixth increase since reinstating the dividend in 2021. This reflects our commitment to rewarding shareholders. Even with the increase, the dividend still maintains a relatively low percentage of free cash flow, allowing financial flexibility to reinvest in the business and drive future growth. All three areas of the business, WFS, MSS and LodgeLink, contributed to our strong Q3 performance, which is the result of our focus on execution against our long-range strategic framework, including the growth initiatives undertaken over the past several years. As we look ahead, we are bullish about the macro backdrop and the opportunity set developing across our operating regions. From our perspective, the combination of project volume and the breadth of activity across end markets is unprecedented. Demand in Canada continues to build across resource development, pipelines, data centers, mining, defense and remote infrastructure, with the opportunity being particularly strong in Western Canada, creating opportunities to deploy existing capacity along with incremental CapEx. In the U.S., activity associated with data centers and the related infrastructure build-out across the Gulf Coast and Southeast is expanding. And in Australia, market conditions are also positive, with mining, defense and remote infrastructure activity creating tangible opportunities. Our elevated bid pipelines across the company are highly prospective, indicative of considerable opportunity ahead. In Canada alone, WFS has more than $2.3 billion of formal bids outstanding, representing well over twice the capacity of our current fleet with several projects now in advanced stages of contract negotiation. Within WFS, our expanded accommodations platform gives us greater scale and capability to support major projects backed by a growing network of customer relationships and a strong network of indigenous partnerships. Within MSS, our strategy remains straightforward. We will continue to invest in the fleet, grow recurring rental revenue, maintain strong utilization and ensure capital is deployed prudently, in line with customer demand and where we see attractive returns. Based on the growing customer demand, the cadence of capital investment is increasing and will continue to accelerate in the coming quarters. Taken together, we believe our asset-based businesses are very well positioned to capitalize on the strong macroenvironment and the existence of opportunities across our markets. Beyond our asset-based businesses, we are also very excited about the momentum at LodgeLink. LodgeLink achieved another record quarter and continues to demonstrate the value and scalability of its sophisticated two-sided marketplace. Customer retention remains very high, while customer acquisition continues to accelerate with expansion in the U.S. currently outpacing Canada by nearly double. LodgeLink will continue to be an increasingly important part of Black Diamond's portfolio, providing exposure to workforce mobility across multiple industries and geographies through a capital-light platform business model. We believe the platform will continue to scale for the foreseeable future. Before Toby gets into the details of our operating results, I want to recognize and thank our people across Black Diamond. The results we reported yesterday are the culmination of the hard work and commitment of our teams across our branches, camps, lodges, project sites and offices. And nothing is more important than doing that work safely. Ensuring our people, our partners and everyone working alongside us goes home safely at the end of each day remains our most important responsibility. Overall, we are very pleased with our third quarter performance and more importantly, with the current momentum and with how the business is positioned. We have a diversified platform, meaningful operating leverage, a healthy balance sheet and a strong team executing against a clear vision. We believe the combination positions Black Diamond very well to continue compounding growth and creating long-term value for our shareholders. With that, I'll turn the call over to Toby.

