Black Diamond Group Limited

Ladies and gentlemen, thank you for standing by. My name is Elaine and I will be your conference operator for today.

At this time, I would like to welcome everyone to Black Diamond Group's second quarter 2026 results. I'd like to remind everyone that all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. and if you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad to raise your hand and enter the queue. If you would like to withdraw your question, press star one again.

Thank you.

I will now turn the call over to Emma Covenden, Vifi Investor and Stakeholder Relations. Your line is now open.

Good morning and welcome to Black Diamond Group's second quarter 2026 results conference call. With me this morning we have Chief Executive Officer Trevor Haynes, Chief Financial Officer Toby Labrie, Chief Operating Officer of Modular Space Solutions Ted Redmond, Chief Operating Officer of Workforce Solutions Mike Ridley, and President of Royal Camp Services John Warren. 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 poll such as adjusted EBITDA, adjusted EPS or net debt. For more information on these terms and others, please review the sections Black Diamond Second Quarter 2026 Management, Discussion, and Analysis entitled Overlooking Statements, Risks and Uncertainties, and 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 Cedar Plus website at www.cedarplus.ca. Dollar amounts discussed in today's calls are expressed in Canadian dollars unless noted otherwise and may be rounded. The format for today will be similar to prior conference calls. Trevor will start with a high-level overview of the company's performance and highlights for the quarter, including our view of the current and forward-looking operating environment. Trevor will then pass the call over to Toby for a more in-depth summary of the financials, including details from the quarter, and then we will open the line for Q&A. With that, I'll turn the call over to Trevor.

I appreciate each of you taking the time to join us. Black Diamond's earnings conference call today. Yesterday afternoon, the company reported its second quarter 2026 results, demonstrating continued stability across the platform as we enter the second half of the year. Consolidated revenue of $129.2 million increased by 23%, driven by strength in recurring rental and lodging revenue streams. contributing to adjusted EBITDA of $30.4 million of 4% from the comparative quarter. The moderation in margin is a result of the company's evolving revenue mix following the acquisition of Royal Camps with increased contribution from large services revenue, which includes catering and hospitality that has lower margins than our core rental businesses. Nonetheless, this area of the business is performing well further diversifies our service offering and provides a growing source of meaningful revenue and cash flow. Consolidated rental revenue increased 17% year-over-year to $45 million, and contracted future rental revenue remained healthy at $136.5 million at quarter end, showcasing the resilience of this recurring revenue stream. The quarter reflected good progress against several strategic priorities, including the successful implementation of the new ERP system for our MSS and corporate divisions. This was completed by the team on time and on budget, even though it was a multi-year project for us. And moving forward, it positions the business well for scalable growth as opportunities across the platform accelerate and it also frees up key resources as we move into an accelerated operating environment. I'd like to thank our teams for their efforts and determination on this transformational project, which while rare for these types of projects to be completed on time. And more broadly, I'd like to recognize the team across the organization for the good hard work being done to serve our customers and create value for our stakeholders every day. Total quarterly capital expenditures were $24.9 million, down 23% from the comparative quarter, while capital commitments of $34.2 million at quarter end increased 24% from the comparative quarter, which combined sets the company on a similar pace to the prior year and largely represent contract-backed asset additions that are expected to generate attractive returns upon deployment. The continued investment in our business reflects our disciplined approach to capital allocation. Looking ahead, we expect CapEx will accelerate in the back half of the year based on strong demand dynamics. We will continue to align fleet growth with customer demand, deploying