Badger Infrastructure Solutions Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to the Badger Infrastructure Solutions Limited second 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 me 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, July 31st, 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.

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 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 2024 MD&A along with the 2024 AIF. I will now turn the call over to Rob Lackader.

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 customer 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 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 hydroxys quarter versus 59 in Q2 of 2024. We retired 30 units in the quarter and 62 units year to date. We refurbished nine 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 a 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 roadmap 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 1.4 times debt to EBITDA, down a 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 cancelled 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 collapses 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 fire. 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 Badgers team's goal is to be the supplier of choice in the critical infrastructure industry.

With our industry-leading fleet and a broad branch network across 44 U.S. states and six Canadian provinces, we believe Badgers is well-positioned to capitalize on these long-term in-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. For those of you 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 me to say your name and company before asking your question. And so our first caller is Yuri Link from Canaccord Genuity. Go ahead, Yuri.

Good morning, Rob and Rob.

Good morning, Yuri. 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 today. It's not our desire at all to accelerate any retirements, but rather just have them kind of normal course. When the truck's 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, during COVID period a few years back, 2020, a little bit in 21, business was slower than usual. 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'll probably be on the lower end of those refurbs. I don't know if you want to add anything, Rob.

Well, 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 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 it 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 without having to put on the truck build.

Okay, thanks for that. 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, you know, the nature of your work in terms of, you know, 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 mention 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, Uri. 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 non-destructive 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, You know we track, a lot of the data Center owners calls as well, and what they're forecasting for their capex etc and it looks to continue to be strong for the next. i'd say two to three years and so we're pretty enthusiastic and 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 Badgr fits into a data center project, once a single utility gets brought into the data center project, it's where Badgr 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 multi-billion 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. They're 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. Obviously, that's not our only focus. We do a lot in non-res 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 yeah, that's our perspective on that, Yuri.

OK. Very helpful, guys. I'll turn it over and congrats on another good quarter.

Thank you. Your next question comes from Ian Gillies at Stifle. Go ahead, Ian.

Morning, everyone. Morning, Ian. 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 2020. 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.

Yeah, 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. You know, we think that the current rate of growth is probably what we're seeing for now.

Yeah, 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 ways you've been improving the margin?

Yeah, 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 cheerleader, Rob Dawson, biggest driver and cheerleader 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's doing to grow the top line makes it through to the bottom uh and that really is keeping the cost under control uh and not letting the cost uh scale at the same rate that the revenue is going up a lot of that is both in branch local costs or operating costs at the branch level but even in our corporate functions and you know ian you've watched some of our journey but while the business has scaled a lot in the last three years. We have not scaled up that overhead functions in the GNA, 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. 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 measure in a very specific way, labor rates, labor utilization, you know, 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, just very simple, but doing those simple things better and better every hour.

Understood. And last one for me. I was hoping to address the NCIB. It obviously hasn't been active so far this quarter. It slowed down a little bit in Q2. With the move in the share price, should we view that as that you won't be active with where the share price is, or is there other items that are going on there that might have precluded you from using it?

Cover that.

You know, with the share price rising as much and as fast as it did, We did pause our NCIB program, and we've been discussing with our board the conditions under which we would start buying shares again. We think at the moment, I think you shouldn't expect there to be a lot of large purchasing at the moment, but we do plan to put it back in place, the NCIB program, and see it as almost an evergreen program. and we'll always be ready to buy shares with the, you know, ample capacity we have on our balance sheet if we see good opportunities.

Right. And to clarify, Ian, when Rob said we paused it, he means like we just paused the purchasing. But certainly it's in place. You have to remember, and Rob and I were chatting about this at an investor conference, let's say six or eight weeks ago, but When that was put in place last August, we were at a 52-week low. And now the company has been trading in that 52-week high range. But we very much have a desire to keep it in place. We'll renew it or apply to renew it here shortly. And when that gets completed, as we expect it will, we'll do a press release on that. And if the shares get in a position where we're ready to start buying, we will certainly, we have ample capacity to do that as Rob suggested. So hopefully that clarifies that to you.

No, that's very helpful. Thanks very much. I'll turn it back over. Thanks, bud.

Our next caller is Krista Friesen from CIPC. Go ahead, Krista.

Hi, thanks for taking my question. Maybe if we can just talk a little bit more on the data tool. So has that been fully rolled out at this point? And maybe do you expect to see additional operating leverage from this tool throughout the remainder of the year?

