Badger Infrastructure Solutions Ltd. (BDGI) Earnings Call Transcript
May 4, 2023
Earnings Call Speaker Segments
Hello, and welcome to the 2023 Annual Meeting of Shareholders of Badger Infrastructure Solutions Limited. Please note that today's meeting is being recorded. It is now my pleasure to turn today meeting over to Glenn Roane. Mr. Roane, the floor is yours.
Thank you. Good afternoon, ladies and gentlemen, and thank you for joining us for the 2023 Annual Meeting of Shareholders of Badger Infrastructure Solutions Ltd. My name is Glen Roane. I'm the Chair of Badger's Board of Directors, and it's my pleasure and responsibility to chair this meeting. The first thing I'm going to do is just turn the floor briefly over to Rob Blackadar, who is Badger's President, Chief Executive Officer, who will take us through a brief safety moment.
Okay. So for everyone in the room, if there is any kind of an emergency, I'm going to ask that everyone go through the double doors in the back, where Ron is standing. And you're going to go right through those doors and immediate left, there's a staircase, take the stairs down to the bottom of the building. And when you exit the build in the Northwest corner, there's a parking lot across the street and that will be the muster point. So if there's any kind of emergency, we'll speed right across the street in the parking lot. So that's it, Glen.
Great. Thank you. At the head table today with me are Rob Blackadar, Badger's President, Chief Executive Officer; Reid Yester, Badger's Vice President, Legal, General Counsel and Corporate Secretary; and Lisa Olarte, Badger's Director of Investor Relations of Financial Reporting. Certain of our other directors, officers and employees are also present in the front row, including Rob Dawson, Badger's recently appointed Chief Financial Officer. I'd like to offer the Badger team my sincere thanks and acknowledge their contribution to the company over the past year. I'd also like to take this opportunity to recognize Ms. Kay Best, who will be retiring from Badger's Board of Directors as of today and is not standing for reelection. Unfortunately, Kay couldn't be here today due to a scheduling conflict. But on behalf of Badger, I'd like to thank her for her 8 years of service to the company. Kay's leadership and collaboration on the Board will be missed, Badger has benefited from the significant contributions she's made over the years. Thank you, Kate. Before proceeding with the meeting, I note that the hybrid format of this meeting is meant to allow for participation electronically as well as in person. Our goal is to ensure that our registered shareholders and proxy holders attending virtually are able to participate fully in the meeting as if you are attending the meeting in person. And we strived to emulate our usual meeting procedure as much as possible through this virtual platform. Voting instructions and information on how to access the virtual meeting were provided in Badger's Notice of Meeting and Management Information Circular dated March 23, 2023 and on our website. Reid will now provide further instructions regarding virtual meeting procedures.
This hybrid meeting is being conducted in person and virtually, and we note the following procedures for the orderly conduct of the meeting. Registered shareholders and duly appointed proxy holders will have the opportunity to ask questions during the meeting. If you are attending this meeting virtually and you have a question, please select the Q&A icon on the information section of your screen and type in your questions. If you are attending the meeting in person, please raise your hand and wait to be acknowledged by the Chair. Please remember shareholders must indicate the motion to which their question relates at the outset of such motion and will submit their questions prior to voting on such motion being held so the question can be addressed at the appropriate time during the meeting. If shareholders or duly appointed proxy holders do not indicate the motion to which their question relates or if questions are received after voting on the relevant motion, they will be addressed after the formal business of the meeting is concluded. Questions received virtually and properly brought before the meeting will be rather summarized along with the name of the person asking such questions and the entity which they represent, if applicable. And in each case, the Chair will then respond to the question or direct the question to the appropriate person. Several questions received virtually relate to the same or very similar topic, we may indicate that similar questions were received and group such questions together. Please note that there will be a slight delay in the publication of the communications received virtually during the meeting. For virtual attendees, please submit any questions as early as possible to allow us time to receive them. In the event that we are unable to address your questions during the meeting, a representative of Badger will follow up with you after the meeting as appropriate. Each item of business to be considered today requires that the resolution be passed by a majority of the votes cast. Voting on all resolutions will be by ballot. Ballots were distributed to registered shareholders and to duly appointed proxy holders attending in person as they arrived at the meeting. If anyone here did not receive ballots as you arrive, but think you should have, please raise your hand and a representative of Computershare will attend to you. For registered shareholders and duly appointed proxy holders attending the meeting virtually, you may vote via the virtual meeting platform. Online voting will open after the presentation of financial statements and will remain open throughout the formal portion of the meeting until the last item of business to be voted upon has been put to a vote. A virtual meeting attendees experienced technical difficulties at any time during the meeting, please contact Computershare using the telephone number provided at the bottom of your screen. If you've already voted by proxy, you do not need to take any further action unless you would like to change your vote, in which case you may vote at the meeting and your previously submitted proxy will be disregarded.