Thanks, Trevor, and good morning, everyone. As Trevor highlighted, the company delivered record revenue during the quarter, translating to adjusted EPS of $0.19, up from $0.16 in the comparative quarter. Despite record rental revenue, adjusted EBITDA margin was 26.5% during the quarter compared to 30.2% in the comparative period. Margins are influenced by revenue mix and may vary from period to period, with the moderation in margin primarily a result of the increased contribution from lodge services revenue, which increased significantly due to the Royal acquisition and relates to catering and hospitality services that transact at lower margins than the core rental business. In MSS, lower margins were driven primarily by elevated repair and maintenance and transportation costs in preparation for asset deployment on projects. Looking at the individual divisions and beginning with Workforce Solutions, the business continued to deliver strong growth across all revenue streams. Total revenue increased 127% to $97.9 million, while adjusted EBITDA increased 99% to $28.2 million. The acquisition of Royal Camp is one of the key year-over-year growth drivers contributing to strong performance across the segment's revenue streams. Rental revenue increased 43% to $18.9 million, reflecting the addition of Royal Camps as well as modest organic growth in Canada and Australia. Lodge services revenue increased 389% to $40.6 million. WFS sales revenue increased 140% to $13.2 million, driven by higher custom sales activity in the U.S. and Australia. Non-rental revenue increased 56% to $25.2 million, supported by increased transportation activity in the U.S. and contributions from LodgeLink. WFS utilization improved modestly to 58% from 55% in Q2 2026, leaving ample spare fleet capacity to deploy on projects within the bid pipeline. Turning to MSS. This segment generated total revenue of $62 million during the quarter, which is in line with the comparable quarter and adjusted EBITDA of $21.2 million was down 7%. The recurring rental business continues to compound and perform well with rental revenue increasing 7% to $30 million. Sales revenue was down 18% to $13 million from $15.8 million in the comparative quarter with permitting delays shifting project deployment timing, which offset growth in rental and non-rental revenue streams. Utilization remained healthy at 77.1%, while average monthly rental rates increased 3% compared to the third quarter of 2025. A continued area of focus within MSS is value-added products and services as a means of further expanding our revenue generation opportunity and providing our customers with convenient package solutions. VAPS revenue increased 25% to $3.5 million and represented 12.7% of rental revenue. Finally, LodgeLink delivered another strong quarter and continued to deliver profitable growth due to strong retention of existing customers, new customer acquisition and increased share of wallet of existing customers. Total trade value reached a record $51.5 million during the quarter, up 44% from the comparative quarter. Net revenue increased by 51% from the comparative quarter and reached $6.5 million. Now turning to cash flow and capital allocation. Funds from operations for the quarter increased 32% to $43.6 million, while free cash flow increased 47% to $33.8 million. CapEx in the quarter totaled $26.8 million, an increase of 37% from the prior year. In addition to this investment, capital commitments increased to $49.7 million, up 26% from the comparative quarter, reflecting the meaningful customer demand and contract backlog. Consistent with our approach in previous quarters, capital deployment remains focused on opportunities that support long-term rental revenue growth and meet our return thresholds. Investment decisions continue to be evaluated across the portfolio with consideration given to investment returns, market demand for fleet and available existing capacity. As for the balance sheet, we ended the quarter with net debt of $355.7 million. Net debt to trailing 12-month adjusted leverage EBITDA was 2.4x at quarter end, which remains within our target range of 2 to 3x. Maintaining a strong balance sheet and financial flexibility remains important to our capital allocation framework. Earlier this year, we completed the expansion of our asset-based lending facility to $550 million, increasing our available borrowing capacity and supporting future growth opportunities. Overall, our third quarter results demonstrated the strength of our diversified business and our ability to generate meaningful cash flow, while investing in future growth opportunities and increasing shareholder returns. With that, operator, I'd like to turn the line over for questions.

[Operator Instructions] Your first question comes from Kyle McPhee with ATB Cormark.

First one for me, just regarding your Modular Space EBITDA margin, as you pointed out, a bit soft, you were spending money on fleet repairs and maintenance ahead of new deployments. Can you help me understand the read-through here? Is there a meaningful modular space utilization boost on the come near term? And if so, what's driving it? And can you help us quantify the timing?

Yes. Thanks, Kyle. I think something that may not be entirely obvious is how complementary our business units are and how we have an overlap in terms of customer projects. So if you think about what's happening in terms of resource remote infrastructure, especially in Western Canada right now, where we're talking about the need for camp beds and WFS services, there's, and in many cases, an equally significant demand for space at those work sites. So all the different complements of buildings, whether that's for lunch rooms, project offices, security rooms, training rooms, all that kind of stuff, all of that building requirement comes through our MSS business. So when we look at what's happening in Western Canada, we see a very steep demand wall. And some of that is contracting already and in advance of WFS completing negotiation on the big camps. And so what we're encountering in terms of upfront costs is getting those assets ready. In many cases, we're moving them between branches and incurring the cost of that to get them positioned to then mobilize. I think you'll see the outcome of this fairly quickly over the next few quarters as MSS is accelerating along with the project activity in Canada. And so that's the primary impact. We're seeing something similar in many of our branches in the U.S. as the acceleration in demand around data centers for large project complexes, et cetera, has been accelerating and our branch service teams have been busy getting assets ready. And again, we'll see the corresponding rental revenue increase for MSS over the next few quarters. And then lastly, Kyle, I would point to our CapEx outstanding at the end of the quarter of just under $50 million, which is up significantly year-over-year. Almost all of that is related to MSS fleet build. And so another data point showing how the MSS business is accelerating into the same macro theme that we've been talking about for our Workforce business. So those costs and the pressure on the margins are in advance of an acceleration and fleet expansion that's underway with MSS.

