Black Diamond Group Limited

Good morning, and thank you for attending Black Diamond's third quarter 2022 results and conference call. With us on the call today is our CEO, Trevor Haynes, and CFO, Toby LeBoury. We are also joined today by COO, Modular Space Solutions, Ted Redmond, COO, Workforce Solutions, Mike Ridley, COO, LodgeLink, Kevin Lowe, and CIO, Patrick Ballanson. Our comments today may include forward-looking statements regarding Black Diamond's future results. We caution that these forward-looking statements are subject to a number of risks and uncertainties that may cause actual results to differ materially from expectations. Management may also make reference to non-GAAP financial measures in today's call, such as adjusted EBITDA or net debt. For more information on these terms, please review the sections of Black Diamond CERT Quarter 2022 Management's discussion and analysis entitled Forward-Looking Statements, Risks and Uncertainties, and Non-GAAP Financial Measures. This quarter's MD&A news release and financial statements can be found on the company's website at www.blackdiamondgroup.com as well as on the CR website. Dollar amounts discussed in today's call are expressed in Canadian dollars unless noted otherwise and are generally rounded. I will now turn the call over to Trevor Haynes to review the quarter.

Thank you, Jason, and good morning. Thank you for joining us to discuss our third quarter results. We are highly pleased. with the company's results from the quarter and the track record we have built up over the last several years, showing steady growth of our core high margin recurring rental revenue across a diversified asset rental platform. This continued growth has given management and the board further confidence in the stability and diversity of our existing platform, and concurrent with the third quarter results, we are announcing a 33% increase to the annual dividend per share, moving to $0.08 from $0.06. This is the company's second increase since reinstating the dividend in 2021, and we will continue to monitor and reevaluate the dividend as our diversified cash flows grow. We recently announced that we have closed the strategic acquisition of an Ontario-based modular rental company specializing in the education and government sector. The deal values the acquired company at $54.5 million and adds over 1,850 units to Black Diamond's MSS, which is now over 11,000 units or greater than 6 million square feet of rentable space. Adjusted EBITDA for the quarter over the last 12 months was approximately $7.8 million. We expect forward EBITDA growth based on recently signed contracts and further capital investment of $4 million this year. The acquisition also increases our base of contracted revenue by approximately $33 million and accelerates our growth in an active central Canadian market. In the third quarter, Black Diamond reported consolidated rental revenue of $31.5 million, which grew 21% from the comparative quarter. This drove an adjusted EBITDA of $26 million, which is 32% above year-ago levels. The outlook for our MSS business continues to be positive. Utilization in the quarter was 86%, while average rental rates increased 8% on a constant currency basis. This drove EBITDA of $17 million for the quarter, up 36% from the comparative quarter. We expect continued year-over-year growth in our core high-margin rental revenue driven by fleet and rental rate growth and believe rental rate per unit will continue to trend higher in coming quarters as assets coming off of contracts are renewed at higher spot rates. As we have mentioned on previous calls, increasing unit rental rates across the fleet have a powerful effect on returns, especially on those assets that may have been acquired some years ago. We continue to view our MSS business as a strong, diversified, cash-flowing business driven by a suite of specialty rental assets with long, useful lives, low maintenance, and utilization by customers in multiple industries and geographies, with a strong level of contract coverage, which pro forma our recently announced acquisition is almost $100 million. substantially from a year ago. We continue to see attractive growth opportunities in our North American MSS markets and remain optimistic around this segment into 2023. The outlook within our WFS business is likewise positive, driven by existing contracts in place, ongoing strength in Australia, steadily improving activity levels in Canada, and the ability for our commercial teams to drive operating leverage by putting idle assets back to work. Consolidated utilization within WFS improved to 60% from 51% in the comparative quarter and helped drive adjusted EBITDA of $14.6 million, up 16% from the comparative quarter. Return on assets in the quarter of 42% was up from 34% last year. We remain focused on diversifying our revenue streams in WFS and are seeing opportunities and signing new contracts in mining and resources, disaster recovery, social housing, and remote infrastructure. LodgeLink set another record in room night sold of almost 95,000, which was up 57% year over year. Net revenue for the quarter was $1.8 million, up 50% from the comparative quarter. Both sides of the platform are seeing healthy levels of growth as our unique corporate customer count grew to 702 and listed capacity stands at over 920,000 rooms at the end of the quarter. We continue to be very bullish around the long-term prospects of LodgeLink and believe that consistent growth in room nights sold is a strong indicator with respect to the value proposition our corporate customers and supply network are deriving from the platform. In summary, we believe Black Diamond is very well positioned, given the diverse nature of our cash flows, strong contract coverage, and healthy balance sheet, even in a higher interest rate or possible recessionary environment. We are continuing to see good opportunities across our geographies for both organic and inorganic growth, and look to keep prudently growing our diverse rental platform and crew travel ecosystem in line with our long-term vision with a keen focus on driving stakeholder returns. I will now hand the call over to Toby Labrie to provide more detail on the quarterly results. Toby.

