Badger Daylighting Ltd. Announces Third Quarter 2019 Results, Updated 2019 Financial Outlook and Introduces 2020 Financial Outlook
November 5, 2019, 7:34 pm
Third Quarter Highlights
- Badger continues to deliver growth in revenue with third quarter 2019 revenue of
$183.7 million, which was up 9% from third quarter 2018. Adjusted EBITDA of $50.1 millionwas consistent with the prior year comparative quarter of $50.9 million.
- Revenue in the quarter was
US$110.8 millionin the United States(“U.S.”) and $37.4 millionin Canada, representing a 12% improvement and 5% decline, respectively, from third quarter 2018.
- Revenue growth in the
U.S.continues to be strong in the majority of regions with a select number of regions experiencing modestly lower growth rates relative to the prior year comparative period due to reduced customer activity levels and the carry-over impact of weather.
- Revenue growth in
Canadawas negatively impacted by reduced oil and gas activity, offset in part, by improved revenues and operating performance in Eastern Canada.
- Revenue in the quarter was
- Revenue per truck per month (“RPT”) for the third quarter was
$36,088, consistent with the prior year comparative quarter, as overall volume growth and modest improvements in hydrovac rates were offset by the impact of modestly lower asset utilization due to challenging operating conditions in Western Canada. Over the trailing twelve months, Badger has successfully integrated 116 net hydrovacs into its fleet while maintaining a strong RPT.
- Gross profit margin for the third quarter was 32.8%, which is 170 basis points lower than the third quarter 2018; Adjusted EBITDA margin for the third quarter was 27.3%, which is 290 basis points lower than the comparative quarter in 2018.
- Gross profit margin, particularly in the
U.S.operations, was impacted by higher labour related costs associated with the recruitment and training of operators in advance of future growth, offset in part, by improved operational performance in Eastern Canadawhich contributed to a 160 basis point improvement in Canadian gross margins.
- Adjusted EBITDA margin, consistent with the second quarter of 2019, was negatively impacted by an increase in general and administrative expenses (“G&A”), directly and indirectly, related to the enterprise resource planning (“ERP”) system implementation. Upon completion of the project, Badger will seek to aggressively, but prudently, reduce temporary headcount directly attributable to the project.
- Gross profit margin, particularly in the
- Badger’s ERP implementation is proceeding well with a successful go-live for the Western operating region launched on
October 1, 2019. The go-live for the remaining operating regions is planned throughout the fourth quarter of 2019. A ramp-up in implementation activity throughout the third quarter of 2019 resulted in an increase in non-operator operating expenses and G&A, directly and indirectly, related to the ERP, contributing to a decrease in Adjusted EBITDA and Adjusted EBITDA margin for the third quarter.
- Net profit for the third quarter of 2019 was
$25.8 millionor $0.73per share compared to $25.7 millionor $0.69per share in the prior year comparative quarter. Net profit for the third quarter of 2019 was impacted by the same items as Adjusted EBITDA, in addition to higher depreciation expense, offset in part, by reduced share-based plan expense.
- Badger’s 2019 financial outlook has been updated to reflect actual 2019 third quarter financial performance. The 2019 financial outlook has been adjusted to
$155 millionto $170 millionof Adjusted EBITDA from the previously provided financial outlook of $170 millionto $190 million. The hydrovac build rate for 2019 of between 190 to 220 units with retirements of 40 to 60 units is unchanged. See “Financial Outlook” for additional details.
- Badger is introducing a financial outlook for 2020 with Adjusted EBITDA of
$175 millionto $195 million. See “Financial Outlook” for additional details.
