Badger Infrastructure Solutions Ltd.

ladies and gentlemen thank you for standing by welcome to the badger infrastructure solutions limited first quarter 2025 results call during the presentation all participants will be in listen only mode for those that have dialed into the audio portion of this call to ask a question during the live question and answer session please press star 1 to raise your hand Please wait for the operator to say your name and company before asking your question. For those listening through the webcast, attendees will be in listen-only mode. If you need technical assistance, please submit your request under the tech tab in the window on the right-hand side of your computer screen. As a reminder, this event is being recorded today, April 30th, 2025, and will be made available on the investor section of Badger's website. I would now like to turn the call over to Anne Plasterer, Director of Investor Relations.

Thank you, Debbie. Good morning, everyone, and welcome to our first quarter 2025 earnings call. My name is Anne Plasterer, Badger's Interim Director of Investor Relations. Joining me on the call this morning are Badger's President and CEO, Rob Lacadar, and our CFO, Rob Dawson. Badger's 2025 first quarter earnings release, MD&A, and financial statements were released after market close 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 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 first quarter earnings call. Before we get into the results, I'd like to take a moment to talk about safety, how we start all of our team meetings. Safety is at the center of everything we do here at Badger. April is Distracted Driving Awareness Month, a time to remind ourselves of the importance of staying focused on the road. Every day, over 2,000 of our operators, sales reps, and managers are on the road supporting our customers. Each one of their Badger vehicles is equipped with a machine learning AI camera system which trains and develops all of our drivers to incorporate safe driving habits. It's essential for all team members to adopt a just drive mindset whenever they are behind the wheel.

This means eliminating all distractions, fully concentrating on driving. Our team is committed to making our roads safer staying focused and driving responsibly now on to the quarter results the badger team had another record quarter with continued growth in revenue gross profit and adjusted even off our top line revenue of 172.6 million grew by seven percent company-wide over the prior year driven by the continued focus

on our commercial strategy and year-over-year growth in our fleet to support the sustained, continuing growth in our end markets and customer demand.

We remain focused on the efficiency of our functional and G&A spend to support this growth. Our growth in adjusted EBITDA tracked higher than our revenue growth

up 16% year-over-year, driven by Badger's strong operating leverage, customer pricing, and stability in our G&A support functions. Accordingly, our adjusted EBITDA margin was 19.6%, up 150 basis points from 18.1% in 2024. Despite historically adverse weather in the southern half of the United States in January and February, Our results reflect the efforts of our sales and operations teams to overcome these challenges and continue to capture market share as the trend of ongoing increasing demand for our services recovered in March. Overall, we are building positive momentum leading into the upcoming construction season. We are encouraged by solid demand in all facets of our business, including local, regional, and national account customers.

I will share more color regarding trends in my closing comments.

We achieved revenue per truck per month of $35,034 in Q1, consistent with the previous year. We've been consistently investing in our fleet to meet the growth in our end markets.

This leaves Badger well-positioned to serve our customers as we enter this construction season.

Badger's Red Deer plant manufactured 50 Hydrax this quarter versus 52 units in Q1 of 2024. We also retired 32 units in the quarter and ended the quarter with 1,661 Hydrax in our fleet, growing our fleet by 9% since Q1 of last year. Our full-year fleet plan remains unchanged from year-end, manufacturing between 180 to 210 hydrovacs, retiring between 90 to 130 units, and refurbishing between 50 to 60 hydrovacs. Our existing fleet, plus our planned fleet growth of 4% to 7% this year, provides us with ample capacity to absorb additional demand in 2025. In my closing remarks, in addition to our commercial end market trends, I will also share an update regarding tariffs.

Now I'll turn the call over to Rob Dawson to discuss our Q1 financial results in more detail. Thank you, Rob.