capital where we see the strongest opportunities to drive utilization and long-term value creation. Overall, we remain confident in the trajectory of the business. Our base operations continue to perform consistently, supported by high margin recurring rental revenue and attractive end market dynamics across Canada, the United States, and Australia, while several growth initiatives provide meaningful upside potential. Within our WFS segment, The substantial breadth and scale of opportunities in the pipeline continue to reinforce our conviction in Canada's nation-building thematic. Our ability to participate in this investment cycle and support our customers is not a coincidence. Through the strategic acquisition of Royal Camp Services late last year, we have positioned ourselves as a leading integrated remote accommodations platform with the ability to rapidly deploy assets and provide full-team turnkey services, including best-in-class catering and hospitality. Combine that with our long-standing track record of effective Indigenous engagement with over 45 partnerships across Canada, the company is extremely well positioned as we look ahead to the coming months and years. While the timing of project mobilizations remains difficult to predict, we believe it is a matter of when, not if, These opportunities translate into demand for remote accommodations. Increasing utilization levels over the next several quarters will lead to the realization of the significant operating leverage embedded within the platform. To add context to the opportunity that lies ahead, WFS currently has more than $2 billion of formal bids outstanding in Canada alone across more than 20 active projects. representing more than two times the company's current available fleet capacity. These opportunities are broad and far reaching, linked to energy, mining, related infrastructure, data centers, and defense and military projects. MSS is also well positioned to benefit from this opportunity and is already seeing increased customer activity in Canada as seen through rental revenue growth and healthy utilization. Supported by a diversified customer base, recurring rental revenue, pricing discipline, and continued expansion of apps, MSS remains well positioned to deliver steady compounding growth and value creation. And finally, LodgeLink delivered another record-breaking quarter demonstrating the continued momentum within this area of the business. Investments made over the past several years in technology and product development and the strong execution from our growing and high-performing team is increasingly translating into positive operating results and accelerating adoption of the platform within a robust total addressable market of over $170 billion U.S. dollars for workforce travel across Canada, the U.S. and Australia, according to the Global Business Travel Association. Booking activity, customer retention, new customer adoption, and platform engagement remain very strong. And as our new LaunchLink software product advances toward general availability later this year, we see a meaningful opportunity to deepen customer relationships and accelerate market penetration. To summarize, we are pleased with the core strength that the business has demonstrated in our second quarter results. While lower levels of episodic project and sales activity moderated reported growth, the continued expansion of our rental revenue and recurring lodging revenue further underscores the quality, predictability, and resilience of these revenue streams, which remain key compounding growth drivers for long-term value creation. With ample financial flexibility, disciplined capital allocation, and a growing base of high-margin recurring rental revenues, We remain confident in our ability to create shareholder value. We are well positioned to deliver steady near-term performance while maintaining significant exposure to the demand catalyst across our platform. Before I turn the call over to Toby, I'd like to recognize Ted Redmond, our EVP and COO for our MSS business unit, as he looks ahead to retirement following many years of outstanding service to Black Diamond. Ted has made significant contributions to the company and to the growth of our MSS business, and we thank him for his leadership and commitment throughout his tenure. This transition also highlights the depth of talent within the ranks of our organization as two long-term leaders step into new senior roles and assume greater responsibility as we look forward to continued growth of our MSS platform. With that, I'll conclude and pass over to Toby.

