Badger Infrastructure Solutions Ltd. (BDGI) Earnings Call Transcript

Thank you for standing by. Welcome to the Badger Infrastructure Solutions Limited Second Quarter 2025 Results Call. [Operator Instructions] As a reminder, this event is being recorded today, July 31, 2025, and will be made available on the Investors section of Badger's website. I would now like to turn the call over to Anne Plaster, Director of Investor Relations.

Good morning, everyone, and welcome to our second quarter 2025 earnings call. Joining me on the call this morning are Badger's President and CEO, Rob Blackadar; and our CFO, Rob Dawson. Badger's 2025 second 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 facts 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 2024 MD&A along with the 2024 AIF. I will now turn the call over to Rob Blackadar.

Thank you, Anne. Good morning, everyone, and thank you for joining our 2025 second quarter earnings call. 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 meetings here at Badger. As we enter into the peak of the summer construction season, many of our team members and customers' projects are experiencing extreme heat and humidity. At Badger, we manage these exposures with regular hydration, cooling off breaks and job sharing rotations to ensure the safety and productivity of our team members. I want to personally thank all of our team members and our customers for looking out for each other during these summer months. Now on to the second quarter results. Building on the positive momentum from Q1, the team delivered another strong quarter with double-digit growth in revenue, gross profit and adjusted EBITDA. Our record Q2 top line revenue of $208.2 million grew by 11% company-wide over the prior year. We are now seeing the pickup in our end markets that we had discussed in Q3 and Q4 of 2024. Importantly, we have worked hard to put Badger in a position to capitalize on the pipeline of upcoming customer projects across all of our end markets. I will provide more detail and context on our diverse set of end markets later on in the call. Our positive results reflect our efforts to increase utilization while continuing to grow our fleet. Our ongoing investments in sales and marketing initiatives, including consistent efforts to capture pricing opportunities is also reflected in the results. Adjusted EBITDA grew at a faster pace than revenue, up 18% year-over-year. These results highlight Badger's strong operating efficiencies and the optimization of our overhead support functions. Accordingly, our adjusted EBITDA margin increased by 140 basis points to 25.3%. We achieved RPT or revenue per truck per month of $41,867 in Q2, up 2.5% compared to last year. This improvement reflects our fleet utilization and pricing efforts. Our Red Deer manufacturing plant delivered 51 hydrovacs this quarter versus 59 in Q2 of 2024. We retired 30 units in the quarter and 62 units year-to-date. We refurbished 9 units in the quarter and 18 year-to-date. Our full year 2025 fleet strategy remains on track to manufacture between 180 and 210 hydrovacs, retire between 90 and 130 units and refurbish between 50 to 60 trucks. I'd like to note that refurbs will likely be on the lower end of this range. Combined with the current fleet utilization, our targeted fleet growth of 4% to 7% ensures that we have the capacity needed to meet customer demand throughout 2025. We ended the quarter with 1,682 hydrovacs in our fleet, growing our fleet by 6% since Q2 of last year. Also of note, we announced our intention to renew our NCIB with the TSX, subject to customary approvals. I'll now turn the call over to Rob Dawson to discuss our Q2 financial results in more detail.

Thanks, Rob. We're pleased to report strong financial performance for the quarter that reflects the strengths of our business model and the focused execution of our teams. As Rob noted, we have continued to grow our bottom line at a higher rate than revenue, demonstrating our continued execution of our road map of building scalability at every level of our operations. Our gross profit margins increased to 30.5% compared with 29.2% last year. In addition to the continued advancement of our commercial and pricing strategies, steady improvements in the utilization of our fleet have also added to this profitability. The trend in our adjusted EBITDA margins also continued to rise, up 140 basis points from 23.9% in the second quarter of 2024. In particular, the addition of our fleet module and our universal data platform are beginning to show value in the management of our fleet and our labor. We are also maintaining discipline in our support functions and G&A spending. This margin expansion remains on track with Badger's long-term objectives. General and administrative expenses were $10.8 million or 5% of revenue, in line with the $10 million or 5% of revenue in the prior year. And finally, adjusted earnings per share was $0.60 per share, up 33% compared to the prior year. Turning to the balance sheet. We have maintained a disciplined approach to capital management, preserving financial strength while supporting strategic investments and spending for organic growth. In that regard, our compliance leverage ended the quarter at 1.4x debt to EBITDA, down 1 point from the same period last year despite purchasing about $20 million of Badger shares through our NCIB program over the past year. With our strong balance sheet, we have the financial flexibility to continue advancing our organic growth while also delivering shareholder returns through dividends and our NCIB program. During the second quarter, we purchased and canceled 191,800 common shares at a weighted average price per share of $36.94. As Rob mentioned, we intend to renew this NCIB when our existing one elapses in August of this year. I will now turn things back over to Rob Blackadar for some final comments. Rob?