As we saw in our first quarter release, the team delivered another quarter of solid results. As Rob mentioned, we have continued to focus on ensuring that our efforts to deliver revenue growth scale to the bottom line. In the first quarter, we saw revenue grow 7%, adjusted EBITDA grow 16%, and adjusted earnings grow 36% from the same quarter last year. We are pleased with the flow-through of growth in revenue to adjusted EBITDA of 42%, in the seasonally slower first quarter. Our gross profit margins increased to 25.5% compared with 24.8% last year, reflecting our focus on pricing and the operating leverage within our functional support teams. The trend in our adjusted EBITDA margins continued to improve at 19.6% compared with 18.1% in the first quarter of 2024. We are realizing the value of the efficiency and scalability changes we have been making to our G&A support functions and the steady investments we have continued to make to our IT systems and related processes. G&A expenses were $10.3 million, or 5.9% of revenue, relatively steady compared to $10.8 million, but down from 6.7% of revenue in the prior year. cumulative impacts of the strong flow through to adjusted EBITDA and the stability in our capital program, and by extension, depreciation expense, have provided meaningful growth in adjusted earnings per share, up 36% compared to last year at 19 cents per share. Now onto the balance sheet. Our balance sheet remains strong and flexible. In that regard, our compliance leverage ended the quarter at 1.4 times debt to EBITDA, down from 1.5 times in the first quarter of last year and below the midpoint of our one times to two times target debt range. Our relative leverage continues to fall even while investing to grow organically and return capital to shareholders through our dividends and NCIB programs. During the first quarter, we purchased and canceled 301,000 common shares under our NCIB at a weighted average price per share of $38.31. With our ample balance sheet capacity, we have plenty of flexibility to continue investing for organic growth and returning capital to our shareholders. 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 would like to share a few last comments regarding our market outlook and the current tariff environment. Overall, we continue to see growth opportunities across North America, reflecting anticipated sustained demand in infrastructure and construction spending in all our major markets. Badger continues to position our branch network and industry-leading fleet to capture this customer demand by executing on our major market strategy that we laid out during last year's Investor Day. We feel our broad footprint across 44 states and six Canadian provinces today continues to be a significant differentiator for our broad customer base. We continue to see strong activity on large projects, including data center construction builds, grid infrastructure enhancements, large airport upgrades, and several other infrastructure projects across North America. Local demand is also improving as HydroVac usage continues to be adopted in markets.

I'll close with a comment regarding the current tariff environments in the United States and Canada.

Badger has been proactive in preparing for the potential impacts of any tariff actions. While the tariff landscape continues to evolve, The measures that are currently in place are anticipated to have a minor impact on the cost of our HydroVax. We are confident that Badger is well prepared for the near term with pre-positioned manufacturing inventory at our Red Deer plant, as well as our fleet levels in the field from the end of last year in the first quarter of 2025. As the long-term impacts of the tariffs become clearer, Badger will be ready to respond effectively. Finally, I want to remind everyone that we have our virtual annual meeting of shareholders today at noon Eastern time, 10 a.m. Mountain time. For more information, please visit our investor relations page at ir.badgerinc.com.

So with those comments, let's turn it back to the operator for questions.

Operator?

Thank you. Our first caller is Krista Friesen from CIBC. Go ahead.

Hi, thanks for taking my question. I was just wondering if you could give us a little bit more color on the Canadian market and how the operations played out there during the quarter.

Sure. So not too dissimilar to what we saw in the United States, Krista. We saw... January and February had some weather impacts of some major storms, mostly on the eastern part of Canada, where it had a little bit of an impact. And then we have seen some decent demand coming out in March, and it's been consistent even as we get started into Q2. within our Canadian region is a little bit stronger on the eastern half of the region. So think in terms of Ontario, Quebec, et cetera. And then on the western half, it's been a little bit slower in Q1. But we have a lot of projects that are going to be coming up as summer progresses out west. So that's kind of the current demand in Canada today.

Okay, great. And then maybe just on the U.S. operations, pretty impressive margin that you posted, especially given some of the weather headwinds you likely faced. Is there any way you can quantify the impact of the weather in Q1 or just maybe speak to how impactful that was?

We're not going to dissect it month by month. We're not going to dissect the quarter month by month, Krista. Suffice it to say, you know, it's really, you know, I've been in the construction business 31, 32 years. And, you know, when you're getting snow across Houston, Texas, New Orleans, Louisiana, and Jacksonville, Florida. I think there were six inches in Jacksonville. It shuts down those markets because they just don't have the capacity to process any kind of inclement weather in that way. And that was happening a few weeks in a row in the month of February. And then there were various kind of ins and outs on that in January. But February had a lot of pressure from the weather just really slowed down some of the projects. And then Since that time, obviously, once the weather broke, it has come back pretty strong. Like you said, we've been solid since February and feel pretty comfortable with what we're seeing right now in the markets and feel pretty excited about how 2025's framing up.

Okay, great. Congrats on the quarter, and I'll jump back in the queue.

Thank you.

Our next question is from Ian Gillis at Stifel. And I apologize, Ian, if I pronounced anything wrong there.

Thanks very much. Morning, everyone.

Morning, Ian.

