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spk00: Welcome to Black Diamond's second 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 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 Mr. Sean McPherson, Investor Relations Specialist. Go ahead.
spk04: Good morning, and thank you for joining Black Diamond Group's second quarter 2024 results conference call. On the line with us today is Chief Executive Officer Trevor Haynes and Chief Financial Officer Toby LaVrie, as well as Chief Operating Officer of Modular Space Solutions, Ted Redmond, Chief Operating Officer of Workforce Solutions, Mike Ridley, and Chief Operating Officer of LaunchLink, Kevin Love. 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 calls, such as adjusted EBITDA or net debt. For more information on these terms and others, please review the sections of Black Diamond's second quarter 2024 Management Discussion and Analysis entitled Forward-Looking Statements, Risks and Uncertainties, and Non-Gap Financial Measures. This quarter's MDMA, financial statements, and press release may be found on the company's website at www.blackdiamondgroup.com and also on the CDAR Plus website at www.cdarplus.ca. All dollar amounts discussed in today's call are expressed in Canadian dollars, unless noted otherwise, and may be rounded. I will now turn the call over to Trevor Haynes to review this quarter's operational highlights.
spk03: Thank you, Sean. Good morning, and thank you all for joining. I will provide a high-level overview of operating results and recent records achieved by the company, and then pass the call over to Toby DeVry to provide additional financial highlights and commentary. Results for the quarter were strong with revenues of $95.5 million and adjusted EBITDA of $27.9 million, up 5% and 24% respectively from the comparative quarter. Net profit of $7.5 million and earning per share of $0.12 are higher by 63% and 50% respectively compared to Q2's 0.23%. Management considers rental fleet operations and rental revenue to be Black Diamond's core business. The company generated a combined $35.3 million of rental revenue in the quarter, essentially flat from prior year. Within the business unit, MSS saw rental revenue grow by 6% from the comparative quarter to $22.2 million, which is offset by a 7% decline in the WFS rental revenue to $13.1 million, due to lower utilization following the completion of rental terms with two large pipeline construction projects late last year. Nonetheless, consolidated utilization at the end of the quarter was a solid 75.5%, with MSS at 80.7% and WFS at 62.4%. compared to 79.3%, 83.4%, and 69.8% respectively in the comparative quarter. Average monthly rental rates increased 9% in MSS from the comparative quarter. WFS average rates continue to rise as well. Overall management believes that the company's utilization and average rental rate trends on a year-over-year and multi-year basis are very healthy, in the context of current and long-term industry averages. Consolidated contracted future rental revenue, that is the total amount of firm contracted rental revenue at the end of the quarter, grew by 16% to $139.6 million compared to $120.1 million at the end of 2023. We believe the MSS contracted future rental revenue increase of 26% to $107.7 million from $85.4 million to be a highlight, as is the average rental duration increase to 58.7 months from 51.1 months. These are strong indicators of forward cash flow generation, stability, and visibility extending through the balance of this year and well into 2025. Year-to-date gross capital expenditures of $64.7 million, net of $6.1 million of maintenance capex, compares to $30.8 and $4.3 million in the first half of 2023. Fleet sales of $13.1 million increased from $8.9 million. Net capex, excluding maintenance capex, is therefore $51.6 million year-to-date. This is essentially growth capex, including the acquisition of a third-party rental fleet for $20.5 million effective June 28, adding 329 space rental units to our MSS fleet in the Western Canadian region. The MSS fleet has increased by 759 rental units in the first half of 2024 to 12,098 total units, The WFS lead count has reduced 1.3% to 81 units in the first half to 5,067 units. Capital commitments at the end of the quarter were $32.3 million, which is 36% higher than at the end of the comparative quarter. Substantially, all of this incremental traffic is for lead growth with customer contracts already in place. The key takeaway here is is that rental fleet growth is elevated on a year-over-year basis. Given it is substantially backed by rental contracts in place, management expects not only fleet growth, but also continued rental revenue growth in the second half of 2024 and beyond. The strong performance and growth of our modular rental platforms has contributed to a 300 basis point increase in our most important KPI as asset managers, which is the return on assets ROA metric. They came in at 19.9% in the quarter. Turning now to our non-ventical business lines, Logilink, our workforce travel platform, delivered record gross booking of $24.4 million and record net revenue of $2.9 million, up 25% and 26% respectively from the comparative quarter. Total room nights sold in the quarter rose 28% from Q2 of 23 to a record 129,737, and net revenue margins rose 10 basis points to 11.9% from the comparative quarter. The platform has over 17,000 active properties and 1.6 million rooms of capacity. Management believes lodge lengths is well positioned to generate strong year-over-year growth rates as it continues to develop an expanding user base in North America and Australia. MSS new and new sales volumes of $13.2 million increased 103%, or $6.7 million from a soft Q1-24, as idiosyncratic project permit timing issues have been resolved for the most part. However, this compares to $14.3 million in the comparative quarter, or 8% lower. This decline is primarily due to the lower existing fleet sales in this quarter to the comparative. Sales volumes for the second half of the year are expected to remain strong on a sequential basis. Non-rental revenue for MSS increased 31% from the comparative quarter to $16.1 million, which reflects the volume of field-level activity for transportation and installation of new buildings and mobilization of existing buildings. MSS staff's revenue grew 8% from the comparative quarter to $1.3 million. WFS sales revenue was elevated at $7.8 million, or 212%, higher than the comparative quarter due to opportunistic sales of unutilized large-format camp assets in Canada Non-rental revenue was $14 million, down 24% from the $18.4 million in Q2-23. Lodge services revenue was up 7% to $9.1 million when compared to the prior quarter. Sales and non-rental revenues contributed to a 49% increase from the comparative quarter in EBITDA for WFS to $17.3 million. The core rental platform is performing well in terms of utilization, average rental rate, contracted rental revenue outstanding, average rental duration, and ancillary revenue drivers, all of which are contributing to stable, recurring, and growing tax flows and strong return on assets. Elevated capex and the corresponding growth of rental units on the platform, the majority of which in an unspecified manner, will deliver continued growth into 2025 and beyond. Wadron continues to scale nicely, achieving new record volumes of revenues, and the company is well capitalized to support continued growth. For more color on current liquidity and other financial data points, I will now pass the call to Toby.