Thanks, Rob. So before we open it up for questions, I'd like to share a few last comments regarding our market outlook. You will recall in 2024, we experienced a deceleration in growth in some of our end markets. We shared our expectation of improving conditions anticipated in the back half of 2025. We are now seeing several projects getting underway, including data centers, large infrastructure improvements such as airports, airport construction, light rail transportation and the continued expansion of large petrochemical and LNG facilities. Supporting all of these trends is the increased demand for more power generation and transmission, including nuclear and natural gas fired. These projects are in addition to the continued maintenance and renewal of existing aged infrastructure in many of our more mature markets. Our focus continues to be making sure Badger is well positioned to support all of our customers' local and national needs wherever they may be. The entire Badger's team's goal is to be the supplier of choice [ for ] critical infrastructure industry. With our industry-leading fleet and a broad branch network across 44 U.S. states and 6 Canadian provinces, we believe Badger is well positioned to capitalize on these long-term end market tailwinds. We remain focused on executing our business strategies and delivering sustainable value for our shareholders. So with those comments, operator, I'll turn the call back over to you to field some questions.

Thank you, Rob. [Operator Instructions] And so our first caller is Yuri Lynk from Canaccord Genuity.

Rob, just on your outlook and the projects that you're seeing starting up here or, I guess, in progress. Can you talk about how that plays into your full year build rate and retirement rate guidance? It looks like on the retirements that you'll have to kind of accelerate what you've done in the first half of the year to kind of get at the low end of that range, which seems kind of strange given the demand pickup that you're seeing. So I guess just net-net, do you envision being at the lower end of that retirement guidance?

No. I actually feel like we'll be at the midpoint to the higher end of the retirement. We will continue on our build rate on the new trucks. But I don't think we're seeing any problems on the retirement end of it. And as you can tell, there's good demand in the business. It's not our desire at all to accelerate any retirements, but rather just have them kind of normal course when the truck is at its end of useful life and it's not a candidate for refurb, that's when we flag it for retirement. Some of our trucks, if you remember, Yuri, during COVID period, a few years back, 2020, a little bit in '21, business was slower then, we didn't put as many hours on it. So we've actually been able to get a little bit longer life out of those trucks. But now that's kind of at the end of the course of those kind of extended trucks there. But it's not our desire to accelerate any retirements, especially in a high demand type environment we're in right now. The only kind of hiccup, and I mentioned it during my comments, but really is on our refurbs, and it's strictly tied to -- we're using some third parties to do our refurbs, and they're doing a very good job, very happy with the refurbs that are coming out. They're just not able to keep up with our level of demand on that so far. And that's why we're kind of sharing that we're probably on the lower end of those refurbs. I don't know if you want to add anything, Rob?

Yuri, I think in addition to Rob's comments, I would add, on a total fleet management basis, we're still targeting into that. The basic of our plan, our revenue and results are generally in line with what we expected at the beginning of the year. And so our fleet -- our fleet plan hasn't changed in total very much at all. In fact, if anything, and the first half results really show this, utilization targets, you would recall, last year, our utilization, we had indicated had fallen off somewhat and that there was some latent capacity in our existing fleet at the start of the year. We're using our new data tool and our fleet management system to very good effect, and we're really getting good improvement in utilization of the existing fleet. So we feel we can absorb even the higher growth rates. [indiscernible] on the truck build.

Okay. Second and last question. On data centers, lots of talk about it. Can you quantify at all what that segment means for Badger in terms of how big of a business is that for you today? And what do you see coming down the pipe in terms of data center activity? And on those jobs, the nature of your work in terms of duration? Are they relatively short duration projects? Or I guess, some of the bigger ones, are you on there for a few weeks, months? Like just some color would be helpful.