With some of the changes, I guess, in the reporting structure, you know, I guess the follow-on question is, has there been any structural changes in how the business is operating that's resulting in cost savings that are helping margins, or has nothing really changed on that front?

Hi, Ian. It's Rob Dawson here. Our change in external reporting actually mimics the structure that we've had at Badger now for the better part of three years. We operate as four different regions, all of which have the same service profile. and a relatively similar cost structure. It just came to the point where the size of Canada relative to those other three regions, it's the smallest of those four, quite frankly. And so it no longer made any sense for us to be reporting one of those four regions separately when the other three were all aggregated together. We're run as a single business that way, and those four regions all contribute in differing and strong ways.

So just to be clear, we shouldn't be surmising that there's any cost reductions or cost savings as a result of anything we just see on that side?

We've made no changes to our operations as a result of the external reporting changes, true.

We operate, Ian, just to be very clear, we operate all four of the regions with similar cost structures. And while there is a little bit of uniqueness there, due to either some size, you know, like obviously Canada has a phenomenal amount of geography, but much less population. You know, we adjust the cost structures accordingly, but we're not doing anything regarding any of the reporting. It hasn't changed anything we're doing there. So we run all four regions very similarly. They're run by a region vice president, and the structures are largely the same across all four regions.

Understood. Following on the cost side, we've had a few months to try and figure out what tariffs may mean. Are you able to talk at all about the impact it may be having in your consumables and the cost of goods sold line item and potential impacts to margins?

Cardinal, yeah. Ian, you know, on the manufacturing side, and we've mentioned this in our materials, we're largely unimpacted. directly from those tariffs. Our vehicles are CUSMA compliant, and we are able to import the chassis that we purchased from the United States into Canada, absent any tariffs as well. So we feel quite good about that. Obviously, the input costs to our suppliers for steel and aluminum are impacted, so we are seeing some small inflationary pressures. And the same is true mostly on parts in our M&R expense as a result of, you know, keep maintaining our trucks. Overall, though, we're not seeing any significant pressures. We're not a very large consumable business. You know, we've got fuel and a number of other things, but inflationary pressures we feel have not emerged as of yet. If anything, the impact of currency on the manufacture cost of our trucks in U.S. dollars, our reporting currency sees the cost of our trucks today being a little bit less than they were a year ago today.

Understood. And then maybe lastly, there was some commentary on managing tariffs. Is it a bit of an all of the above approach where it's shuffling trucks, perhaps moving pricing where necessary and where applicable? And is there anything else we should be thinking about to help kind of manage some of these items?

Yeah, so we, uh, have been actively, uh, moving trucks, uh, into the country, uh, where, uh, we need to feed the demand. And we've been doing that pretty actively, uh, in the fourth quarter. Uh, that was before, um, you know, Donald Trump, uh, gets inaugurated and, and all the, um, the, the tariff, uh, activity begins. Then when tariff activity began, we ramped that up and accelerated that. And we feel very comfortable with, you know, the strategy there to have everything not necessarily completely prepositioned other than we did move some chassis into our manufacturing plant. So that would be considered prepositioning. But we just move all the trucks where they need to be. Today, we haven't had that tariff impact. We don't know where we're going to end up. I think the 90-day reprieve that we're under right now ends sometime in July. I don't have the exact date. And we're going to just actively keep moving trucks where they need to be. And then if there are post-tariffs or tariff activity gets ramped up, we'll address accordingly. Like most other businesses, in fact, I think almost every business, you know, the impact of tariffs, um, our, our company will review what that impact is. And obviously it will reflect in our cost structure and our pricing. Uh, we feel very comfortable in all the pricing work that we've done in our CPQ pricing engine and, and, and some other things that the company's done the last few years. We're pretty well positioned to address that. And, uh, If our costs go up, obviously our pricing would follow a similar suit. And so we feel pretty like we're in a pretty good position right now, Ian.

Understood. That's very helpful. Thanks very much. I'll turn it back over.

Thanks, bud.

And our next caller is Sean Jack Raymond from James Limited. Please go ahead.

Hey, good morning, guys. Morning, Sean.

I just wanted to drill in on how the national accounts platform is managing during the current uncertainty. And also just wondering, are you seeing any large customers pull back or kind of change their tone on job outlook right now?