Thanks, Trevor, and good morning, everyone. I'll focus my comments on the results of the overall business, our business segments, margins, and on the balance sheet. Earnings per share of $0.01 was down from $0.15 in the comparative quarter. Adjusted EPS, which adds back ERP implementation costs, amortization of intangible assets from the Royal acquisition, and a provision for BC sales tax assessments was $0.09 down from $0.18 in the comparative quarter. This decrease is due to lower margins as a result of a shift in the revenue mix towards more lodging revenue and higher depreciation, interest costs and share accounts stemming from the Royal acquisition. While these costs have weighed on the business in the first half of 2026, We believe this is transitory and we are confident that the business is well positioned to take advantage of the very strong demand that we are seeing in our bid pipelines. With respect to the adjustments to EPS, I'd like to focus on the two new items. First, the intangible assets acquired as part of the Royal Acquisition represent assets that were acquired on our books in excess of the consideration associated with the transaction. Therefore, we believe the ad-back of the amortization of these intangibles provides a better view of the true returns from the capital employed in the business. Second, the BC sales tax assessments stem primarily from a retroactive application of a change in definitional interpretations that affects the tax rate the company is required to charge its customers and to remit to the province of British Columbia. Black Diamond and the broader industry strongly disagree with this new interpretation and how it is being applied retroactively through audit. And the company is challenging the assessments through an appeal process. And currently we are invoicing our customers in order to recover the additional tax that the BC government has imposed. We have recorded a $3.6 million charge to income in the quarter associated with these assessments and have added this back to adjusted EPS as they represent costs that are unusual and non-recurring in nature. Overall, the non-GAAP measure introduced this quarter, adjusted EPS, is intended to provide a more meaningful representation of the company's underlying earnings performance over reporting periods. Now turning to specific business unit performance, I'll begin with workforce solutions. Within WFS, revenue of $72.2 million increased 55% and adjusted EBITDA of $15.6 million increased 3% from the comparative quarter. The growth was driven primarily by a contribution from Royal Camp Services, which increased lodge service revenue by 174%. Rental revenue also grew by 35% and non-rental revenue increased 34% compared to the prior year. Sales revenue in this business unit declined 70%, reflective of our strategic decision to preserve fleet capacity rather than opportunistically monetize assets through used fleet sales. With complete rationalization largely complete and demand visibility continuing to strengthen, we believe this approach better positions the business to capitalize on future opportunities. WFS consolidated utilization was 55.2%, leaving ample capacity to deploy assets on projects from within our unprecedented bid pipeline of over $2 billion as these projects move into their construction phase. MSS generated rental revenue of $28.6 million, up 8%, and adjusted EBITDA of $20.9 million, up 3% from the comparative quarter. Utilization remains healthy at 77.9%, while average monthly rental rates increased 3%. MSS sales revenue declined 18%, driven primarily by software custom sales as a result of typical sales activity variability and funding uncertainty within the education sector. Looking ahead, we continue to see growing momentum across the MSS sales pipeline with a strong backlog of opportunities expected to advance through the balance of 2026. Growth in value-added products and services continues to be a key differentiator with VAPS revenue increasing 35% and reaching 11.7% of rental revenue in the quarter. VAPS adoption continues to expand We expect it to remain an important driver in terms of both providing value to our customers as well as expanding our margins. LodgeLink delivered a very strong quarter with total trade value increasing 69% to a record $43.5 million, while net revenue increased 64% to $5.4 million. Travel segments sold increased 44% to more than 215,000, reflecting continued customer adoption, strong retention rates, and growing engagement across the platform. LodgeLand continues to demonstrate how it is becoming a driver of meaningful long-term growth for the company. Turning to cash flow and capital allocation, free cash flow for the quarter was $14.6 million, and funds from operations totaled $28.6 million. Working capital was impacted during the quarter by the successful ERP go-live, primarily through temporary delays in billing and collections. These impacts were anticipated and we expect working capital to normalize through the balance of the year as processes stabilize within the new system. The successful completion of this implementation represents an important milestone that positions the company for improved efficiency and scalability moving forward. From a balance sheet perspective, the company remains in a very strong position. Net debt at quarter end was $351 million, with net debt trailing 12-month adjusted leverage EBITDA of 2.4 times, comfortably within our target range of two to three times. During the quarter, we completed the expansion of our ABL facility to $550 million, increasing available liquidity to nearly $200 million, and providing significant flexibility to support future growth opportunities. Overall, we are pleased with the performance of the business. Combination of recurring rental revenue, growing cash flow generation and a strong balance sheet positions Black Diamond Well to continue creating long-term value for shareholders. We remain confident in our ability to continue growing our business and compounding shareholder value with significant catalysts for acceleration. With that, operator, I'd like to open the call for questions.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and enter the queue. If you would like to withdraw your question, simply press star 1 again. Thank you. We will pause for just a moment to compile the Q&A roster. The question comes from the line of Kyle McPhee from ATB Foremark. Your line is now open.