Thank you, Trevor. Total adjusted EBITDA for the quarter was $26 million, an increase of 32% from Q3 2021. This was driven primarily by improving consolidated rental revenues of $31.5 million, which were up 21% year-over-year. Consolidated revenues of $95.9 million were down 12% from the comparative quarter, primarily due to relatively high levels of lower margin non-rental revenues in the comparative quarter. The consistent increase in our core recurring high margin rental revenue streams resulted in a five percentage point improvement in return on assets up to 24% for the third quarter of 2022 from the same quarter last year, which demonstrates the continued improvement in profitability in our existing asset base as a result of increased scale and efficiencies. During the quarter, we continue to invest organically in our fleet to drive recurring compounding returns with $15 million of CapEx with attractive economics and long-term contracts. Alongside reinvestment of internally generated cash flows into rental revenue generating fleet assets, we also returned capital of $4.3 million to shareholders in the quarter by redeeming $2.2 million of preferred shares of a subsidiary, paying our quarterly common share dividend of 1.5 cents per share, and buying back approximately $1.2 million of common shares. All of this was achieved while net debt of $148 million declined from $153 million at the end of the comparative quarter and also declined sequentially from Q2 2022. Net debt to trailing 12 months adjusted leverage EBITDA of 1.9 times decreased from approximately 2.7 times in Q3 2021. We exited the quarter with roughly $125 million of available liquidity from our asset-based lending facility with an average interest rate on outstanding debt during the quarter of 3.8%. Nearly one-third of our outstanding long-term debt remains hedged at attractively low rates locked in during 2021 and early 2022. Free cash flow in the quarter before growth capex was $23.9 million, up 40% versus the comparative quarter, and diluted earnings per share of 15 cents was up 50% from 10 cents in Q3 2021. Given the continued growth in our diversified rental business, our free cash flows have continued to improve and our debt levels have declined while we grow adjusted EBITDA at a significant rate. This, combined with our ABL facility, provides us with ample flexibility to perform accretive business acquisitions such as the one we announced earlier this week. As Trevor mentioned, the adjusted EBITDA generated by this acquired business was approximately $7.8 million. The $54.5 million acquisition was funded entirely through debt, which was primarily drawn from our asset-based lending facility. The assets will be qualified as eligible inventory in our ABL facility, further expanding our borrowing base. We also expect to increase the size of our ABL facility from $300 to $325 million, and pro forma the acquisition, we expect our net debt to trailing 12-month adjusted leverage EBITDA to be at the midpoint of our longer-term range of two to three times. This should leave us with significant liquidity and dry powder to continue our growth strategy. To echo Trevor's comments, We are continuing to see good opportunities to compound returns within our rental platform, which has resulted in strong and growing free cash flow generation across a diverse mix of geographies and markets and customers. Our balance sheet and liquidity position have and are expected to continue to allow for a high degree of flexibility moving forward as we continue to pursue both organic and inorganic growth. With that, I'd like to open the call up for questions.