Okay. So it sounds like you're actually expecting an MSS demand rate to start ahead of it translating into your WFS segment, like that's -- it's kind of -- it's meeting the WFS demand. Is that accurate? It will see utilization boost for MSS first?

They run somewhat in parallel, but not all of the projects require camps. A lot of the data centers here in Canada are mobilizing large complements of modular buildings, but they don't require camps. So we have some of that going on. And then even where we have both MSS and WFS assets mobilizing to project sites. The MSS buildings can mobilize more quickly or in smaller tranches of buildings going out. And so we fully expect that you'll see the ramp-up on rental related to MSS a little bit more quickly than you'll see the operating revenue coming in on the camp side, just a longer mobilization upfront.

And I would add to that -- Sorry, Carl, Toby here. I would add to that, that the -- at 77%, we have nearly full utilization with MSS. And so as Trevor mentioned, we are deploying additional capital there to meet demand. So we expect we should see modest improvements in utilization over the coming quarters, but not -- we wouldn't expect large step changes where we run into a situation where our utilization could become too high.

Got it. Okay. And then I got one quick follow-up on MSS. The contract duration, I think, 44 weeks now, that's down from where it's typically been residing in the 50-week range. Is something going on with mix? Or -- can you help me understand this?

It has to do with mix. We've talked about a softness around the education vertical. Our education customers typically contract our MSS assets longer than our other customer verticals, typically 60 to 84 months. When we've seen a moderation in the demand for incremental capacity around education, we just have fewer new buildings going out on those very long contracts. And so if you look at how that impacts the mix as existing contracts run off, we're seeing an adjustment to average length of contract term. I don't believe we've seen a change in the average time that our customers are keeping assets on site. But we're certainly because of the mix of education -- And as a reminder, the education vertical for us is fairly significant in our MSS mix. And so you can see that average contract term changing with the complexion of the education market.

Your next question comes from Frederic Bastien from Raymond James.

You guys exited the quarter with over $2 billion bids in Canada alone and obviously, that's an impressive number. But I'd like to better understand what's behind it. Can you give us some color on the composition of that pipeline specifically, how it breaks down geographically across end markets and client types as well as perhaps the distribution of contract sizes basically? Are we talking about a handful of large opportunities driving that figure or a broader collection of projects?

Thank you, Frederic. The composition of the $2.3 billion, there are some large sizable projects in there, which would be familiar from Canadian headlines. But that being said, what's interesting to us in this macro is how broad, and broad by industry and broad by geography that list is. So you have a couple of projects that make up larger chunkier percentages of that. But as we look across our 10 to 12 significant projects, all of them have significant scale. In terms of the types of projects, Jon, that are in there, maybe quickly add some color to that.

I think you say it spreads across Canada and across several different industries. LNG is obviously one that's in the headlines right now, and there's some FIDs on some of those projects. And hopefully, future positive FIDs are coming on others. But then you get into some of the mining and now data centers are requiring counts. So those are new opportunities above and beyond what's in the pipeline. So it's a large military related out as well [indiscernible] military and infrastructure is within that. So it's very diverse.

So Frederic, even if you took out the couple of large LNG-related projects, we still have a significant amount of that $2.3 billion. And when you line it up against our available capacity, we could absorb existing capacity, I think, Jon, even if the LNG projects were delayed and didn't go ahead in the near term.

Yes. Just thinking on a geographic basis, we really have projects in Nova Scotia to the far West Coast and Prince Rupert. So it's pretty exciting to see.

And North.

Yes, and right up north. So definitely.

And what markets are moving faster? Is it all coming at once?

Well, right now, the one that's been given a positive FID, it's -- I'm going to say it's the closest right now. We're expecting some activity in the final negotiations on that project. There's a team working on it daily. The other ones in the mining industry, it's a little bit slower getting through the regulatory, but there's a few that are right at the goal line. So waiting on some final negotiations on those projects.