Hello, everyone. I'm hoping to get more color on your CapEx commitments. Committed CapEx is up 24% year over year. How much of that 24% lift is just inflation versus actual added volume of fleet units being added versus what you added last year? and then also, can you give me an idea of what pockets of your business this CAPEX is going to? I assume it's mainly MSS at this point and you're not yet spending material CAPEX for WFS fleet expansion.

Yeah, thanks, Kyle. Appreciate the question. CAPEX, as you suggest, is primarily committed to MSS at this point in terms of growth CAPEX. haven't seen that significant an inflation rate year over year. I think we're 3% to 4% inflation on MSS buildings. And so there's not a significant adjustment you need to make in terms of fleet growth for the dollar amount of CapEx committed. And roughly Q1 was A little bit lighter than previous year, commitment at end of quarter, a little bit higher when you average it out. We're at this point, in comparison to last year, right around the same cadence. Probably 3% higher, so there's your inflation. We don't have very much CapEx focused on WFS at this point. However, quick to point out, over the last couple of years, We have added modest amounts of fleet, both in Australia and Canada, more around our rapid deployment, smaller format accommodation units, which are actually, from a utilization perspective, quite tight, if you think of the Montanite, for instance. And also in Australia, we've been running fairly high utilization on our Workforce Fleet. So as we're picking up contracts, we're typically adding some incremental square footage. So we do have some growth in WFS. And of course, we have our maintenance capital across all parts of the business and modest amount of corporate capital. So the bulk of what we've disclosed for Q1 and our outstanding commitments at quarter end are for MSS. And there again, we typically have line of sight with customer contracts, so it's pretty low risk deployment.

Okay, and then your comments also call for acceleration of organic investment in 2026 and 2027. So what's driving that acceleration? Is that just a preemptive comment given all the demand you see for WFS and you predict you will in fact need to expand the fleet beyond the 6,000 excess beds you already have?

The acceleration, we do quarterly capital allocation. What we're seeing is fairly significant growth opportunities around MSS. specifically in the southern U.S., southeast U.S. There's a read-through on data center activity for our big construction customers. We're also seeing significant uptick in demand in western Canada where our utilization for MSS is tightened up. There's just a plethora of project activity and often Vox is deploying The bid to field level deployment is a little bit quicker in terms of cycle than our camp business. The acceleration for camps in terms of capex would be a ways off. We've got reasonable spare capacity still sitting, I think, Mike, John, 5,300 to 5,500 beds of capacity available to match up with demand. And so we'll absorb that. The next question comes from the line of Matthew Lee from Canaccord. Your line is now open.

Hey, morning, guys. First, I want to congratulate Ted on his career. We've had some great times. So congrats, man. Hope you have fun. Okay, on to business. I want to think about utilization of workforce solutions because I'm going to assume that, you know, if you win half of the bid that you kind of mentioned, you'll be at maximum. But what is maximum utilization of workforce solutions? Is it kind of like 80 to some of the MSS or 90 to 95?

Yeah, you'd have to go back many years in our system to see that we can run in the 90 plus percentage range and we did for many years. The sales cycle for WFS is such that we have longer visibility of forward demand and so you can run a little bit higher in utilization if we do in fact get there. Mike?

Yeah, just a couple of the points around utilization. Firstly, all these projects are not going to go away. So it's not going to be 1,000, 6,000 beds going out to the market. They're going to happen over a period of a few years. There's going to be opportunities to move assets with any project or onto other projects. Along the way, we do from time to time use third parties to subcontract assets through. So we'll explore those avenues as well. And If we can get good term and good return, we'll certainly look at deploying new capital to grow our asset base further.

Yeah, that makes sense to me. Maybe we can talk about that $2 billion in bids and workforce solutions. I mean, you know, how long are those contracts generally? Like, is it like, you know, three or four-year contracts, or are these like, you know, 10-year-plus contracts?

Um... Well, there's two different numbers there. There's a typical length of time the customer will keep the asset in terms of how long it takes on project site. But a typical timeline is usually 36 months as an average. John, you're pretty close to this.

I would say on the infrastructure, you know, pipeline infrastructure projects, you're looking at maybe three to four year timeframe from start project to end project. Within that three to four years, we're going to be moving along the line. Some of the larger construction projects that we foresee coming, you know, think a mining project or something like that, it could start with three years of construction and lead into operations that, you know, mine can have 20 plus years.

But in terms of the specific bid pipeline, the... Projects and the quantification of that is based on a roughly three-year average term in the bids.

Okay, that's helpful. Some of these projects might have extensions as well then. Okay, I'll pass it on. Thanks, guys.

Thanks, Matt.

Our next question comes from John Gibson from DML Capital Markets. Your line is now open.

Good morning. Thanks for taking my questions. Just starting on WFS, obviously a lot of bids outstanding. I was wondering what your customer conversations are like based on this. Are they recognizing Thank you very much.

for that exact reason, to get ahead of it and plan their projects. Some projects are trying to move ahead and get ahead of other ones. So it's definitely phone calls that are happening.

We do have some mining customers who have secured assets on rent in advance, well in advance, when their project is going to start off. and I think that's entirely John because they're concerned the assets won't be there 100% when the project kicks in.

