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spk05: Thank you for standing by. This is the conference operator. Welcome to Black Diamond's first quarter results conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then 0. I would now like to turn the conference over to Jason Zhang, Vice President, Capital Markets. Please go ahead, sir.
spk01: Thank you. Good morning, and thank you for joining us today for Black Diamond Group's first quarter 2024 results conference call. On the line with us are CEO Trevor Haynes and CFO Toby Labrie, as well as COO of Modular Space Solutions, Ted Redman, COO of Workforce Solutions, Mike Ridley, and COO of LodgeLink Capital Markets. Please be reminded that our discussions today may include forward-looking statements regarding Black Diamond's future results and that such statements are subject to a number of risks and uncertainties. Actual financial and operational results may differ materially from these forward-looking expectations. Management may also make reference to various non-GAAP financial measures in today's call, such as adjusted EBITDA or net debt. For more information on these terms and others, please review these sections of Black Diamond's first quarter 24 management's discussion and analysis entitled, Forward-Looking Statements, Lists and Uncertainties in Non-GAAP Financial Measures. This quarter's MD&A financial statements and press release may be found on the company's website at www.blackdiamondgroup.com and also on the CR Plus website at www.crplus.ca. Dollar amounts discussed in today's call are expressed in comedian dollars unless otherwise noted and may be rendered. I will now turn the call over to Trevor Haines to review this purpose-operated highlights. Thank you, Jason. Good morning, and thank you for joining us and for taking the time today. Revenue of $73.5 million and adjusted EBITDA of $19.4 million, down 10% to 9%, from the comparative quarter, are admittedly light. We believe this to be transitory as it relates to timing of our variable custom sales revenues and, in part, to one-time front-end make rating costs. Chief among these factors is the lower than expected custom sales revenue from our US MSS division and lower associated operations revenues of transport and install. This is a timing issue, as our backlog of custom projects remains strong, as is our bid log and conversion rate, which leads us to believe that we will substantially catch up to typical or even stronger volumes on a full year basis. WFS incurred costs in the quarter for the relocation of camp assets from Western Canadian pipeline projects to our Eastern Canada terminal to strategically meet strong demand for future deployments. As well, WFS incurred a meaningful amount of upfront costs to open a large camp in Northeastern Alberta Supported by contracted mandates, this location is up and operating with strong volumes expected from Q2 through year-end and into 2025. Important to point out, the core rental business remains on solid footing with consolidated rental revenue of $35.1 million, which grew 2% year-over-year, despite the conclusion of two sizable pipeline projects in our WFS segment. The company has significantly grown and diversified our stable recurring rental revenues for the past six years. The continued strength of this focus can clearly be seen in this quarter's results. Our rental platform is robust with over $137 million in future contracted rental revenue, which supports our positive outlook for the balance of 2024 and beyond. We have a strong organic growth profile at the moment with committed capex higher than prior year with contract coverage in place for the bulk of this pre-build. Based on secured contracts, we expect solid growth in education in all three countries, which will bolster our contracted revenue heading into the latter part of this year and into 2025. Likewise, we have an active M&A pipeline, which could further accelerate the company's growth. MSS suggested EBITDA of $14.5 million decreased 10% year-over-year, which, as mentioned earlier, was driven substantially by lower sales revenue, which was down 55% year-over-year. This also negatively impacted associated non-rental revenues tied to these projects. We believe this is a quarterly aberration due to timing of certain projects. The MSS sales pipeline and backlog remain healthy, and we anticipate a catch-up in the coming quarter and throughout 2024, which will result in substantially higher sequential sales and non-rental revenues. MSS results remain healthy at its core, with rental revenue of $21.5 million, up 5% over the comparative quarter. Average rental rate per unit was up 9% on a constant currency basis. while utilization of 81% remains sound. Our consolidated utilization remains healthy and, in fact, at the upper end of the optimal range. Our MSS segment exited the quarter with contracted future rental revenue of approximately $103 million, a 5% increase over the comparative quarter with average rental duration of 53 months. We are pleased with the WFS performance in the quarter following the conclusion of two large pipeline projects in late 2023. WFS rental revenue of $13.6 million compared to $14 million in the prior year and adjusted EBITDA was also essentially flat over the comparative quarter at $10.9 million due in part to the prior mentioned one-time strategic relocation and cap opening costs. The rental revenue and EBITDA performance was achieved through significantly higher rental rates, offsetting a decline of 780 basis points in rental utilization, which finished at 63.5% in the quarter. Contracted future rental revenue is up 5% from prior year to $34.6 million, which leads us to expect rental revenue performance to remain relatively stable in the short term as we mobilize and redeploy assets in a higher rate environment and anticipate a return to rental revenue growth in the latter part of 2024. Our opportunity set is being driven by a broad and diverse set of customers across North America and Australia as we are