BADGER DAYLIGHTING LTD. ANNOUNCES 2019 FOURTH QUARTER AND ANNUAL RESULTS, SUCCESSFUL ROLL OUT OF ERP, CONFIRMATION OF 2020 FINANCIAL OUTLOOK AND A 5% DIVIDEND INCREASE
March 11, 2020, 6:15 pm
2019 Fourth Quarter and Annual Highlights
- During the fourth quarter of 2019, Badger successfully rolled out its new Enterprise Resource Planning (“ERP”) system across its corporate operations; with its Operating Partners’ and Franchisees’ going live in
January 2020 . All components of the ERP are functioning as intended across all parts of the business.
- 2019 fourth quarter and annual revenues were consistent with management’s expectations.
- Fourth quarter revenue of
$162.7 million in 2019 was down$15.9 million or 9% from the same period in 2018; annual revenue of$654.3 million in 2019 was up$38.9 million or 6% compared to annual 2018. - Quarterly and annual revenue was impacted by strong growth in select regions in the
U.S. andEastern Canada , which more than offset slower growth inWestern Canada due to reduced oil and gas activity. Additionally,$22.5 million in emergency response work completed in 2018, ($20.0 million – Q4;$2.5 million – Q3), did not recur in 2019. - Revenue per truck per month (“RPT”) for the fourth quarter of 2019 was
$31,075 compared to the fourth quarter of 2018 at$37,837 . RPT for fiscal 2019 of$32,442 compared to$34,347 in the prior year. Both the quarterly and annual RPT were impacted by the emergency response work completed in the third and fourth quarter of 2018, which did not recur in 2019. - During 2019, Badger successfully integrated 143 net hydrovacs into its fleet while maintaining a strong RPT.
- Fourth quarter revenue of
- Gross profit margin for the fourth quarter of 2019 was 29.3%, 220 basis points lower than the fourth quarter 2018. The year-over-year decline in gross profit margin was due largely to fourth quarter 2018 emergency response work, which did not recur in 2019.
- Fourth quarter and annual Adjusted EBITDA were consistent with management’s expectations and in-line with Badger’s 2019 financial outlook.
- Fourth quarter Adjusted EBITDA of
$35.8 million in 2019 was down$12.1 million or 25% from the same period in 2018; annual Adjusted EBITDA of$158.4 million in 2019 was down$3.3 million or 2% compared to annual 2018. - Adjusted EBITDA margin for the fourth quarter was 22.0% or 480 basis points lower than the prior year comparative quarter.
- The year-over-year quarterly and annual Adjusted EBITDA and Adjusted EBITDA margin comparisons were negatively impacted from: i) emergency response work completed in the third and fourth quarter of 2018, which did not recur in 2019; and ii) costs associated with the successful roll out of the ERP, which were in line with the levels previously indicated by management, resulting in a temporary increase to general and administrative expenses (“G&A”). In particular, the majority of ERP roll out activities were expensed in the fourth quarter versus being capitalized in the first, second and third quarters of the year.
- Fourth quarter Adjusted EBITDA of
- Net profit for the fourth quarter of 2019 was
$15.9 million or$0.45 per share compared to$23.5 million or$0.63 per share in the prior year comparative quarter. Net profit for the fourth quarter of 2019 was impacted by the same items as Adjusted EBITDA, in addition to higher depreciation and amortization expense, offset in part, by reduced share-based plan expense. - Badger has made no changes to its 2020 financial outlook. Badger is closely monitoring the global spread of the coronavirus and the impact it may have on the global and North American economies, and consequently the impact on Badger’s operations. Significant uncertainty currently exists across financial and commodity markets, with the potential impact on the general North American economy currently uncertain. At this point in time, it is unclear what the short or long-term impact might be on Badger’s operations. In the event of an economic downturn in Badger’s markets, Badger will proactively reallocate hydrovacs across its branch network in response to regional activity levels, and consistent with historical past practice, will continue to prudently manage capital expenditures to support hydrovac truck growth and manage retirements.
- Badger continues to focus on prudent capital allocation to drive long-term shareholder value. The Company is pleased to announce and confirm the following: i) a 5% increase to the dividend effective with the
March 2020 dividend; and ii) during the fourth quarter, pursuant to its normal course issuer bid (“NCIB”), the Company purchased and cancelled 210,000 common shares at a weighted average price per share of$36.37 and for the fiscal year 2019, the Company purchased and cancelled 1,579,154 common shares at a weighted average price per share of$38.78 .