I appreciate that.

Second one for me. That's a limited set that are doing that yet but thematically it's coming through. Sorry.

Go ahead. I appreciate that. Just second one for me. How can we think about Demand strengthened across the MSS platform. Obviously, you gave us the numbers you are bidding on for workforces. Is there a way to quantify that, or is it kind of like a second derivative of workhorse going ahead and then MSS picking up on the back of that?

Yeah, MSS, one of the great things about the platform is it services so many verticals across so many different geographies, and That's by intent. Where the verticals and the geography overlap with our workforce business, very similar drivers. All of these big projects also need project offices, training facilities, security, laboratories, and lunchrooms. So there is a commonality, and we get some visibility there. I don't think, Ted, we've got, certainly we haven't disclosed the aggregate bid values. but we do know that our bid pipeline is growing for MSS, correct?

Yeah, our backlog, because the projects we've won is ahead of where it was last year at this time. So we have a larger backlog, but we mentioned that earlier. Also, when you look at our proposals in progress and proposals delivered, both of those are above where we were at this time last year. And in addition to the big nation building projects, We have a lot of, I would call them more industrial type projects, so petrochemical projects, data center projects in both Canada and the U.S. that are well underway and that we have units on those sites and we expect as those sites continue to ramp up, we're going to have more units on it. So that's what's driving like the firm backlog that we have today is existing rentals and then and then we know that those customers are going to have additional rental demand over the next 12 months as they wrap their projects up. So it's both kind of our normal industrial education commercial type business in addition to there's definitely pull through from the nation building projects that we're expecting.

And where we also see the impact of that is in increasing utilization and we're starting to see more of the front end as well as Trevor mentioned in the capital commitments that we're seeing for growing our asset base to meet some of that demand and so we expect on more of a lagging basis we start to see that going through our results in coming quarters as well.

Got it. If I could sneak one more in actually just on pricing and WFS I know it's been a while now but What would like-for-like pricing be now in WFS versus, say, the peak period when you were running at 90% plus utilization?

It's a tough comparison, John, because of inflation of the asset base, etc. I would say on a payback versus new or cost of replacement, on that ratio, rates are still well behind. I would think Mike, John but the bid rates have come up. They're probably up easily 50% from trough two plus years ago but we still need to increase probably double from where we are now to justify CapEx on brand new camp gear but again we're Dealing with it day-to-day, John?

Yeah, definitely. The cost of the dorm has gone up considerably, so the rates need to follow. Right now, we're bidding with all our existing fleet, so not really taking that consideration today, but it is in consideration as we move forward on some of these bids.

Got it. I'll turn it back to you. Okay, got it. I'll turn it back, but congrats, Dan, on the retirement. You put the MSS business in a pretty good position here. Thank you.

We've got some good people that are going to keep it in a good position.

Absolutely. Thanks, John. Thanks.

Your next question comes from Razi Hassan from Paradigm Capital. Your line is now open.

Yeah, good morning. Thanks for taking my questions. My first one, just a follow-up on John's. Did you say bid rates are up 15% from the trough? 1.5? Did I get that number right? 5.0. 5.0. Okay, great. Okay, 5.0.

Thanks.

And maybe just switching gears a little bit on gross margins down year over year, was it all just the product mix that was related to that, or was there anything else that stuck out in terms of an elevated cost?

Gross margins down Toby.

Yeah, gross margins is primarily the revenue mix and we're seeing with the Royal contribution of primarily contributing a lot more lodging revenue than we previously had in our mix and that revenue being at relatively lower margins than the rental revenue. is primarily driving the overall decrease. It's not necessarily a decrease in our margins on any given revenue stream. Those are holding and healthy, but it's simply the mix of revenue that makes up our total revenue that's driving the average margin down.

Okay, that's helpful. And then maybe if you think about sales revenue, just in terms from an industry point of view, What do you need to see for sales revenues to start improving? Is there anything that you can point to at all, just seeing the sequential decline there?