At the conclusion of the formal business of the meeting, Rob Blackadar will give a brief discussion presentation regarding Badger's business and will answer any questions, attendees, including guests may have. I now propose to proceed with the formal part of the meeting. I now call the meeting to order. As Chair of the meeting, I appoint Reid Yester to act as Secretary of the meeting, and with the consent of the meeting, I appoint Elissa Rojo of Computershare Trust Company of Canada to act as scrutineer. Notice of this Annual Meeting of Shareholders Badger Infrastructure Solutions Ltd., was mailed to all shareholders of record as of the close of business on April 13, 2023. I direct that proof of mailing of the notice and the other documents mailed to shareholders be kept with the minutes of this meeting. As Reid mentioned, all voting will be done by way of ballot. It's important that registered shareholders and duly appointed proxy holders attending virtually are connected to the Internet at all times during the meeting in order to vote when balloting commences. The scrutineer will count all the votes and we will read the results of the voting on each matter once all of the meeting matters to be voted on have been voted on accordingly. Voting results will be press released and filed on SEDAR by the corporation in accordance with the requirements of applicable securities laws. I've been advised by the scrutineer that there are 46 shareholders present today or represented by proxy, representing 29,181,797 shares or approximately 84.65% of the company's issued and outstanding shares. Accordingly, we have a quorum present. Scrutineers' report is available for inspection by any shareholder, and I direct that a copy of the scrutineers' report be filed with the minutes of today's meeting. With that said, I now declare this meeting to be duly called and properly constituted for the transaction of business to facilitate proceedings by Trevor Carson and David Trang who are also shareholders or duly appointed proxy holders to move and second all motions. This is not intended in any way to curtail discussion. First item of business is presentation of the audited consolidated financial statements of the corporation for the year ended December 31, 2022, together with the auditor's report thereon, which have been approved by the Board of Directors and mailed to the registered shareholders and to those beneficial shareholders who have elected to receive them. Accordingly, I do not propose to read them to the meeting. Additional copies of the financial statements are available on request. No action is required to be taken by the shareholders in respect to the financial statements. Are there any questions on the financial statements or the auditor's report? We have not received any questions or comments on this item of business. I now declare that the audited consolidated financial statements of Badger Infrastructure Solutions, Ltd., for the fiscal year ended December 31, 2022, and the auditor's report thereon have been presented and received. I will now take a moment to ask that the online polls be open to registered shareholders and duly appointed proxy holders.
Online voting is now open. And we invite shareholders and duly appointed proxy holders attending the meeting virtually to submit their votes if they have not already done so. The polls will remain open until the end of the presentation of the business items.
It is now in order to proceed with the election of directors. Information about each director nominee has been included in Badger's Management Information Circular dated March 23, 2023. In accordance with our articles and bylaws, the Board of Directors has determined that the Board shall consist of 10 members. The names of those persons who have been nominated for election as directors until the date of the next Annual Meeting of Shareholders or until their successors are elected or appointed are myself, Glenn Roane; Robert Blackadar; David Bronicheski; Stephanie Cuskley; William Derwin; G. Keith Graham; Stephen Jones; Mary Jordan; William Lingard; and Patricia Warfield. No other nominations were received in accordance with the corporation's bylaws dealing with the requirements for advance notice of nominations of directors. Accordingly, I declare the nominations closed, and we'll now ask for a motion that each of the nominees be elected to serve as Director.