Chief Executive Officer 2019 Fourth Quarter and Annual Message
“For Badger, 2019 was a transformational year, focused on building out our systems, standardizing business processes and strengthening key business functions to establish a platform to capture the North American market opportunity for non-destructive excavation. This investment in our business is essential to strengthen Badger’s business model which targets sustainable long-term profitable growth, ultimately driving returns for our shareholders,” said
“After a multi-year process, which began in 2017, Badger’s new ERP system successfully went live during the fourth quarter of 2019. We are very pleased with the regional roll out of the ERP; the strong execution of this project would not have been possible without the dedication and commitment from both our internal team and our consulting partners. With the platform established, Badger will move to realize the operational and financial benefits the system will facilitate; further leveraging the scale of our broad geographic branch network that differentiates Badger from our competitors,” stated
“The ERP roll out was a top focus for the entire Company during 2019, requiring significant employee involvement across the entire business. Our regional operations teams were very involved with all aspects of the project - from system design through to roll out. The Badger team committed significant time away from day-to-day operations to ensure the project’s success. Their commitment made all the difference in the successful roll out, but the time away from the business was no doubt a distraction,” added
“Badger continued to grow during 2019, realizing an overall increase in revenue; with
“Badger also continued its focus on overall shareholder returns during 2019, increasing the dividend by 6% in
“A continued focus on growth, realizing the benefits from the ERP system, and managing margin through operating cost and strategic pricing initiatives will continue to be focus areas for 2020. While we remain focused on the execution of our key initiatives during 2020, we are also closely monitoring events surrounding the coronavirus and recent financial and commodity market volatility. These recent events have created significant uncertainty, with the impact on the broader economy currently unclear. With hydrovac technology in the early stages of adoption, combined with Badger’s flexible business model and strong financial position, the team is confident in its ability to manage through any economic disruptions that may occur,” said
Financial Highlights
($ thousands, except revenue per truck per month (“RPT”), per share and share information) | Three months ended |
Twelve months ended |
||||||||||
2019 | 2018(3) | 2019 | 2018(3) | |||||||||
Revenue: | ||||||||||||
Hydrovac service revenue | 155,494 | 171,516 | 627,578 | 587,206 | ||||||||
Other revenue | 7,221 | 7,093 | 26,704 | 28,236 | ||||||||
Total revenue | 162,715 | 178,609 | 654,282 | 615,442 | ||||||||
RPT - Consolidated (mixed currency)(1) | 31,075 | 37,837 | 32,442 | 34,347 | ||||||||
RPT - |
32,893 | 40,859 | 34,504 | 36,799 | ||||||||
RPT - |
26,408 | 30,544 | 27,248 | 28,834 | ||||||||
Adjusted EBITDA(1) | 35,839 | 47,858 | 158,446 | 161,707 | ||||||||
Adjusted EBITDA per share, basic and diluted(1)(2) | $1.02 | $4.42 | ||||||||||
Adjusted EBITDA margin(1) | 22.0% | 26.8% | 24.2% | 26.3% | ||||||||
Profit before income tax | 17,814 | 31,947 | 76,198 | 97,634 | ||||||||
Net profit | 15,913 | 23,468 | 59,732 | 67,817 | ||||||||
Net profit per share, basic and diluted(2) | $0.45 | $1.67 | ||||||||||
Cash flow from operating activities before working capital adjustments | 35,596 | 48,936 | 157,689 | 162,494 | ||||||||
Cash flow from operating activities before working capital adjustments per share, basic and diluted(2) | $1.02 | $4.40 | ||||||||||
Dividends paid | 5,001 | 5,009 | 20,065 | 18,996 | ||||||||
Weighted average common shares outstanding(2)(4) | 35,060,260 | 37,033,572 | 35,825,820 | 37,083,766 |
(1) | See “Non-IFRS Financial Measures” and “Key Financial Metrics and Other Operational Metrics” for additional detail on the definition and calculation of Adjusted EBITDA, Adjusted EBITDA margin, and RPT. |
(2) | Per share, basic and diluted measures calculated by dividing the respective financial measure with the weighted average common shares outstanding for the respective period. |
(3) | IFRS 16 – Leases has been adopted on a prospective basis therefore prior year comparatives have not been restated. See “Changes in Accounting Policies” in the Company’s 2019 annual MD&A for additional details. |
(4) | See “Share Capital” in the Company’s 2019 annual MD&A for additional details. |
Comparable IFRS Financial Information(1)
($ thousands, except per share information) | Three months ended |
Twelve months ended |
||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
Cash flow from operating activities | 42,445 | 67,196 | 113,406 | 134,382 | ||||||||
Cash flow from operating activities per share, basic and diluted(2) | $1.21 | $3.17 |
(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. |
2019 Fourth Quarter and Annual Financial and Operational Overview
During the fourth quarter of 2019, Badger successfully rolled out its new ERP system across its corporate operations; with its Operating Partners’ and Franchisees’ going live in
Consistent with the Company’s ongoing internal improvement and business process standardization initiatives, fiscal 2020 will see Badger focus on realizing and augmenting the benefits of the ERP through the continued streamlining and integration of operational processes in order to drive continued operational and financial improvements. As the implementation and refinement of the ERP allows, Badger will continue to seek opportunities to centralize certain administrative functions, ensuring that the operational and financial benefits that the ERP project will drive are captured in a timely manner. Badger will seek to aggressively, but prudently, reduce temporary personnel and consulting costs directly attributable to the project throughout 2020.