Well, there's two components there. We have a recurring sales business in MSS, especially in the US, where we are offering permanent turnkey modular solutions to our customers. Manufacturers in the US typically work only selling through dealers like ourselves. There's a variability in that revenue stream that we've talked about over the years that makes it a little bit difficult to predict. So we have that, and Ted has some great visibility on that we can talk about in just a second. Just quickly, the other is where we sell assets out of our fleet. We have intentionally restricted the sale of workforce assets. When we look at demand for the use of the assets on a turnkey or rental basis, we have purposely reduced the sale of fleet assets into the market. Higher and best use is rental. So that's also down on a year-over-year or multi-year basis in our workforce businesses. However, let's switch back to MSS, which is where this is a recurring business line for us, Ted. What are we seeing?

Yeah, the sales are up and down over the comparable order. So Q2 2025, we had high sales. Q2 2026 was more of like, if you go back over the last six Q2s, it's kind of in the middle of the range. was a terrible quarter just against a tough comparable. As we said, the education sales were a bit softer. So that was kind of where that came from. But when we look forward, the backlog is good. So Q3, Q4 should be decent sales quarters. It's a bit hard to predict. Even when you have a project in the backlog, because we know projects slip. So this is going to hit in Q3, it's going to hit in Q4, or some of them might even slip into Q1 like we had a couple years ago where we had a lot of projects slip from Q4 to Q1. But solid pipeline there. And on the Canadian side, we've been trying to grow that custom sales and diversify into more end markets. And we've got some nice projects in the second half of the year on the Canadian side, which is good for us and stronger than, say, last year on the Canadian side. Overall, you just got to live a little bit with the lumpiness, but there's nothing fundamentally wrong on the custom sales side with the exception of some temporary softness in education due to government funding in the U.S.

Okay, thanks. That's helpful. If I could just get one more in. Just on the bid pipeline in workforce solutions, you mentioned a couple of industries. Is there any one industry in particular that's fueling a lot of this growth, or is it just across the board for you guys in terms of the bid pipeline?

Well, those of us who have been doing this for the better part of 40 years continue to comment to each other. We don't think we've seen anything like this usually when we go through High activity areas, it's driven by a particular vertical like oil sands or mining or even specific types of mining. What's truly interesting here is it seems to be everything everywhere. It's mining, it's large military infrastructure builds, it's civil infrastructure, it's LNG, it's oil, it's data centers, it's And it isn't just Canada. We're seeing it in all three countries. So no, thematically, there isn't one particular driver here, at least unless change in geopolitics is where you're going to pull it all back to. Maybe that's one of the drivers. I don't know. Mike, John, you guys have been doing it. You're not quite as old. Oh, maybe you're older than me.

I don't know. I think I have a few years on you. Yeah, I mean, I've been in this industry for 30 years, and this is the strongest active pipeline that I've seen in my time. So it's super exciting for us. And to Trevor's point, it isn't from just one specific area or industry. And geographically, it's across Canada. It's into the U.S. And we also have a really strong and active pipeline in Australia. So we're super excited what the future is going to bring for us. And a lot of this, you know, if you go back to our core strategy and where we were 10 years ago to where we are today with growing MSS and diversifying our WFS business, a lot of that pipeline is due to, I think, the strategy that we employed many, many years ago.

The positioning.

Yes, it's very interesting. On any given day, we could put on a Data Center Hat and study that and look at something in southern BC or go look at a uranium play in northern Saskatchewan and military projects in the Northwest Territories. So it's every industry.

It's super interesting.

Yeah. We just want to get going at the field level. Yeah. We're ready.

Trevor, in the past you talked about step function growth and utilization rates going forward, not necessarily incremental growth. Is that fair to say that's still the expectation here on utilization rates and workforce solutions?

I think you're going to see two things happening here. Currently, the smaller project seems to be getting out of the gate, and so for a gradual utilization improvement, I think, Mike, John, we've over the next couple of quarters. And then step changes where the bigger projects, FID, you know, you've got everything from LNG Canada Phase 2, also GasLink compression expansion, the Prince Rupert gas transmission line with the cyclisms. These are the big ones that the announcement would of those projects and hopefully our success in securing work with them would indicate that large components of our fleet are going to be mobilizing over a two or three quarter time horizon. So it's a little bit of both. Right now, smaller components are beginning to mobilize. and then we'll start having those step change utilization moves. That's the way I think it's going to happen.

Yeah, no, I agree. Thanks very much. I'll pass the line.