Yes, we have branded it the Badger Analytics Platform or BAP. But it basically is our analytics platform that can identify where there's opportunities in the business for improvement, whether that be, as Rob suggested a bit ago, a labor opportunity. Because remember, we're a very labor and asset intensive business. But if we can have better labor management, better labor efficiency, the platform is starting to identify opportunities where we have areas of opportunity. And so far, it's working wonderfully. Very pleased with it. And company-wide, it is rolled out. But I'll also share on the asset side, we have integrated that and been integrating it pretty diligently with our new Fledio system. And so Rob mentioned this a bit ago, but our maintenance and repair, our M&R system, We're starting to see opportunities with that, Krista, and that is where we can start to leverage our spend, start to work on some purchasing programs with certain vendors and consolidate certain vendors, and that's helping drive efficiency. And we're getting that through that Badger Analytics platform, which is integrated with the Fledio system. So it's kind of a... The flywheel that was slow to get started, but as the flywheel has been moving, now it's underway, and we should continue to get some momentum out of that. And we're pretty enthusiastic about it. So anything you want to add, Rob, on the data?

I think your overall question is, would we expect to see continued margin improvement directly from that data tool? I think that data tool is just one of the of the ways by which we're going to be able to measure and drive certain initiatives. But we do have a very good roadmap of initiatives that we continue to see opportunities for improved margin over the next few years, just as we've guided to. So the answer is yes, we will continue to step up in our margin and execute and continue to execute as we will. Our adjusted EBITDA and earnings per share should continue to rise at rates that exceed our revenue growth.

Okay, great. And then maybe if you can just talk about more broadly the pricing that you're seeing in the market right now, and if there's any kind of geographic pockets of weakness or strength there.

Yeah, so, Krista, we're seeing... kind of continue pricing opportunities certainly in markets that where there's solid demand and especially in the summer season we're seeing and we're working toward capturing those pricing opportunities you know obviously for competitive reasons and we have competitors who listen to the call as well as investors and analysts. We're not going to name out, okay, this one market has really strong pricing and this one area has weaker pricing. But our desire, our strategy, and from the moment we really started putting our energy and efforts toward our pricing process and programs, and we built our pricing tool called the CPQ, Configure Price Quote Tool, for Badger. We really focused it on being a dynamic pricing tool rather than a fixed static type pricing tool. The pricing is actually done at the local and regional levels. It is not done out of the corporate office, but we have a lot of training, a lot of development on those tools on those systems and strategies and we talk through, we do sales training and negotiation training for our sales reps, et cetera. If you, you know, from your perspective, Chris, if we're trying to figure out, okay, where might the pricing opportunities be? You can just start to look at where some of the highest demand areas are, where the largest construction projects, construction demand, maybe even some of the data center projects, et cetera. You'll start to see pricing opportunities. And then there are pockets, only a few, but there are pockets where there's not as much demand, and that's where you might see some pricing softness. But even where we have pricing that's not as strong as the higher demand markets, it's still pretty solid pricing. We're not seeing it go negative. I'm not aware of it really going negative in any market right now.

So pretty encouraging.

Thanks. I'll jump back in the queue. Thanks, Krista.

And our next question is from Sean Jack at Raymond James. Go ahead, Sean.

Hey, morning, guys. Morning, guys. So happy to hear that many of these large projects are now getting moving. Wondering how that affects the sales mix on a national accounts versus small jobs basis in the short term. And also just wondering, should we expect any, like, higher margin accretion from stronger utilization from that?

I'll cover the first part.

Rob can talk a little bit about the margin and margin accretion. The mix is actually, it's probably the most balanced since we launched the National Accounts Program right now. So we have good demand in many of our national account customers. Some of them are tied to some of the projects I named earlier. But a lot of those national accounts are actually doing just standard infrastructure-type projects. Think in terms of bridges. Think in terms of some of the grid hardening I talked about earlier. But just general non-res construction, non-residential construction, there's just solid demand. But right now, as the company continues forward and we're growing, We're seeing probably the most balanced level between national accounts and local accounts since we launched the National Accounts Program. That's encouraging for us. We are not looking to have national accounts be the only part of the business, but we also don't want local accounts to dominate as well. A good mix has us a lot more diversified than if we were heavy on one side or the other. Because think in terms of the national counts, they are a more concentrated spend into less number of customers. But obviously, with a more concentrated spend, you know, it has probably a little bit more aggressive pricing. And so that's where how we kind of view it is we like a good balance between local and national. And right now we're achieving that. So if you want to talk a little bit about the margins.

On the margin side, it's very project specific, but I would say given what Rob just said about the relative balance between local work, say, and national accounts work, you know, I don't think that mix being, or I'll restate that, the fact that that mix is relatively stable means that, you know, we get good margins from this project work because we get really high utilization. but it isn't driving any of the improvements. It's more our management of labor and the operating leverage we have in the business overall that's driving the margin improvement.

Okay, perfect. That's a great call, guys. That's all from me.

Thanks. And that's all the callers we have in the queue at this moment. So I'll turn it back over to you.

Thank you, Operator.

So on behalf of all of us here at Badger, we want to thank our customers and our employees, suppliers, and shareholders for your ongoing support that drives Badger's success. Operator, you may now end the call.

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