Great question, Sean. That was one of my earlier concerns early on of what the impact would be for our national account business. And so in the last 60, 75 days, I've really leaned in on that business. I've gotten very active with meeting with some of our largest customers directly myself with their executive teams. And our head of national accounts has also been very active keeping close tabs with all of his customers and understanding their activity levels and what they have coming up. As of right now, we're getting a very consistent message that the projects that they're all involved with and that are funded and getting started, they're underway and they're going to go. Now, that doesn't mean at some future time and future bidding that could change or something dramatic could happen. But right now, Sean, our customers tell us it's full steam ahead for 25. and into 26. So that's why, you know, I made the comment we're pretty encouraged how we believe 2025 is going to frame up. But we haven't seen any impact at this point, and we are very, very close with these large national and multinational companies.

Okay, that's great to hear.

And just one follow-up. Wanted to check in on how you guys are seeing the competitive environment right now with some of the smaller competitors. Are you noticing them getting more aggressive? Any sort of difference on pricing? Any sort of commentary would be great.

I would describe our competitors at this time as being very consistent. And I'm actually, you know, I thought, well, maybe we could start getting some aggressive price pressures or, you know, as obviously and, you know, maybe a little bit more so in the United States, but interest rate levels are still fairly strong in the United States. Someone to go borrow to buy a brand new Hydrobac or go lease a brand new Hydrobac, the cost of capital is pretty strong right now in the United States. And that for us, as obviously we have a competitive advantage with our fleet size, our ability to manufacture a truck, uh and our ability to do that at a very competitive cost um you know that that's a huge advantage for badger and our ability to borrow at very competitive rates um but our our competitors though they're not doing any dramatic moves so they're not you know really getting aggressive on their pricing uh we're not seeing a lot of people moving into markets or you know trying to chase certain things they're just being very consistent And also, they're not taking up their pricing aggressively either. It's just been very consistent. So, you know, as the summer season goes on, I think there's going to be a lot of work. And I'm hopeful that our competitors will, you know, just like all of us, we want to be responsible as we're doing the work out in the marketplace.

Right. All right. That's all great, Keller. That's all from me, guys. Thanks.

Thanks, Tom.

and that was our last caller so i will turn it back over to you rob oh i apologize we have one more caller that just popped in so i will um yuri link from canaccord please go ahead hey better late than never guys right hey good morning yuri good morning um just can you clarify the

The 4% to 7% fleet growth, is that on what you ended 2024 with in terms of units, or is that the average for 2024?

That would be based on the year-end number, Deary. So 4% to 7% growth in the fleet from the fleet that ended at the end of 2024. Obviously, I think, I don't know what the average to average would be, but I suspect that would be relatively similar because we have a steady production at our manufacturing plant, and while it might vary somewhat from month to month and quarter to quarter, it won't be enough to change that number from average to average. Yeah, okay. We did feel we had ample fleet as well at the start of the year to absorb some of the growth we're seeing in addition to that 4% to 7% growth.

And, Yuri, this might also help you as you're framing up kind of the average versus the year-end, is during some of the remarks I shared earlier, I reported that year-over-year in Q1, it's 9%. So you can see, you know, as Rob's saying, it's from year-end, but 9% growth for Q1.

Yeah. Yeah. So that's one part of framing our revenue expectations for 2025, where the fleet's going to land, and that's very helpful. Can you share with us RPT flat in the quarter directionally? Where do you see that number for 2025?

We haven't typically provided in-year guidance for RPT, but in Q1, flat is year on year you saw revenue growing 7% and our fleet at 9%, so the RPT is relatively stable. And we do see that stable to slight amounts of growth, I guess, over the next several years. We are trying to balance our growth to make sure that RPT remains at a level that gives us a pretty significant return on capital for every single truck that we're building. And you can see when you look at our trailing 12-month returns, that the returns we are getting on those current builds are quite attractive with a pretty good margin of safety over what we view as our cost of capital.

Yeah. Because the fleet growth obviously slows as we go through the year, right? You started out at 9% and So that flows, and I'm wondering if you have less fleet to absorb, if that might, all else equal, might positively impact the RPT in the later quarters of 2025?

I mean, obviously, we have a significant seasonality in Q2 and Q3, and RPT is going to grow relative to last year, and also with some of the pricing initiatives that we still have underway. That would generally be an expectation. I'd say that the growth last year to this year, if you recall, we came out last year with a growth profile in our fleet a little bit higher than where we ended up the year. We had a range. We ended up at the low end of that range. Our adjustments to our build occurred in Q2 and Q3 last year as we saw that little bit of pause in the market as the uncertainty over the U.S. election. started to take hold. So that was more of a 24-story than 25. We see 25 being relatively steady.