seeing attractive opportunities in several verticals including mining and energy, infrastructure development, disaster relief, transitional and social housing, and other temporary accommodation requirements for government and industry applications as they arise. Our Australian operations remain a focus as we continue to strategically deploy additional growth capital in the country. We anticipate sustained rental revenue growth in this region supported by a strong education and government sector, continued activity with certain energy and mining customers, and expansion of our space rentals footprint with a new location recently opened in Melbourne. We expect that the increasing diversification of our WFS segment by geography, industry, and customer will lead to ongoing stability in rental revenue with higher degrees of predictable growth. Turning to LodgeLink, our innovative workforce travel platform, which continues to scale and sold over 115,000 room nights in the first quarter, a 9% increase compared to the same period in 2023. Q124 gross bookings rose 16%, with net revenue margins improving 20 basis points to 12.1%, and resulting in a net revenue increase of With an expanding base of corporate customers and the ongoing support of our supply partners that represent over 1.5 million rooms of capacity across North America and 15,000 properties, LodgeLink continues to scale and is expected to drive improving profitability levels throughout 2024. In summary, we encountered an air pocket in quarterly results due to mostly transitory causes, But overall, our rental platforms continue to show strength with demand tailwinds in end-market verticals such as education and infrastructure construction, where summer months are typically busiest. Our sales pipeline remains very healthy, and we anticipate strong uptake of organic growth capital investment throughout the year. Lifeline continues to scale, and most recently, we are seeing new daily volume records being set. Our M&A pipeline is increasingly active, and while we cannot predict timing or certainty with respect to deals, we have historically supplemented our ongoing growth with the good check-in acquisitions along the way. And that will very much remain a part of our playbook going forward. I'll now turn the call over to our CFO, Toby Labrie, for a more in-depth look at our financial position. Thanks Trevor and good morning everyone. The strength and diversity of our recurring rental revenue streams exemplify the value proposition of Black Diamond's diverse platform.
spk00: Our capital structure and strong balance sheet remain instrumental in funding our organic growth across multiple regions while giving us optionality to further support growth through strategic acquisition opportunities as they arise. In Q1 2024, we invested $17.3 million into organic growth capex, or 9% more than we did in Q1 2023.
spk01: Capital commitments at the end of the quarter of $39 million are up 11% year-over-year, and we continue to see a very active pipeline of primarily contracted opportunities to invest in new fleet at strong rates of return throughout various parts of our business. We exited Q124 with long-term debt of $199.8 million and net debt of approximately $188 million, which implies a net debt to trailing 12-month adjusted leverage EBITDA ratio of 1.8 times.
spk00: While there are no debt to EBITDA covenants related to our lending facility, we believe an optimal range for our business remains at roughly two to three times.
spk01: With $148 million of available liquidity, we growth both organically and through business acquisitions. The weighted average cost of debt in the quarter of 6.3% is up 90 basis points from 5.4% in the comparative quarter, partially due to continued modest increases in rates through 2023, as well as due to expiring interest rates loss. We believe our cost of debt remains highly competitive, and we continue to monitor interest rates and how to optimally manage these costs going forward. With ongoing growth of the business, we have seen an increase in administrative costs of $0.4 million or 2.5% from the comparative quarter to $16.4 million, excluding ERP implementation costs. The increase relates primarily to higher personnel costs to support growth. As we continue to enhance efficiencies and productivity throughout the growing platform, we are continuing to implement a new ERP system. LodgeLink has successfully rolled out its new ERP in the second quarter. During the first quarter, we incurred approximately half a million dollars related to our ongoing ERP upgrade. We have now shifted focus to the larger task of implementation at MSS.
spk00: In addition, we incurred $0.6 million of non-recurring, unsuccessful business acquisition costs. As Trevor mentioned, our M&A pipeline remains active
spk01: and we have a long track record of supplementing growth through M&A. In summary, and echoing Trevor's comments, our outlook remains constructive across the business. While earnings for Q1 did not meet our own expectations, we have confidence from our key business performance indicators that this was a temporary gap driven by very specific factors and not indicative of the core performance of our business. We expect sales and non-rental revenue performance to meaningfully strengthen in Q2 and beyond, which supports our expectations continued growth on a full year basis. We continue to deploy capital on opportunities in active regions across the platform and have the financial capacity to support current and future gap days. This, combined with strong contracted rental revenues, gives us confidence in our ability to continue to advance our strong growth track record and compounding cash flows and shareholder returns. With that, I'd like to turn the call back to the operator for any questions.
spk02: Thank you.
spk05: We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. We will pause for a moment as colleagues join the queue. The first question comes from Matthew Lee of Canaccord Genuity. Please go ahead.