- During the third quarter, pursuant to its normal course issuer bid (“NCIB”), the Company purchased and cancelled 589,000 common shares at a weighted average price per share of
Chief Executive Officer 2019 Third Quarter Message
“Badger continued to grow and develop its business throughout the third quarter of 2019, delivering a solid 9% increase in revenue. Year-over-year growth varied across Badger’s regional operations, with a number of regions continuing to deliver strong growth and several regions realizing more modest growth. The Western Canadian oil and gas segment continues to be slow compared to the prior year comparative quarter, negatively impacting overall revenue growth. We are very pleased with the operational improvements in
“2019 continues to be a year of executing on strategic initiatives, providing the operational and administrative scale to facilitate Badger’s ability to continue to grow its business and capture additional market share in a profitable manner. Investments in our ERP, combined with other business initiatives, have been underway throughout 2019, with the go-live of the ERP expected to occur throughout the fourth quarter. We are extremely pleased with the first phase of our go-live rollout on
“Management’s focus on the ERP implementation, sales growth, operating costs and strategic pricing initiatives will remain a key focus for the remainder of 2019 and into 2020, ensuring a balanced approach between managing for short-term profitability and the successful implementation of long-term business initiatives. Badger’s 2020 financial outlook which anticipates Adjusted EBITDA of
|($ thousands, except revenue per truck per month (“RPT”),
per share and share information)
|Three months ended
||Nine months ended
|Hydrovac service revenue||176,515||160,879||472,084||415,690|
|RPT - Consolidated (mixed currency)(1)||36,088||36,338||n/a||n/a|
|Adjusted EBITDA per share, basic and diluted(1)(3)||$||1.41||$||1.37||$||3.37||$||3.07|
|Adjusted EBITDA margin(1)||27.3||%||30.2||%||24.9||%||26.1||%|
|Profit before income tax||34,735||35,046||58,384||65,687|
|Net profit per share, basic and diluted(3)||$||0.73||$||0.69||$||1.20||$||1.20|
|Cash flow from operating activities before working capital adjustments||50,177||50,169||122,093||113,558|
|Cash flow from operating activities before working capital adjustments per share, basic and diluted(3)||$||1.41||$||1.35||$||3.35||$||3.06|
|Weighted average common shares outstanding(3)(5)||35,472,696||37,100,681||36,421,889||37,100,681|
(1) See “Non-IFRS Financial Measures” and “Key Financial Metrics and Other Operational Metrics” for additional detail on the definition and calculation of Adjusted EBITDA, Adjusted EBITDA margin, and RPT.
(2) Certain of the comparative period revenue groupings and RPT comparatives have been reclassified to conform to the current period presentation and calculation. Refer to the Company’s 2018 annual management’s discussion and analysis (“MD&A”) for additional details.
(3) Per share, basic and diluted measures calculated by dividing the respective financial measure with the weighted average common shares outstanding for the respective period.
(4) IFRS 16 – Leases has been adopted on a prospective basis therefore prior year comparatives have not been restated. See “Changes in Accounting Policies” in the Company’s third quarter 2019 MD&A for additional details.
(5) See “Share Capital” in the Company’s third quarter 2019 MD&A for additional details.
Comparable IFRS Financial Information(1)
|($ thousands, except per share information)||Three months ended
||Nine months ended
|Cash flow from operating activities||21,241||22,001||70,961||67,186|
|Cash flow from operating activities per share, basic and diluted(2)||$||0.60||$||0.59||$||1.95||$||1.81|
(1) Cash flow from operating activities is provided as a comparable measure to cash flow from operating activities before working capital adjustments.
(2) Per share, basic and diluted measures calculated by dividing the respective financial measure with the weighted average common shares outstanding for the respective period.
Third Quarter Financial and Operational Overview
Adjusted EBITDA for the third quarter of 2019 was
Badger continued to realize revenue growth with third quarter 2019 revenues of
Consolidated revenue growth was driven by improvements in the
During the third quarter of 2019, 33 net hydrovacs were placed into service consisting of 55 new and 22 retired units. As detailed in the “Financial Outlook”, the forecasted 2019 hydrovac build rate remains at between 190 and 220 units. Badger continues to focus on fleet management with ongoing efforts to relocate trucks across the entire branch network to maximize asset utilization and the efficiency of capital expenditures. As at
Gross profit margin for the third quarter of 2019 was 32.8% compared to 34.5% in the prior year comparative quarter. Gross profit margin was primarily impacted by higher direct labour costs, particularly in the
As initially announced in the second quarter of 2018, Badger has initiated a process to upgrade and standardize its legacy information technology systems into a single ERP, (the “Common Business Platform”). During the third quarter, activities related to the Common Business Platform were primarily focused on finalization of the configuration and integration of the ERP platform, in combination with user acceptance testing and related training activities to facilitate the first phase of the go-live on
Net profit for the third quarter of 2019 was
IFRS 16 - Leases
See Badger’s third quarter 2019 MD&A for additional details on financial results, including the adoption of IFRS 16.