Mr. Chair, I move that Glen Roane, Robert Blackadar, David Bronicheski, Stephanie Cuskley, William Derwin, G. Keith Graham, Stephen Jones, Mary Jordan, William Lingard, and Patricia Warfield be elected as directors of the corporation to hold office until the close of business at the next Annual Meeting of Shareholders or until their successors are duly elected and appointed.
Thank you. Is there a seconder?
Mr. Chair, I second the motion.
Thank you. Are there any questions related to the motion. We have not received any questions or comments on this item of business. Virtual attendees are reminded at this time to submit their vote via the virtual meeting platform. For those who are all those in the room, if you were provided with a ballot and have not already done so, please complete the ballot by marking X in the columns titled for or withhold. Once complete, please raise your hand so that the scrutineer can collect your ballot. In the interest of time, we will continue with the remainder of the business of the meeting while the scrutineer tabulates the results of the ballot voting and advises us as to the final results prior to the termination of the meeting. The next item of business is the appointment of the auditor. May I now have a motion on this matter.
Mr. Chair, I move that Deloitte LLP Chartered Professional Accountants be appointed as auditor of the corporation until the close of the next Annual Meeting of Shareholders at such remuneration as may be fixed by the Board of Directors and that the directors be and are hereby authorized to fix such remuneration.
Thank you. Is there a seconder?
Mr. Chair, I second the motion.
Thank you. Are there any questions related to the motion. We've not received any questions or comments on this item of business. Virtual attendees are reminded at this time to submit their vote via the virtual meeting platform. For all those in the room, if you were provided with a ballot and have not already done so, please complete the ballot by marking X in the columns titled for or withhold. Once complete, please raise your hands so the scrutineers can collect your ballot. In the interest of time, we will continue with the remainder of the business of the meeting while the scrutineer tabulates the results of the ballot voting and advise us as to the final results prior to termination of the meeting. The next item of business is to vote on an advisory basis and not to diminish the role of responsibilities of the Board to accept the corporation's approach to executive compensation disclosed in the corporation's management information circular dated March 23, 2023. This is an advisory vote, which means that the results are not finding on the Board. The Board will, however, consider the outcome of the vote as part of its ongoing review of executive compensation. Text of the resolution to accept the corporation's approach to executive compensation is set out on Page 6 of our Management Information Circular. May I please have a motion on this matter.
I move that resolution to accept the corporation's approach to executive compensation as set out on Page 6 of the management information circular be approved.
Thank you. Is there a seconder?
Mr. Chair, I second the motion.
Thank you. Are there any questions related to the motion. We have not received any questions or comments on this item of business. Virtual attendees are reminded at this time to submit their vote via the virtual meeting platform. For all those in the room, if you were provided with a ballot and have not already done so, please complete the ballot by marking X in the column titled for or against. Once complete, please raise your hand so that the scrutineer can collect your ballot. Now that we've discussed all the items of business properly brought before the meeting, we will provide registered shareholders and duly appointed proxy holders approximately 30 more seconds to vote. For online attendees, once the online voting closes, the voting page will disappear, and your votes will automatically be submitted. [Voting]
I would ask that the scrutineer compile the report regarding the results of voting on all items of business. I've been advised by the scrutineer that each of the 10 nominees have been elected as directors of the corporation. The appointment of Deloitte LLP chartered professional accountants as the auditors of the corporation has been approved. The say on pay resolution accepting the corporation's approach to executive compensation has also been approved. I therefore declare that all these motions have been carried and directed the results of the poll be included within the minutes of this meeting, and the final results be announced in the press release in accordance with the policies of the TSX and filed on SEDAR. The formal items of business are set out in the meeting have now been dealt with. As there's no further business to come before the meeting, I declare the formal part of the meeting to be concluded. Thank you for attending. I'll now turn the meeting over to Rob Blackadar to provide a brief report presentation regarding Badger's business and to answer any questions you may have. I ask that virtual attendees who would like to ask a question use the virtual meeting platform to do so.
