Badger Infrastructure Solutions Ltd.

Ladies and gentlemen, thank you for standing by and welcome to the Badger Infrastructure Limited 2021 fourth quarter results. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1 on your telephone. If you require any further assistance, please press star 0. I will now turn the call over to your host, Trevor Carson.

Morning, everyone, and thank you for joining our fourth quarter earnings call. On the call this morning are Badger's President and CEO, Paul Vanderbergh, and Darren Yaworski, Badger's CFO. Badger's 2021 fourth quarter earnings release, MD&A, and financial statements were released after market closed yesterday and are available on the investor section of Badger's website and on CDAR. 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 2021 MD&A along with the 2021 AIF. Further, such statements speak only as of today's date, and Badger does not undertake to update any such forward-looking statements. I'll now turn the call over to Paul.

Thanks, Trevor. As always, we would like to start the call talking about health and safety. We've been pleased with the team's health and safety response during this two-year-old COVID pandemic and all the related operating challenges that have come with it. The safety of our employees and customers is Badger's job number one. Q4 saw another spike in monthly employee COVID cases, with 5% of our operators in quarantine during the month of December due to the Omicron variant. This was slightly below the 6% level of quarantines we saw in August and September with the Delta variant. The Omicron surge continued into January, but February cases were down by 80% from January, and in March we've just seen a handful. This is good news. It is also good news that the Center for Disease Control in most jurisdictions have loosened operating restrictions and returned to work testing procedures, which have contributed to shorter quarantine times. Since Omicron hit us in Q4 and Q1, and not during the peak construction season like Delta did last year, combined with the way that cases have fallen off, Badger and our customers are in a good position for the 2022 construction season. If we think back through the past two years, Badger's COVID playbook of consistently following the Center for Disease Control guidelines has kept our people safe and met our customers' needs. We will continue with that approach, which has been led by Leon Walsh, our VP of Health and Safety and his strong team, who have very successfully partnered with our operations team. We've managed through some extraordinary operating conditions over the past several years. But under all conditions, our operating practices remain the same, focused on Badger's objective of putting employee and customer safety first. So on to the quarter. First, some comments on revenue. We were pleased with the continuing year-over-year market improvement during the quarter, despite improvement being uneven due to Omicron. Revenue of $153 million in the quarter was up 17.7% from last year, continuing to reflect the market recovery that began in the second half of 2021. We also continued to see indications of improved energy market demand as companies reset their capital budgets early in 2021 and started getting back to work. This is a welcome change after several years of energy segment headwinds. Our revenue growth has also continued to outperform the year-over-year U.S. non-residential construction trends. This outperformance has been the case since April 2021. Q4 was a turning point for the U.S. non-res market after 16 months of a negative year over year trend versus prior year. Activity bottomed in October in U.S. non-res and has been growing versus prior year ever since. Regarding operating costs, with the uneven 2021 recovery, we experienced higher levels of direct labor costs than our historical trend has been. driven by the fact that it's more difficult to send employees home when activity levels are uneven in our strong labor market, and also by the challenges due to COVID. The team continues to work hard to recruit and retain operators, which is a challenge but achievable in the current labor market. We have seen some labor cost inflation, and as we discussed last quarter, have been implementing price increases to offset. Direct labor will be less of a challenge as our activity levels continue to improve and demand becomes more steady. Our Q4 revenue per truck per month, or RPT, of $29,600 was up 23.7% last year, growing more than our 17.7% revenue increase. Based on Badger history, we will see improved labor efficiencies as fleet utilization improves. The recent oil spike is a short-term operating challenge that Rob Blackadar and the operations team are focused on. Both procurement and pricing actions have been implemented. The reality with this challenge, though, is that every business faces it and that fuel recovery fees will be with us for the foreseeable future. It's manageable. We continue to manage our costs in all areas during the quarter. With markets shifting to a recovery mode, we reviewed all aspects of Badger's operations for efficiencies. This review resulted in a series of cost-cutting moves and a $4.2 million charge in the quarter. These moves have good paybacks and will reduce our costs going forward. On the manufacturing side, given the continued year-over-year revenue and utilization improvements in Q4, and as we mentioned last quarter, we had been evaluating the need for a ramp-up of the manufacturing build rate. For 2022, we are currently planning to add between 150 and 180 units and retire between 40 and 60 units. This compares to 2021 addition of 32 units and retirement of 53. Our manufacturing team is positioned to plant well for higher production levels and more volume efficiency. We are also very well positioned for our supply chain components. This positioning is a plus for Badger's ability to place new equipment into service versus competitive manufacturers who are experiencing tight supply and truck chassis. Market indications are that equipment will be difficult to source over the next several years, which makes Badger's manufacturing and vertical integration more valuable. We also implemented a new manufacturing requirements planning, or MRP, system during the second half of last year. It went live at year end. So our Badger manufacturing operation is now up and running on a modern MRP system integrated into our overall Oracle ERP platform. In January, we entered into a long-term lease for seven acres adjacent to the Red Deer plant. We're in the process of working through the facility and integration plans but we expect that this addition will enable Badger to expand capacity beyond our previously stated level of 350 units per year on a single shift basis. More to come over the next several quarters as we firm up our plans, but we were very pleased to be able to take advantage of this opportunity, which really positions Badger for longer-term and future growth. So some additional comments on the 2022 outlook. We are well positioned for a busier year in 2022. We see pent up demand across many markets and the year over year trends are favorable. Labor and truck availability will make existing fleets and especially fleets that are staffed with trained employees in demand and more valuable. We incurred the cost of recruiting and training operators during the uneven recovery year of 2021 and we expect that this effort will pay off as demand continues to expand and activity is steadier. Fleet utilization and labor utilization go hand in hand and both drive operating leverage. Another change that we made in the second half of 2021 that will impact 2022 and beyond was the strengthening of our operations team in addition of sales and marketing leadership. This is part of executing on a focused commercial strategy that targets the significant market opportunity that we see for non-destructive excavation and related services. Rob has strengthened the team with experienced badger operations and sales leaders stepping up to broader responsibilities and new leaders with extensive industry experience joining the team. We are establishing a focused sales and marketing organization, including a national accounts function. This is exciting. The objective here is to aggressively leverage Badger's broad operating footprint, business scale, and extensive customer relationships more than we've ever been able to do historically. This is an advantage Badger has that none of our smaller competitors have. We expect that these initiatives will benefit growth and add operating leverage as they gain momentum during the rest of the year. So unless there are geopolitical or major macroeconomic disruptions, we see 2022 conditions to support continued progress in expanding revenue, increasing our operating leverage, and driving margin. As we sit in past quarters, we expect that margins will return toward historical levels as the recovery continues. And now I'd like to turn things over to Darren for our Q4 results.