spk02: Thanks, Trevor, and good morning.
spk04: As you mentioned, the company had a strong second quarter with adjusted EBITDA of $27.9 million and earnings per share of $0.12 in Q2 2024, resulting in free cash flow to the business of $18.3 million in the quarter, up 8% in the comparative quarter. While we continue to pay a modest dividend and opportunistically purchased and canceled $1.2 million worth of shares under the normal course issuer bid in the quarter, we have prioritized the reinvestment of this cash flow into the business, where we are seeing continued demand for a growing asset base at high rates of return. As a result, we deployed $53.5 million in capital expenditures in the quarter, mainly on new fleet assets associated with contract-backed customer projects. These capital expenditures included the acquisition, Trevor referenced, of a fleet of 229 space rental units, which provide a combination of contracted revenue and high-quality units that are less than five years old to meet incremental demand in our existing business. rather than having built brand new units. The acquisition also provides inroads to a new operating area in the Kitimat region of northwestern British Columbia, and an exciting new indigenous partnership with the Gichatla Nation. Besides the acquisition, the remainder of the strong capital expenditures in the quarter were primarily invested in growing our rental fees. We continue adding units to meet high levels of demand and utilization for education-related assets in Canada, the U.S., and Australia. We're also adding space rental units in MSS throughout North America related to contracted opportunities where we didn't previously have sufficient fleet to meet our customer needs. There's also a slow announce of speculative fleet growth in MSS, particularly in U.S. branches where high utilization warrants the investment to ensure we can adequately service customer needs. And finally, in our WFS business, we are investing opportunistically in new assets backed by long-term contract opportunities, particularly related to small format accommodations in Canada and the United States, where we've experienced high utilization. Beyond growth cap ex and part of capital expenditures this quarter was $3.4 million of maintenance cap ex, which includes all major refurbishments and betterments to existing assets. We've had a strong focus for many years on operational excellence, which in our business is all about the protection and maintenance of our rental fleets. Specifically, we design and procure assets that are well-built to meet our high-quality standards and customer needs. And for existing fleets, we have defined and maintained minimum quality standards for all fleet units so that we deliver like-new value even when assets might be several years old. It gives us confidence in the quality and value of our rental fleet, which is the foundation of our balance sheet. It also reassures us that the level of maintenance traffic incurred is appropriate and sustainable to maintain the long-term value of our rental assets, ultimately benefiting Black Diamond, our clients, and our shareholders. Overall, the net investment in the business through continued maintenance and strong growth capital expenditures was funded by internally generated cash flow and by draws against the ABL credit facility. We exited Q2-24 with long-term debt of $239.7 million and net debt of $225.9 million, which results in a net debt to trailing 12-month adjusted leverage EBITDA ratio of 2.1 times. While there are no debt EBITDA covenants related to our lending facility, we target a leverage ratio between two to three times, so we remain at the low end of that target range. With over $100 million of available liquidity and an outlook for continued strong pre-cash flow from the business, we are well positioned to continue to fuel ongoing growth. The average cost of debt in the quarter was 6.27%, up from 5.56% in Q2 2023. While this has increased with reference rates over that period, we continue to view our borrowing costs as highly competitive and flexible. At these borrowing rates, we are leveraging approximately 40% of the book value of our asset base, which is generating an ROA of 19.9% in a quarter, yielding a generous economic premium. We remain focused on maintaining and improving capital efficiency, as measured by ROA, and growing our producing asset base, which compounds into growing earnings per share. As a result, as we continue to grow the business, we have seen an increase in administrative costs of $3.1 million, or 18% from the comparative quarter to $19.9 million. Administrative costs excluding ERP costs of $1.8 million increased by only 8% compared to Q2 2023, while growth of the overall business measured by gross profit increased by 17%, indicating continued improvement in cost efficiencies. We expect those cost-efficiency improvements to accelerate following the implementation of the new ERP systems, which we are approaching in phases. During Q2, we successfully went live with the new ERP for large links and are leveraging that experience in finalizing plans to move ahead with the next phase for the MSS and corporate business units. In summary, we remain poised to continue compounding returns into growing cash flows based on the receptive market conditions that we see in our businesses. We are well contracted with $139.3 million of rental revenue in place and ample available liquidity. Positioning as well, not only for growth opportunities, but also should the company need to adjust our investment strategy to local or broader market slowdowns, which makes Black Diamond very resilient in any market conditions. With that, I'd like to hand the call back to the operator for any questions.