Driving Long-Term Shareholder Returns: Normal Course Issuer Bid
During the third quarter of 2019, pursuant to Badger’s NCIB, Badger purchased and cancelled 589,000 common shares at a weighted average price per share of
Badger continues to maintain a strong balance sheet. As at
Based on year-to-date financial results and existing and forecasted activity levels, Badger anticipates that its 2019 Adjusted EBITDA will be in the range of
The reduction in forecasted Adjusted EBITDA for fiscal 2019 is due primarily to higher than anticipated G&A expenses in conjunction with lower than anticipated third quarter 2019 financial results. The 2019 financial outlook assumes continued growth in the majority of Badger’s end use markets and geographic areas, particularly within its
Badger’s anticipates that its 2020 Adjusted EBITDA will be in the range of
The 2020 financial outlook assumes continued growth in the majority of Badger’s end use markets and geographic areas, particularly within its
Badger’s financial outlook for both 2019 and 2020 assume that there will continue to be ongoing growth in the use of hydrovac for non-destructive excavation as a result of continued customer adoption, particularly within the
Badger remains focused on generating profitable long-term sustainable growth to drive total shareholder returns. In that light, during fiscal 2017, 2018 and the first half of 2019, substantial progress has been made towards meeting the strategic milestones that were established in late 2016. Significant progress has been made in meeting the objectives to: (i) double the
2019 Investor Day
Badger is holding an investor day on
2019 Third Quarter Conference Call
A conference call and webcast for investors, analysts, brokers and media representatives to discuss the 2019 third quarter results is scheduled for
2019 Third Quarter Disclosure Documents
Badger’s 2019 third quarter Management’s Discussion and Analysis and unaudited interim condensed consolidated financial statements for the three and nine months ended
Non-IFRS Financial Measures
This press release contains references to certain financial measures, including some that do not have any standardized meaning prescribed by IFRS and that may not be comparable to similar measures presented by other companies or entities. These financial measures are identified and defined below. See “Non-IFRS Financial Measures” in the Company’s third quarter 2019 MD&A for detailed reconciliations of Non-IFRS financial measures.
“Adjusted EBITDA” is earnings before interest, taxes, depreciation and amortization, share-based compensation, gains and losses on sale of property, plant and equipment, and gains and losses on foreign exchange. Adjusted EBITDA is a measure of the Company’s operating profitability and is therefore useful to management and investors as it provides improved continuity with respect to the comparison of operating results over time. Adjusted EBITDA provides an indication of the results generated by the Company’s principal business activities prior to how these activities are financed, the results are taxed in various jurisdictions, and assets are amortized. In addition, Adjusted EBITDA excludes gains and losses on sale of property, plant and equipment as these gains and losses are considered incidental and secondary to the principal business activities, it excludes gains and losses on foreign exchange as such gains and losses can vary significantly based on factors beyond the Company’s control and it excludes share-based compensation as these expenses can vary significantly with changes in the price of the Company’s common shares.
“Adjusted EBITDA margin” is Adjusted EBITDA as defined above, expressed as a percentage of revenues.
“Compliance EBITDA” is earnings before interest, taxes, depreciation, amortization, and certain other items calculated on a 12-month trailing basis, and is used by the Company to calculate compliance with its debt covenants and other credit information.
“Total Debt” consists of long-term debt and lease liabilities, including the current portion thereof, and issued letters of credit, less certain cash on hand. Total Debt is used by the Company to calculate compliance with its debt covenants and other credit information.
Key Financial Metrics and Other Operational Metrics
“Revenue per truck per month” (RPT) is a measure of hydrovac fleet utilization. It is calculated using hydrovac and hydrovac related revenue only. RPT is calculated on both a consolidated basis and for each geographic segment by dividing hydrovac and hydrovac related revenue for each segment, in the respective local currency, by the average number of hydrovacs in the segment during the period.
See “Key Financial Metrics and Other Operational Metrics” in the Company’s third quarter 2019 MD&A for additional details on RPT.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS
Certain statements and information contained in this press release and other continuous disclosure documents of the Company referenced herein, including statements related to the Company’s outlook, capital expenditures, projected growth, view and outlook toward margins, cash dividends, customer demand and pricing, future market opportunities, the timing, benefits and costs associated with the Common Business Platform project, and statements, and information that contain words such as “could”, “should”, “can”, “anticipate”, “expect”, “believe”, “will”, “may” and similar expressions relating to matters that are not historical facts, constitute “forward-looking information” within the meaning of applicable Canadian securities legislation. These statements and information involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements and information. The Company believes the expectations reflected in such forward-looking statements and information are reasonable, but no assurance can be given that these expectations will prove to be correct. Such forward-looking statements and information included in this press release should not be unduly relied upon. These forward-looking statements and information speak only as of the date of this press release.