Sure. So the unique nature of the data center projects is probably one of the reasons why we point it out. And I know that seems to be a topic on a lot of the industrials calls or data center projects. For us, in particular, though, and I mentioned these words in particular because it's what we do, but they really are viewed as a critical infrastructure type project, meaning any of the utilities going into and out of the data centers. And a lot of people always hear a buzz about the power requirements for data centers, Yuri. But there's something that is equally as important, and that's actually water and the water cooling that has to get brought in to these facilities. And we just feel that our technology being nondestructive excavation and Badger trucks in particular, we're just uniquely positioned for that. Right now, data centers are actually tracking around the same range, maybe even slightly higher than what we're doing in oil and gas across the company. I'm not going to give the exact percentage, but it's pretty strong. The backlog of data center work is pretty strong as well. And just like every one of the investors and analysts that are listening to the call, we track a lot of the data center owners' calls as well and what they're forecasting for their CapEx, et cetera, and it looks to continue to be strong for the next, I'd say, 2 to 3 years. And so we're pretty enthusiastic in leaning into it. We just feel like this is a very unique time for us to be able to capture something that is in its initial phases of its build-out company-wide and also nationwide. The other aspect of it, though, and to kind of give you the perspective, Yuri, of how Badger fits into a data center project, once a single utility gets brought into the data center project, where Badger starts. And so it could be water, it could be power, electricity. It could be any kind of a fiber line or anything that gets brought into a data center site. That's when all of a sudden the site becomes very sensitive to not having mechanical excavation continue because you just don't want to do any damage and delay that project. There's a lot of commitments that are made with these multibillion-dollar projects, a lot of money at risk here that they want to get them online and functioning ASAP. And that's the one thing that happens when you use a hydrovac, there's very -- like extremely low likelihood of any damage to infrastructure. And that's why we think we're uniquely positioned, Badger, and the whole industry is. And so we're pretty excited about it. But obviously, that's not our only focus. We do a lot in nonres construction. There's a lot of other very sensitive type projects if you think in terms of other grid hardening, I think in terms of LNG plants, all of those are very sensitive infrastructure projects as well. But data centers, in particular, seem to be the topic of the day. But yes, that's our perspective on that, Yuri.

Your next question comes from Ian Gillies at Stifel.

In the second quarter, you saw a very strong lift in year-over-year revenue growth. When I think about the back half of the year, is there potential to get back into that revenue growth range that was prescribed at the Investor Day, which was 12% to 14%? Or is that still a little further away, do you think?

We put that out as our long-range target, and we feel that way about it even now. And so yes, we had improvement on our revenue growth rate Q1 over Q1 and happy to have posted an 11% gain. But it's still early days as a lot of these projects and everything are ramping up. And it's -- Badger's take is to just make sure we're in a position to earn and win and execute on those projects, Ian. We're not, at this point, ready to say we are going to be either well within or higher than that long-range plan. But certainly, we've made progress this quarter, and we're marching toward it here in the month of July and starting into Q3 here. But I wouldn't start taking up a bunch of numbers at this point from my perspective. And Rob, if you want to add anything?

Yes, I would just reiterate what Rob just said that the growth rate that we are experiencing in Q2, which is a great step up. And on a trailing 12-month basis, the deceleration in our growth rate bottomed out in about February of this year and is now back to in that low double digits that you saw this quarter. We think that the current rate of growth is probably what we're seeing for now.

Yes. That's helpful. As it pertains to some of the margin progression, you did a good job highlighting some of the technology initiatives in Yuri's question. But is there anything operational or perhaps even analog you could point to, whether it be adding scale in key regions, putting new bases in key regions or things of that nature that are worth highlighting as the ways you've been improving the margin?

Yes. So we look at it on the margin improvement a couple of ways. Number one, as we're growing the business and continue to grow the business and improve the top line, it's what can we do to drive the efficiency and Rob is the biggest driver and cheer leader, Rob Dawson, biggest driver and cheer leader of this in the company is what are you doing on your flow-through? And what are we working on our flow-through at all of our regional -- we have regional meetings every quarter, and we bring in all the team leaders and Rob and I are on the road a bunch out in the business. And what are we doing on our flow-through. And it really is making sure that all the hard work that everyone is doing to grow the top line makes it through to the bottom. And that really is keeping the cost under control and not letting the cost scale at the same rate that the revenue is going up. A lot of that is both in branch local costs or operating cost at the branch level, but even in our corporate functions. And Ian, you've watched some of our journey, but while the business has scaled a lot in the last 3 years, we have not scaled up that overhead functions in the G&A. And both Rob and myself are very guarded on that. We're trying to use and leverage technology rather than just throwing bodies at it. And I think that really has helped us to achieve some of the margin growth. And anything you want to add on that, Rob?

I just think the availability of this data tool now gives us real-time ability to measure and measure in a very specific way, labor rates, labor utilization, M&R rates. And once you can measure things, you can set targets and then set expectations. And then the competition amongst all the different regions and branch managers starts to take hold and the culture starts to drive on this as well. So it's nothing too fancy. It's just very simple, but doing those simple things better and better every hour.