spk00: Thank you. We will now begin the question and answer session. To join the question queue, you may press star than one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing the keys. To answer your question, please press star than two. Today's first question comes from Matthew Lee at Canaccord Genuity.
spk02: Please go ahead.
spk01: Hi, guys. Thanks for taking my question. Just in terms of MSF utilization, should we be thinking about the 80% to 81% range of where you're comfortable balancing profitability and the ability to serve customers, or is there potential to increase that further to set the assets a little bit more?
spk02: Matt, thanks for the question.
spk03: I think the best way to look at our utilization, and I'll get Ted to provide some commentary as well. We look at a range of utilizations. You've got to think about our MSS leads as being a mix of types of units, and where we have asset types that have a shorter call-out cycle, more of our smaller transactional. You need assets on hand to be able to meet demands that comes in. And so we look at full utilization on that asset. and we're between 75% and 85%, so we'd be right in the middle of that. We can treat education assets a little bit differently because of how long the duration of assets on hand and a little bit more visibility coming up. So we very much look at a blended utilization, and we think that around 80% is fairly often that thing is different.
spk04: Yeah, I don't have much to add because I think that's exactly right. We're in a spot that we're comfortable with. We've got units in both sizes to meet customer demands. And if we get short in a certain size, then that's where we spend CapEx. And we don't spend CapEx unless we are short in units or we have future contracted demand.
spk02: So we think we're right kind of in the right range right now. Okay, that's helpful.
spk01: And then maybe just in terms of the newly acquired asset, you know, great to see the growth, obviously, but aside from the attractive unit price and the existing contracts you touched upon, is there anything that makes that market particularly attractive? And maybe how should we think about the opportunity for other companies this year?
spk02: We approached CapEx in the first instance where we have a customer that's
spk03: and a contract in place before we order the asset, and that's the bulk of our CapEx. And the primary reason why our CapEx is elevated this year from last year, we're directly matching demand to ordering of assets. What we're very focused on is ensuring that our return on assets or our return on investment maintain hurdles, and we ensure that the way we're contracting rent we're happy to grow, but we're not interested in eroding our returns on capital. So that's primarily how we approach CapEx in terms of a bit more specificity of what we're seeing in types of assets and areas of business. I'll ask Ted to add a bit more there.
spk04: Yeah, I think strategically we look at how can we grow while maintaining strong utilization. So Growing market share is one of the easiest ways to do that. So where there's demand in a market that exceeds the units we have, we'll add units there. We're also, you know, with some of the acquisitions we've done, we have markets where we don't have a full product line or we're not serving all the different end customer markets, but we're working to grow additional penetration into new end markets and new product types.
spk02: So we think there's significant growth opportunities available in all those areas ahead of us.
spk01: Great. And just one clarification. So the 329 units you acquired this quarter, those already came with the contract and revenue associated with them?
spk03: Essentially, all of the units were in place on a project in generating revenue. To be clear, that project is in its late cycle, and so there will be a repositioning of assets. But we've got visibility and demand where we think we absorb those assets that will come out of that project. That we are seeing good demand criteria or drivers in Western Canada, right?
spk04: Yeah, that asset class, those are primarily complexes, so to the 18-unit complexes and we've got strong demand for that asset class for projects across Western Canada. So that was part of the reason that we did that acquisition was for the existing contract of revenue but also for other projects that we saw demand for.