Thanks, Rezi.

Our next question comes from the line of Frederick Bastian from Raymond James. Your line is now open.

Good morning, everybody. First question I've got is on the MSS side. Rental revenue growth for the quarter came in stronger than what we were expecting, but it was also up quite materially quarter on quarter. Was this directly tied to the capex you deployed, perhaps some large deployments, or I think you noted some very healthy growth on the VAP side. Is it a combination of it all, or just Wondering if you could provide a bit more color, please.

Thanks, Frederick. Ed, why don't you take it?

It's due to steady continued CapEx spend on good opportunities. We've got good visibility on demand and then a bunch of what we call bid set, which is projects that we're bidding on that if we only buy the assets, if we win the project. So that would be the majority. VAPS growth has been significant. I don't know the exact percentage, but the majority would be from the CapEx deployment, and then the VAPS is kind of gravy on top of that. Both of those have very healthy margins, but we're investing capital obviously, so we expect healthy margins.

Okay, cool. And Ted, while we're at it, commenting on the value-added products. It was up 35%, and it's high margin, so quite encouraging to see that. The release says it's now contributing 12% of MSS rental revenue. How high could that go over the long term?

In the past, we've set our target as mid-teens, so I think we still have that mid-teens target, so There's still room to grow there. We continue to add additional VAPS packages. We continue to add additional VAPS products. We're trying to, we're growing our VAPS service line. And we're still getting adoption of VAPS from some of our acquisitions that we're selling a lot of VAPS. So we've got, there's a whole number of initiatives around the VAPS. So we, the quoting activity continues. to indicate that we'll see VAPs growth. It can be a bit lumpy from quarter to quarter because if we get a big unit comes off a project that had a lot of VAPs in it, then the VAPs goes down. But on average, we've obviously been adding a lot more VAPs that have been coming back. You got to kind of look at that over like a year-long trend, not a quarter to quarter trend.

Awesome, thanks, Ted. And again, congrats on your upcoming retirement and all the best. I do have one more, however, on LodgeLink. Delivered exceptional growth during the quarter, and that was even ahead of the general availability of the new platform later this year. How does that inform your growth expectations for LodgeLink over the next couple of years?

Thanks, Frederick. We're excited to talk about launch length, so thank you for the question. I'm quick to point out that the current performance is before the new software is in market. The new software is just moving into beta testing next week, and so we think the firepower of the tool, the platform itself, is going to have a step change improvement by the end of the year. So when you think about where we're at with customer adoption growth within customers, our margin expansion, you can sort of read through how excited we are. We've been working on this for many years. A very significant percentage of the revenue growth is from new customers. But at the same time, our retention of our tier one and tier two customers is very high. And in fact, we're increasing share of wallet for travel with key customers. So the team is doing a fantastic job, commercial perspective. And then with the steady automation of the platform, we're seeing gross margin expansion for LodgeLink itself, and comfortably generating positive EBITDA at this point. So we think, given how large the addressable market is, how broad our footprint is in terms of coverage, and we're over 2 million hotel rooms signed onto the platform now, that there's lots of runway, especially when we think about how differentiated the new product is in terms of solving this complicated type of travel. And then if you correlate it to what we're seeing happening in the project world, the increase of labor into remote project areas, you could also read through there that it's a great application for logic. So we expect to be showing good growth trends over the foreseeable future. for this company.

Thanks. And can you please remind me through which revenue line item it goes through under WFS? Is it non-rental?

Yeah, we primarily see that in non-rental, Frederick.

Okay, sweet. Thank you, guys. That's all I have. Thank you, Frederick.

Our next Question comes from Trevor Reynolds from Acumen Capital. Your line is now open.

Morning, guys. Maybe just going back to the bid pipeline and kind of the timing that you expect to be able to announce some of these projects and when you kind of see them actually being deployed. Obviously it provides some color, but anything else you're able to provide on that would be helpful.

Thanks, Trevor. Needless to say, these are complicated projects in terms of project engineering, planning, takeoff agreements, supply agreements, and financing. So for us, you know, to say We've got any particular insight of where these big projects are in getting to the finish line. It's just a little bit outside of our fairway. What we can tell you, engaging with these type of projects over a whole career, is they're certainly well advanced, I would say, Mike and John, in terms of where we're at in engagement and negotiating key terms, etc., and you just get a sense of when these projects are tipped to a bias to proceeding and I would say, John, there's a number that would fall into that category. So we think it's close.