Thank you, Glenn, and good afternoon, everyone. Thank you for participating in Badger's 2023 Annual Meeting of Shareholders. A copy of today's presentation can be found on the Investor Relations section of Badger's website at ir.badgerinc.com. Before we begin, 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 upon 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 2022 MD&A, along with the 2022 AIF. Further, such statements speak only as of today's date, and Badger does not undertake to update any such forward-looking statements. On to the agenda. Today, we will begin with a brief overview of the company, followed by updates regarding our investment highlights, strategic advantages and long-term financial priorities. We will then have some time at the end for some Q&A. For those attending virtually, there is a Q&A function on the platform where you can type your questions, and we will read them out live for everyone to hear. So let's get right to it. Badger is North America's largest provider of nondestructive excavation services. Our team of over 1,450 operators serve over 20,000 customers across North America. Badger works for contractors and facility owners in a broad range of infrastructure industries. These infrastructure segments consist primarily of infrastructure projects in areas such as energy, electricity and natural gas transmission and distribution, roads and highways, telecommunications, water and sewage treatment and general municipal infrastructure. Our customers in these segments typically operate near concentrated areas and large urban centers where safety and economic risk of downtime is high, and therefore, nondestructive excavation provides a safe alternative for certain customer excavation requirements. We view nondestructive excavation to be in the early stages of adoption, especially in the U.S. and as the largest provider of these services, we feel best positioned to leverage our size and scale to capture this growing end market. Safety is at the heart of everything we do here at Badger. There are many advantages of nondestructive excavation, the biggest of which is the safety benefits that it provides. Line strikes can create safety hazards for workers on job sites, and this damage to infrastructure can result in interruptions to critical services and safety hazards to the public. Nondestructive excavation virtually eliminates the risk of line strikes when working on or around critical underground infrastructure. Next, I'd like to share a recap of our 2022 financial performance, which exhibited material improvement when compared to 2021. Our business model continues to be resilient and the momentum is building. We have experienced strong annualized revenue growth of 9% over the past 10 years, highlighted by the 26% increase we achieved in 2022. Over the past year, we have completed a number of key foundational and strategic initiatives and have shifted our focus towards the execution of our commercial strategy to thoughtfully grow the business and improve margins. In 2022, adjusted EBITDA margins improved 37% over the prior year. Our operational and financial performance in 2022 suggests these initiatives are performing in line with our expectations. Our continued focus on asset utilization and pricing initiatives also contributed to a significant increase in revenue per truck, which came in just below $40,000 for the full year. This strong track record supports the compelling investment proposition that Badger presents today. Our near-term focus remains on addressing the meaningful organic growth opportunities across North America. We professionalized our sales programs in 2022 and are leaning into team selling across the organization to drive revenue density and higher returns. We've built market and customer-specific penetration strategies across regions, and we have established consistent metrics to measure sales effectiveness and track pricing discipline. All these initiatives helped to drive growth across the platform. As we drive higher volume and revenue, we will drive operating leverage. We introduced a renewed commercial strategy at Investor Day last September. The objective of this strategy is to continue to push more revenue volume and density through our existing branch network, which will support and enhance our adjusted EBITDA margins. Another one of Badger's unique strength is our vertical integration and ability to invest in infrastructure. Today, Badger is the only contractor and manufacturer of nondestructive excavation units that self-performs. Badger's vertical integration provides operating cost benefits and return on invested capital. We get direct feedback each day from each of our operators on ways to improve our safety, performance and efficiency. We put this feedback to work via continuous design improvement in our manufacturing process. The operating cost benefits come from standard design and components and from an integrated supply chain that supports the fleet. Maintenance expenses are optimized from standardization and replacement parts that are readily available, leading to minimal downtime for maintenance. Our centralized branch support functions also allow us to increase efficiency and support our commercial strategy. This structure will enable us to scale the business and flex our operating leverage. Our optimized capital structure provides us with the flexibility to fund our growth plans as well. Badger maintains a focus on ensuring the strength of its balance sheet and financial flexibility. We are focused on our working capital management to shorten our cash conversion cycle. We have CAD 400 million in committed credit facilities to fund