spk03: There's been, you know, that here, Western British Columbia, has a number of projects underway or coming up with regard to LNG and other export facilities being expanded or greenfields built. So we're quite excited to have a key partner in the area with the Gigantla Nation, but also to have assets that we can match up with those projects.
spk02: So a strategic piece in our view. Great, thanks.
spk01: I'll pass the line.
spk00: Thank you. And as a reminder, if you'd like to ask a question, please press star then 1. Today's next question comes from Frederick Bastian with Raymond James. Please go ahead.
spk02: Hi, good morning, guys. Hello? Yeah, good morning, Greg. OK, sorry.
spk05: Rental revenue growth at MSS is tracking at 5% to 6% so far this year.
spk02: Is it reasonable to expect the rate of growth to pick up in the second half?
spk03: Where you would see rate of growth pick up would be in the quantum of assets that we're bringing onto the platform. Keep in mind that our North American education business being placed through the summer months when kids aren't in school, and then you see the uptick in rental revenue as the assets are on rent beginning with the school season in the fall. So, Ted, based on the volume of new education assets going into the U.S. and Canada, we expect a fairly meaningful uptick in the revenue stream associated with our education.
spk04: revenue line. Yeah, definitely. Some of those units are already in the fleet because we're buying a significant number of units, so it takes a while. We've got to pre-order them, and then they don't all get completed on September 1st, so they start getting delivered in June. So we're already seeing some of those in our fleet, and as you heard from Trevor on the contracted revenue, we've got really strong contracted revenue, so that's a signal of those units going on rent. in September, so we see that in both our Canadian and U.S. education fleets. We also have the B.C. Activision units that just went into our fleet literally the last day of the quarter, and so we'll see some rentals from those in Q3 and Q4 as well.
spk03: So we definitely will see continued growth in our rental revenues. And the other big indicator that you can see in the results is you do a lot of field-level activity around school classrooms. And so part of the elevated non-rental revenue in the quarter relates to the work of positioning assets. Schools move around in July, August, but keep in mind that southern U.S. schools typically Some of that is in June, right?
spk04: Correct.
spk03: And a lot of those schools start in early August, so we have to get the units in place and all of that.
spk05: So they have to be installed in May and June. Okay, and do they start generating revenue the moment you plug everything in, or does it start when the school year starts?
spk02: A lot of our contracts would be They're all long multi-year contracts, but they're typically starting at the start of the school year.
spk05: Okay. I have a similar question, I guess, for the workforce solutions segment. You know, there was obviously a lull that we all expected with the, you know, the completion of the pipeline contracts a year on rent, but As you start deploying more assets, can you expect that pace of growth to also accelerate in the back end?
spk02: There's a couple things going on in our WFS business.
spk03: As you touched on there, the two big pipeline camp projects that came to conclusion last year caused a reduction in utilization as the assets came back. um you know we have seen an uptick in projects mike uh late last year so that's sort of filled in uh part of part of that gap also that's a rake or higher so that closes the east gap and so as we continually deploy um gradually we'll be bringing up utilization um and we've also sold off a little bit of that capacity And then we've been investing in other asset lines, WFS, that are showing really good characteristics for demand, rate, and utilization generally. So there's a number of things going on there. Mike, want to add a bit more? Yes, sure. Thanks. I would also say, like, our small format business is great. Of course, we have to deal with what seems to be now an annual occurrence with fires and everything that goes with that. We position ourselves to get in touch and get to know these various government entities that are tied to this. Unfortunately, there is a fire, so there will be opportunity for us. We expect season growth in that area. Our U.S. small format business is is very strong as well, and expect to see digitalization for the balance of the year down there. And then when you go over to Australia, you expect to see a little bit of improvement with utilization in that market as well. When it comes to the large format Canadian business, the pipeline is fairly active. The projects aren't what they were with TMS and GGL, but there's a lot of different opportunities, be it mining and insurance.
spk05: Cool. That's great. And I just want to ask another question on workforce solutions. The margins were quite high during the quarter. The other margins were close to 40%. So I'm wondering if you could explain what helped drive this and whether we should expect this to kind of normalize into Q3 and Q4. Thank you.
spk04: Sure. Toby, Frederick. Yeah, we had some unusual case of costs with some projects where costs in Q2 were unusually low for some of the projects that we had. So we expect margins to return to normal in future quarters.
spk02: So this one was a little unusual. Got it. Thank you. Thank you.
spk00: And this concludes our question and answer session. I'd like to turn the conference back over to Trevor Haynes for the closing remarks.
spk02: Thank you again for joining and you're interested in Black Diamond. Hope everybody has a great weekend.
spk03: Thank you.
spk00: Thank you, sir. This concludes the conference call.
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