Yeah, definitely moving forward. The clarifications are coming. There's activities, questions and answers being back and forth and having calls. A few of the bigger projects. on the bigger pipeline type stuff, and then some of the construction and projects. We're having weekly calls, so good activity on those as well.

Intensity, urgency.

Oh, yeah, there's definitely urgency. I've got a text right now saying call me at 10 o'clock. It's definitely moving along.

We should have set up for one of our phones to ring. Okay. but it seems like a number of these are imminent, but at the same time, we don't need for a meaningful change for our workforce business. We don't need all of what's in the market right now to go ahead. And our win rate percentage, we can get to, near fully utilized without every major project going ahead. So a fraction of them with our market share, we're in good shape. So we feel this is actually coming to fruition, but there are more complicated macros involved as well, we're quick to point out.

Great, that's helpful. Then you mentioned some of the smaller projects are moving along a little quicker. How much could those eat into that spare capacity that you're talking about today?

There's probably math where there's enough of the small to mid-sized projects that they could absorb all our spare capacity. So it's really a timing question of which projects Commit to us first in terms of securing supply. You can think through that and get to a bit of a complicated situation of wanting to support all of our customers. And how do we do that? Mike sort of hinted that we can aggregate supply from our industry. as a way of expanding our available capacity. And then also the way that these projects ramp through a manpower curve. You can move assets between projects as they time through their project cycle. And so there's a lot of factors that come into matching up Our capacity to project. So we can certainly take on more than our current inventory based on those factors is I guess the way to say it.

Great. And then lastly, just on the U.S. education segment, do you think that's kind of hit a trough here or bottomed out? Just kind of what you're seeing on that front as you pointed out for a number of quarters here.

This is a good read-through from the larger U.S. public, especially rentals. We don't think it's sort of idiosyncratic from a Black Diamond perspective. I think, Ted, there's sort of a thematic in the U.S. education vertical.

Yeah, I think the last three quarters, you've heard various companies talk about it. So it's not a huge cross. It's probably down double digits, but not down a lot more than that. When that comes around, I think there's still some uncertainty in U.S. government funding. So still lots of school rentals going on, lots of school sales. It's just not at kind of the peak it was in COVID and with some of the Biden and early Trump infrastructure incentive programs encouraged probably higher than normal sales.

So maybe another way to say it is we're closer to normal, but as the funding uncertainty changes, it'll- Might be helpful to bifurcate between the existing fleet and its contract base and the recurring revenue versus Mostly what we're talking about is reduction in demand for incremental capacity and for the sale of classrooms.

Right. I mean, we have always liked the classroom and education business.

We still like it. It's steady recurring revenue.

The average contract terms, most of our contracts are 60-month rentals. So there's lots of advance warning. A unit comes off. If the unit comes off, The end of the year, it might take us a little while to get it back on rent, but we get it back on rent the following year. And the rental side is, I think, pretty steady. On the custom sales, school boards have a little bit less money for custom sales. But again, what we've done this year is kind of in the middle of the trend over the last six years. It's just not at the peak of last year. So that That might continue to fully answer that question.

So the core rental portfolio is fine. It's healthy. It's the level of growth for new classrooms is muted, and the sales business is a bit soft this year.

Yeah, and our first priority is we put units that come off rent first. We make sure that we're quoting those first, and we quote new units primarily when we don't have existing units available to supply to customers.

Great, that's helpful. I will turn the line over. Thanks, guys. Thanks, Trevor.

That concludes our question and answer session, and I will now turn the call back over to Trevor Haynes, CEO, for the closing remarks. Please go ahead.

Thank you, operator. Thank you, everybody, for joining us today. We continue to be very constructive in our view with regard to forward demand. We think the core business is healthy and steadily growing. We're seeing lots of opportunities, so we look forward to updating you on the next quarter, and we believe that the thematic will roll forward in a favorable way. And then lastly, thank you again, Ted, for working with us and the great work in building up our MSS business into the powerhouse it is today. So wish you well in retirement. And to everybody on the line, thank you. Have a great day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining Humane Audio.