growth CapEx and working capital needs. The strength of our balance sheet will allow us to achieve our long-term truck build requirements without the need to issue new equity. As always, we are looking to use our capital resources in the most accretive manner for shareholders. Our first priority remains the funding of organic growth initiatives as the near-term opportunities and the nondestructive excavation industry are meaningful, especially in the United States. We believe that the investments we have made in the commercial strategy, paired with our operating cost discipline will lead to superior earnings stability moving forward. We will stay true to our history of thoughtful capital deployment and prioritize shareholder returns across business cycles. We have shared the slide up on the screen in the past, particularly the 7x to 9x growth opportunities that we see across North America. We've broken out where we see the respective opportunities, which aligns to how we have structured our regions and markets. Overall, we continue to see significant growth opportunities across North America and Badger's existing branch network provides the current scale to capitalize on that. To fully capitalize market potential, we had to tailor our market penetration strategy to address the characteristics of each market segment. Our existing branch network, branch managers' expertise and customer relationships position us well to achieve the first-mover advantage in many of our extension, core and strategic growth markets. To be successful in each of these markets, we need the trucks to support this growth. Badger's scale and operating model provides 2 distinct strategic advantages. The first is our manufacturing capability. We have recently expanded our manufacturing capabilities, which enables us to produce up to 350 units annually, and we are continuously working towards enhancing the production efficiency to make sure our plant is never a bottleneck as we plan for significant organic growth. Last quarter, we introduced our plans regarding a proactive refurbishment program that we expect will enable us to extend the useful life of a portion of our assets. We may choose to selectively replace critical components, namely the engine, transmission, transfer case or blower to extend the life of a well-maintained chassis. We believe these incremental investments will yield positive contributions to ROIC as we continue to optimize our capital investments. In addition to enhancing ROIC, another key benefit of the program is that we can better manage our upcoming retirement towers. This additional flexibility will allow us to smooth out the retirement cycle in the range of 100 to 150 units per year moving forward. Combining this with steady production volumes will maximize plant efficiencies and optimize the cost advantage we maintain over our competitors. Our second strategic advantage is tied to our recently established national accounts program. National Accounts is an exciting and unique initiative at Badger, and I believe it will widen our competitive advantage. No competitor in our space has a scale or footprint to undertake a true national accounts program across all of North America. We also believe that the national account partnerships we have will provide more consistent work throughout the year, leading to better overall utilization. In short, National Accounts and Badger's exclusive offering to be a one-stop shop, providing nondestructive excavation solutions for our largest, most complex customers who have geographical diverse excavation needs. Now I want to touch briefly on some of our longer-term financial priorities and targets. All of these strategic initiatives we just discussed are supported by our strong balance sheet and financial flexibility. This gives us confidence in our ability to execute on them. We have CAD 400 million and committed credit facilities, of which we are approximately 50% drawn. Our total debt to compliance EBITDA is 1.6x, well below our covenant threshold of 4x. This provides us with ample undrawn capacity and flexibility to fund organic growth in the company without raising additional capital. When considering shareholder return philosophy, our first priority is to grow the business organically. Given the market opportunity I spoke of before, investing capital to fund organic growth should translate into significant value appreciation for shareholders. Our current focus remains on organic growth initiatives. And finally, we remain committed to returning capital to our shareholders in the most accretive manner possible. We raised our quarterly dividend by 5% in March, and we'll evaluate other methods to return capital in the future. In closing, Badger's business fundamentals are strong and the market opportunity for nondestructive excavation is large and growing. We have solid strategic initiatives and continue to execute on them. We have strengthened the Badger team to support growth, focusing on operations, sales, pricing, fleet utilization and returns on capital, and we are managing for the long term. So that summarizes the Badger investment opportunity. I'd like to thank everyone for their participation today and open the call up to any questions. If you're joining us virtually today, you may take your question under the Q&A tab. And if you're in the room, please just raise your hand and we'll answer your questions. Okay. I see we have no questions. So with that, we will conclude the meeting, and we'll adjourn the meeting. Thank you very much.
This concludes the meeting and the presentation. Virtual attendees may now disconnect.
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