spk03: Hey, morning, guys. Thanks for taking my question. Maybe just wanted to start with a bit of a clarification on the timing of sales here. I know that line's always a bit lumpy, but perhaps when we think about it for the full year of 2024, are you still expecting to deliver a number that's sort of in the range of the $80 million you did last year? Is that kind of the way I should think about that?
spk01: Hey, good morning, Matt. Thanks for the question. You're right to point out that the custom sales revenue for us is variable. Admittedly, this is one of the biggest variances we've seen on a quarterly basis. It is a recurring revenue stream in that we're active in the market bidding all of the time. At any given time, we've got backlog of work. In terms of what this looks like going forward and what we're looking at, it gives us confidence that we'll see a catch-up on custom sale revenue? Ask Deb Redman to give a bit more color.
spk00: Yeah, on both the rental revenue side and on the custom side, we mentioned our backlog has been growing. We're also seeing strong proposals in progress, strong proposals delivered, and recently awarded WIP that's just made making its way into contracted revenue are also strong. So those are above last year's levels and is a good determinant of growth in the course ahead.
spk03: Great. And actually a great segue into my next question on the MSS side. You know, rental rates expand about 8% year over year. That was kind of above our expectations. To us, it looks like the rate of growth is accelerating from 2023 levels. Can you maybe comment on the key drivers there and how we should think about that going forward?
spk00: Just so I understand the question, you're talking about do we expect the rental revenue growth rate to continue at the 9%? Is that your question?
spk03: Yes, correct.
spk00: Yeah. We are seeing, as the numbers show, continued rental rate growth. We expect that to continue. In some markets, we're getting rental rate growth across the platform. In other markets, the rental rate, like our list prices, are staying relatively the same, but since our average contracted revenue is very long in that 53-month type range, we we still see what we call rental rate momentum. So as we renew contracts at customers, we're typically getting significant rate increases. And as assets come off old contracts and go into new contracts, we're seeing rental rate increases. So that was a long way of saying we expect continued rental rate increases.
spk01: And rental revenue growth will also be impacted by growth capital. And where we're at right now in terms of how much capital is committed with our manufacturers for new fleet assets coming in this year, and especially as we move through Q2, Q3, with a very active education sector at the moment in all three countries, but specifically MSS, U.S., and Canada, you're going to see that capital by way of assets on the ground under contract and adding to our rental stream, so you'll get that growth as well. Go ahead.
spk00: That grows just a bit lumpy because a lot of our education assets come on stream in August, September, October. So it's usually a little bit back end weighted to the year.
spk03: Okay, that's helpful. And maybe if I could sneak one last one in. In the M&A, you mentioned that you were kind of looking at some M&A opportunities this quarter. It looks like you took a little bit of a charge there. Maybe just talk about what the market's like right now in terms of M&A. And are there any preferred geographies or types of assets that you're interested in right now?
spk07: I'll take that in two parts.
spk01: I would say M&A right now is more active than usual for us in terms of an opportunity set. Is there a broader theme to why that is? I don't think so. I think it's idiosyncratic for opportunity. But at any rate, we're seeing good opportunities and primary focus, as it has been for the last several years, is around our MSS platform, but we're seeing some interesting opportunities in all three businesses with the bulk of those being around our MSS business. We're quite pleased with our opportunity set, whether or not we'll be successful in terms of concluding deals on acceptable valuation in turn for Also, in our counterparties, there's a variable that's difficult to predict.
spk02: Okay, that's helpful. Thanks for that. I'll pass the line. Once again, if you have a question, please press star, then 1.
spk05: Please press star, then 1 now. The next question comes from Frederick Bastian of Raymond James. Please go ahead.
spk04: Hey, good morning. I was wondering if you could provide a bit more color on the custom project sales delays. There's a number of ways we can look at it. What actually caused those delays? Was it permitting issues? The other thing I was wondering is how many projects are we talking about here and to the extent you can provide where were the regions that were impacted?
spk01: Yeah, most of the impact is around our U.S. division, which is where we've got a fairly active trade in custom project sales based on how the market is structured in the U.S., a little bit different than Canada. So that's where the bulk of This revenue stream has been derived in the past and continues to be. Timing can be due to a number of factors, certainly permits, design sign-off, customer internal approvals, et cetera. Specific to this quarter, Ted, there's a little bit of an acceleration in Q4 and then some delays in Q1. Maybe you can get some color there.