Yeah, and Erie, I'll add, a lot of times people take an RPT just as you're doing, which is how many trucks and what the fleet size is, and also the utilization. And obviously, those are two of the three components. But that pricing lever we continue to see good performance in our pricing in the last 18 months. And if this summer is like what we think it's going to be, we should continue to see pricing opportunities. I'm not going to say it's going to go out of this world, but there's going to be pricing opportunities as the summer season and the rain comes. We believe that also is a good lever for us for our RPT. So, you know, all three of those combined is, like Rob suggested, we're framing RPT to be probably, at a minimum, to be flat, but probably up while we're growing the fleet. And then, like we said, driving and working on utilization and the pricing.

Okay. Okay. Last one for me, just on SG&A, I mean, phenomenal job in the quarter. It sounded, reading the MD&A, that it might have benefited a little bit from some timing, favorable timing on SG&A. Can you provide a little over $10 million a quarter, the run rate, or is it still closer to the kind of $11, $11.5 million?

I think there's always going to be a little bit of timing quarter to quarter, depending on whatever initiatives are underway. And I think we've mentioned many times we do have quite a bit of IT and process change activity in a measured way going on almost constantly, and that creates some lumpiness in that spend. Annually, though, I view the amount of GNA 24 to 25 to be relatively stable.

Okay. Okay, that's it for me, guys. Thanks very much for the time.

Thanks, Yuri.

Our next caller is Trevor Reynolds from Acumen Capital. Go ahead.

Hey, guys. I'm just wondering if you could touch on what you've seen with the Operational Excellence Program at the manufacturing plant and just what you guys kind of expect to be able to translate over into the field with what you've achieved at the plant?

Great question, Trevor. So we were on a journey. It wasn't purely operational excellence. It was actually we put in a new leader in our plant in 2022. And the gentleman that we put in has a wonderful background in all things manufacturing, as well as all types of process improvements, Black Belt, Lean, Six Sigma, 5S, you name it, he's done it. He's done it at factories and businesses all around the world for large multinational companies. We were lucky enough to land this gentleman and he turned the plant from While it was doing okay, the plant was performing, to now the plant is extremely efficient. We've been able to add a tremendous amount of capacity and available capacity to the plant. And we've actually, in spite of three years of obviously inflationary pressures and costs, to keep the truck costs relatively flat. And so we've been very pleased with all of his efforts there. And if you haven't been to the plant recently, Trevor, really encourage you to come by. We host investors and analysts all the time at the plant and all are welcome. And those who have come by have said this plant is as good as any they've seen for what we do. And so that same gentleman, knew that the leadership team, and we talked about this at Investor Day in March of 2024, that we wanted to launch an operational excellence program within the business, within the operations side of the business. And he came to me and Rob and said, I would love to have that opportunity. And obviously, this gentleman has earned a tremendous amount of respect from all across the business in the field for what he's done at the plant. And so he was a natural fit to help us in our operational excellence journey. We were sharing an update yesterday with our board of directors that he's just on the tail end of his due diligence, the same exact program that he did at the manufacturing plant, where you take the first several months of the program, you really do your analysis, you do your any kind of research, you start understanding what the flows are, you start understanding where the opportunities are. And he has a laundry list of opportunities. And we're going to be visiting with him here in the next few weeks. And we're going to be prioritizing where we get the highest and quickest returns and get those implemented. And so we're very, very excited about that. This is the third company we've done operational excellence with. It's an 18 to 24-month journey. It's not a very quick hit like, you know, hey, we found something and everything's immediately fixed. But rather, you build that process and what do we need to do to fix or change something or improve? And then you start to pilot that in some pilot branches in various geographies. And then after that period of time of a few months of the pilot and you prove out your theory, Then you actually start to implement that, and you implement it out regionally and then ultimately company-wide. We plan on doing the rollout company-wide around the turn of the year for 26 is what our internal plan is, and we're pretty excited about that. We feel very comfortable being on track with that. More to come, though, on what the numbers will be and expected improvements, but we're very excited. kind of enthusiastic and bullish on, we're going to get some lift out of that. Anything you want to add, Rob? No, I have nothing else to add. I think that's a pretty good description. Yeah.

Yeah, Trevor, that's the process, if that helps you.

Yeah, no, it's great. It's great.

Thanks. Good for me. Okay, well, thank you.

And that was our last caller, so now I will turn it back over to you, Rob Blackadar.

Great. Thank you, operator. On behalf of all of us at Badger, thanks to our customers, our employees, suppliers, and shareholders for your ongoing support that helps to drive Badger's success. Operator, you may now end the call.

Thank you. This concludes today's event. Thank you for your time and your participation today.