Revenues in the fourth quarter of
The increase in revenue for fiscal 2019 was attributable to strong growth in select
RPT for the fourth quarter of 2019 was
Gross profit margin for the fourth quarter of 2019 was 29.3% compared to 31.5% in the prior year comparative quarter. Gross profit margin was impacted by the absence of emergency response work in the current year quarter and higher direct labour costs, both of which had the largest impact within the
G&A for the fourth quarter of 2019 was
As the ERP implementation was completed in
Adjusted EBITDA for the fourth quarter of 2019 was
Net profit for the fourth quarter of 2019 was
During the fourth quarter of 2019, 41 net hydrovacs were placed into service consisting of 49 new and 8 retired units; and for the year ended 2019, 143 net hydrovacs were placed into service consisting of 199 new and 56 retired units. Hydrovac build and retirements for fiscal 2019 were consistent with the 2019 financial outlook. 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
IFRS 16 - Leases
Effective
See Badger’s 2019 annual MD&A for additional details on financial results, including the adoption of IFRS 16.
Driving Long-Term Shareholder Returns: Normal Course Issuer Bid and Dividend Increase
During the fourth quarter of 2019, pursuant to the Company’s NCIB, 210,000 common shares were purchased and cancelled at a weighted average price per share of
In addition to driving long-term shareholder returns through the NCIB program, the Board of Directors has approved a 5% increase to the dividend. Effective with the
Badger continues to maintain a strong balance sheet. As at
Financial Outlook
Consistent with the financial outlook provided with the Company’s 2019 third quarter financial results, Badger anticipates that its 2020 Adjusted EBITDA will be in the range of
Badger has made no changes to its 2020 financial outlook. Badger is closely monitoring the global spread of the coronavirus and the impact it may have on the global and North American economies, and consequently the impact on Badger’s operations. Significant uncertainty currently exists across financial and commodity markets, with the potential impact on the general North American economy currently uncertain. At this point in time, it is unclear what the short or long-term impact might be on Badger’s operations. In the event of an economic downturn in Badger’s markets, Badger will proactively reallocate hydrovacs across its branch network in response to regional activity levels, and consistent with historical past practice, will continue to prudently manage capital expenditures to support hydrovac truck growth and manage retirements.
The 2020 financial outlook, as noted above, assumes that there will not be a material negative impact on the macro-economic environment in both the
Badger’s 2020 financial outlook assumes 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’s 2019 Adjusted EBITDA of
Badger remains focused on generating profitable long-term sustainable growth to drive total shareholder returns. In that light, in conjunction with Badger’s 2019 investor day which was held during the fourth quarter of 2019, Badger updated and confirmed its long-term strategic financial and operational milestones which consist of:
- (i) double the
U.S. business from fiscal 2019 levels over a period of 3 to 5 years; - (ii) grow Adjusted EBITDA by a minimum of 15% per year;
- (iii) target Adjusted EBITDA margins of 28% to 29%; and
- (iv) drive fleet utilization and revenue per truck per month above
$30,000 .
2019 Fourth Quarter and Annual Results and Conference Call
A conference call and webcast for investors, analysts, brokers and media representatives to discuss the 2019 fourth quarter and annual results is scheduled for
2019 Annual Disclosure Documents
Badger’s 2019 annual Management’s Discussion and Analysis and audited consolidated financial statements for the year 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 2019 annual 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 2019 annual 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 and benefits 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
U.S. markets; - 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 2020, with a softer overall macro-economic environment anticipated inCanada , particularly inWestern Canada ; - Badger anticipates that oil and gas activity levels for 2020 will be lower than 2019 levels within its Canadian and
U.S. operations; - 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’s assumption that there will not be a material negative impact on the macro-economic environment in both the
U.S. andCanada related to the coronavirus; - Badger anticipates that Adjusted EBITDA for 2020 will be in the range of
$175 million to$195 million ; - 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 2020 will be consistent with 2019;
- The timing and benefits 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 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 personnel 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
North America ; - 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 achieve the operational and financial benefits from its Common Business Platform, and there will be no material capital costs directly related to the Common Business Platform in 2020.
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; 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
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Source: Badger Daylighting Ltd