In particular, forward looking information and statements in this press release include, but are not limited to the following:
- Badger anticipates continued overall growth in its business, particularly in its
- Badger anticipates that the overall macro-economic environment in the
U.S.is anticipated to be supportive of ongoing infrastructure and construction activity levels for the remainder of 2019 and into 2020, with a softer overall macro-economic environment anticipated in Canada, particularly in Western Canada;
- Badger anticipates that oil and gas activity levels for 2019 and 2020 will be consistent with 2018 levels within its
U.S.operations but weaker in Canadain 2019 and 2020 compared to 2018;
- Badger continues to see customer demand as a result of increased usage of hydrovac for non-destructive excavation;
- Badger expects to see improvements in revenue as a result of investments in developing its branch network and business development function;
- The benefits, if any, that Badger’s operational scale creates related to financial and operating performance;
- Badger anticipates that its Adjusted EBITDA for 2019 will be in the range of
$155 millionto $170 millionand for 2020 will be in the range of $175 millionto $195 million;
- Badger anticipates that the number of new hydrovac builds for 2019 will be approximately 190 to 220 units and that hydrovac retirements for 2019 will be in the range of 40 to 60 units;
- Badger anticipates that the number of new hydrovac builds for 2020 will be approximately 200 to 230 units and that hydrovac retirements for 2020 will be in the range of 50 to 70 units;
- Badger anticipates that gross profit margin and RPT for 2019 will be lower than in 2018;
- Badger anticipates that gross profit margin and RPT for 2020 will be consistent with 2019;
- The timing, benefits and costs associated with Badger’s Common Business Platform project, including the impact and timing associated with general and administrative expenses;
- The timing, and the impact on the business, if any, of achieving strategic milestones;
- Badger’s estimated 2019, 2020 and long-term target for general and administrative expenses as a percentage of revenue on an annualized basis and its ability to achieve such targets through measures such as reducing headcount and consulting costs attributable to the Common Business Platform project; and
- The ability and benefits of Badger to purchase and subsequently cancel up to 2,000,000 of its common shares under its NCIB.
The forward-looking information and statements made in this press release rely on certain expected economic conditions and overall demand for Badger’s services and are based on certain assumptions. The assumptions used to generate this forward-looking information and statements are, among other things, that:
- There will be customer demand for hydrovac services from infrastructure, construction, and oil and gas activity in
- Badger will maintain relationships with current customers and develop successful relationships with new customers;
- Badger will collect customer payments in a timely manner;
- Badger will be able to compete effectively for the demand for its services;
- There will not be significant changes in profit margins due to pricing changes driven by market conditions, competition, regulatory factors or other unforeseen factors;
- The overall market for Badger’s services will not be adversely affected by weather, natural disasters, global events, legislation changes, technological advances, economic disruption or other factors beyond Badger’s control;
- Badger will execute its growth strategy including attracting and retaining key personnel;
- Badger will obtain all labour, parts and supplies necessary to complete the planned hydrovac build at the costs expected; and
- Badger will be able to complete and implement the Common Business Platform project within the expected time frame and in accordance with the expected budget.
Risk factors and other uncertainties that could cause actual results to differ materially from those anticipated in such forward-looking statements include, but are not limited to: political and economic conditions; industry competition; price fluctuations for oil and natural gas and related products and services; Badger’s ability to attract and retain key personnel; Badger’s ability to complete and implement the Common Business Platform project, the availability of future debt and equity financing; changes in laws or regulations, including taxation and environmental regulations; extreme or unsettled weather patterns; and fluctuations in foreign exchange or interest rates.
Any future orientated financial information and financial outlook information (collectively, “FOFI”) contained in this press release, as such terms are defined by applicable securities laws, is provided for the purpose of providing information about management’s current expectations and plans relating to the future and is subject to the same assumptions, risk factors, limitations and qualifications as set forth in the above paragraphs. Management believes that the FOFI has been prepared on a reasonable basis, reflecting best estimates and judgments; however, actual results of the Company’s operations and financial outcomes may vary from the amounts set forth herein. FOFI contained in this press release was made as of the date of this press release and the Company does not undertake any obligation to publicly update or revise any FOFI contained in this press release, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws. Readers are cautioned that any FOFI contained herein should not be used for purposes other than those for which it has been disclosed herein.
Readers are cautioned that the foregoing factors are not exhaustive. Additional information on these and other factors that could affect the Company’s operations and financial results is included in reports on file with securities regulatory authorities in
For further information:
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4th Floor, 919 11th Avenue, SW
Telephone (403) 264-8500
Fax (403) 228-9773
Source: Badger Daylighting Ltd