spk00: Sure. So if you go back to Q1 2023, that was higher than normal new sales. This quarter is lower than normal. So the difference is exacerbated by the fact that Q1 last year was higher than kind of normal, the normal trend. So we look at the new sales as a trend. On average, year over year, are our new sales growing? And they have been. Any one quarter, they can be a bit lumpy. So what happened in Q1 this year is these are typically larger school installations or larger industrial projects. And, you know, if we have a number of orders where they're saying, you know, $1 million to $2 million worth of classrooms or industrial buildings, and then that sale slips, you know, from March into April, that $4 million can make a large difference between having growth or not having growth or being flat. So as Trevor said, you know, we pulled a couple of sales forward into Q4 based on the timing for when those buildings shipped from the factory to the customer site. That's when we book the building side of the revenue. And then when the installation is complete is when we book the installation side of the revenues. And likewise, we had some sales that slipped from February and March into April. And again, I think Trevor covered all the reasons. Permitting is usually the biggest one, but it could just be a one-week delay with the manufacturer not quite hitting their line time. And so that's what happened. So again, when we look at our order backlog and our WIC, that remains strong. We think we're going to start to recover some of that in Q2 and over the rest of the year. On the full year, we expect to be on our normal growth track.
spk04: You're pretty comfortable. What gives you the confidence that you're going to make up those sales? We're already more than a third into Q2. You're already seeing that activity transpire. I just wanted to get a bit more comfort around that ability.
spk01: We have contracts and product in the pipeline, so we do have visibility and we've got reasonable confidence in the volumes that we will show in Q2. I don't know that we're going to completely catch up when we think about where you would expect us to be on first half if we had more of a normal cadence in Q1 for custom sales, but we anticipate there will be a degree of catch-up in Q2, which will prove out the timing component of the explanation we're giving you that Projects that were in-house, contract in-house in Q1 from a timing purpose are going to be recognized as revenue in Q2 along with what we have in the backlog that will be delivered in Q2 in addition to that. We do have visibility. There's a time cycle. quote to contract time cycle and then from contract to in factory and then the timeline moving through the factory to delivery. So if you can think about it in a sequence pipeline like that, you can appreciate that we've got a reasonable degree of visibility of what's happening over the next couple of quarters.
spk04: Okay, I appreciate the level of detail. I will pass it on to others and make them back later.
spk02: Thanks. Thank you. The next question comes from Matthew Lee of Canaccord Genuby. Please go ahead.
spk03: Hey, guys. Just one more from me. So despite the several large projects that recently came off, the workforce solutions utilization actually seemed to bounce back a bit faster than we expected. Can you maybe talk about the utilization rate that you're expecting for the rest of the year, kind of what you're seeing in the pipeline for demand, and perhaps what type of rates you're getting on those new leasing contracts?
spk01: Yeah, thanks, Matt. We've been talking about this for the last few quarters. We had visibility that the two big pipelines were coming to completion, so Coastal GasLink and TMX, where we had caps deployed. We were signaling that we were going to have a degree of turbulence, if you will, as assets were coming off those projects. Yet a very active pipeline of new opportunities where we have assets moving in multiple different locations, as well as increased operations revenue of being paid to dismantle or assemble, et cetera, et cetera. So it's proving out, like I would say, Mike, probably more along the lines of a best case scenario. I mean, we've been able to show flat rental revenue year over year, despite those coming off higher rental rates on new deployments, offsetting the lower utilization. So I would say overall, it's transpiring the way we had anticipated. But Mike, do you want to add a bit more specificity? Sure. Yeah, we're anticipating utilization and record revenue improve over the course of the year and it's um you know it's uh not it's a result of just sort of our ongoing strategy around geographic diversification uh getting asked to cross canada and into the north and uh we have some interesting um opportunities in in in the us and then continued uh good growth uh in australia trevor touched on a an opening of a branch in Melbourne, what we just did in Q1. And that's a market of six million people. It's a significant market in our world. And then when you sort of look at the industry, the business is so much different today than it was five, ten years ago, where it was very much oil and gas-centric. It's a big focus on government tied to homelessness, micro-housing, disaster relief, mining. construction, and benefiting actually from a healthy oil and gas sector as well. So when you sort of look at all of that, it's not necessarily, we're less reliant on one or two major projects. And the business is super solid. In spite of two big projects coming off rent, we actually improved our contracted revenue going forward year over year, quarter over quarter. So healthy pipeline, when I look at the pipeline, I'm feeling... I'm pretty optimistic about what the year looks like ahead.
spk07: Okay, guys, that's helpful. Thanks. Thanks, Matt.
spk02: This concludes the question and answer session. I would like to turn the conference back over to Trevor Haynes for any closing remarks.
spk07: Thank you, Operator.
spk01: Thanks, everybody, for joining us today, and we look forward to... updating you after the second quarter and anticipate that we will return to our trend over the last several years with regard to business performance, the ongoing growth of the Black Diamond platform. So thank you. Have a great day.
spk02: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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