We're quick to point out the $2.3 billion, we typically take a fairly conservative approach. And so those are true, formal submitted advanced bids. But the pipeline we're working with and the funnel of opportunities exceeds that amount.

Yes. Just to add one other point, Frederic. One market that is new is data centers. And the opportunities, there seems to be a new one a week that creates opportunities for not only the camp business, but the space rentals business, as Trevor was alluding to earlier. So that's become a growing part of our business. And not just in Canada, but in the U.S., it's massive down there, massive opportunities down there, and we're also seeing it over in Australia. So yes, the pipeline, we have a look at today, very healthy, but there's new projects coming on stream day after day, week after week. It's pretty exciting.

The magnitude of what we're looking at in Canada sort of overshadows the other 2 countries, but maybe quickly touch on -- we're stocked out in the U.S. right now.

Yes, we're -- we landed some nice contracts in the U.S. recently that we'll see improving results down there in the near future. And it's tied to data centers and a solid oil and gas sector in the U.S. And similarly, in Australia, great pipeline of activity with the Workforce business in particular, but also strengthening space rentals business, classroom business in Australia. So all three markets, Canada, the U.S. and Australia have a very healthy pipelines, super exciting.

Everything everywhere, all at once.

Everything everywhere. Turning to LodgeLink, how far are you along with the rollout of Lodging 3.0? I mean you're obviously got great traction, revenue growth. And I mean, is that contributing at all? Or do you expect incremental growth to come out of that rollout? And just wanted to get a quick update on how things are progressing?

Yes, it's a good question. Our technology team has done a fantastic job. The new product is -- has reached general availability, but we have sort of a tactical plan to converge it with the marketplace. So nothing we're seeing right now, Jason, in the performance of LodgeLink yet has to do with sort of the strength and innovation of the new software coming in.

Yes, Fred. So as Trevor mentioned, the growth we've been seeing is sort of on the existing platform. We've reached general availability, and we're working on sort of a plan to sort of roll over into the new product platform, which we think will not only accelerate sort of our various revenue streams, but on the gross margin side as well. So we think '27 is going to be a really interesting year for LodgeLink.

Okay. So you expect that rollout to occur over the coming quarters or throughout '27?

Yes. I'd say sort of Q1 '27 is probably a good time frame for a more accelerated launch.

The bridge between the existing platform, which is performing really well and continuing to grow and the bridge allowing our existing customers to access the new software from the base platform is what's being done right now and moving very quickly. So we think the characteristics you're seeing in terms of acceleration of market share capture with new logos joining, the retention of logos. Jason, we have retention greater than 100% because our existing customers are growing as well as retaining. So all the characteristics that we're trying to inform in this business seems to be clicking right now. And then we're really excited about the new capabilities of the software and it should position us with a greater differentiation. And it may take a couple of quarters to be able to show it, but it should accelerate our market share capture. And as a reminder, I mean, we're facing an extremely large addressable market in terms of companies that move workforce travelwise forward.

Your next question comes from the line of Razi Hasan with Paradigm Capital.

Just following up on the $2.3 billion in opportunities. Are you -- given what you mentioned, are you still expecting a step function in the utilization rate for Workforce Solutions into the back half of '27?

If you talk about back half of '27 versus today, yes, that would be our expectation. We're quick to point out that the mobilization phase of these larger projects generate operations revenues of preparing sites and moving and assembling these large assets and then the rental and hospitality services revenue begins to ramp after that. So I think, Jon, we think of this quarter versus this time next year based on what we're seeing.

Yes. We'll be -- expectation -- and I think we get more information on these projects and their histograms as we look at their front-end work and then going up into construction, all the projects that kind of stack on top of each other and their time line through multiple years. I would expect that, that front work will happen Q2, 3, 4 and then grow into construction with that. So that...

So that's the model age, [indiscernible] So steady progression through probably Q2 through into '28.

And that's the larger pipeline jobs. The other construction type jobs are a little more flatter.

They ramp up pretty steady, straight through. So up quickly and I get to...

Exactly. And then they've got a constant flow through the years. They're a little smaller jobs, but stacked on top of each other, they add up significantly.

Okay. Fair enough. And maybe just on that, are you seeing -- is there a discrepancy between larger and smaller jobs? Or are you seeing like more smaller jobs in the short-term and larger jobs long-term, I guess that's the way to think about it or...?