INVESTOR DAY November 14, 2019 www.badgerinc.com | TSX:BAD TODAYS - - PowerPoint PPT Presentation
INVESTOR DAY November 14, 2019 www.badgerinc.com | TSX:BAD TODAYS PRESENTERS Paul John Kelly Tim Reiber Tracey Wallace Wade Wilson Darren Vanderberg Yaworsky Management in attendance but not presenting: Liz Peterson, VP North
www.badgerinc.com | TSX:BAD
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Management in attendance but not presenting: Liz Peterson, VP North American Operations – East Jay Bachman, VP Financial Operations and Investor Relations Tom Ellis, Regional Manager Paul Vanderberg John Kelly Tim Reiber Tracey Wallace Wade Wilson Darren Yaworsky
This presentation contains forward-looking statements reflecting certain current forecasts of certain aspects of the company’s future. These statements are based
current information that management has assessed, but which by its nature is dynamic and subject to rapid and even abrupt changes. Forward-looking statements in the presentation include but are not limited to the following statements:
its U.S. operations but weaker in Canada in 2019 and 2020 compared to 2018;
excavation;
and business development function;
for 2020 will be in the range of $175 million to $195 million;
and that hydrovac retirements for 2019 will be in the range of 40 to 60 units;
and that hydrovac retirements for 2020 will be in the range of 50 to 70 units;
impact on general and administrative expenses;
headcount and consulting costs attributable to the Common Business Platform project;
shares under its NCIB;
hydrovac operator training center; and
2020 and subsequent years including the portion and timing thereof the costs related to the implementation of the enterprise resource planning project. The forward-looking statements made in this presentation rely on certain expected economic conditions and overall demand for Badger’s services and are based on certain assumptions. The assumptions used to generate these forward-looking statements are, among other things, that:
in North America;
customers;
competition, regulatory factors or other unforeseen factors;
events, legislation changes, technological advances, economic disruption or other factors beyond Badger’s control;
costs expected; and
time frame and in accordance with the expected budget. Badger Daylighting Ltd.’s actual results could differ materially from those stated or implied by the forward-looking statements within this presentation. The forward-looking statement with this presentation should be considered in the context of forward-looking statements in the company’s most recent filings included with the Canadian Securities Administrators, which are available on the SEDAR disclosure system (www.sedar.com). 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 presentation, 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 presentation was made as of the date of this presentation and the Company does not undertake any obligation to publicly update or revise any FOFI contained in this presentation, 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 Canada and may be accessed through the SEDAR website (www.sedar.com) or at the Company’s website. The forward-looking statements and information contained in this presentation are expressly qualified by this cautionary statement. The Company does not undertake any obligation to publicly update or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
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Corporate Update
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Badger has made significant progress towards meeting its long-term strategic financial targets.
(1) See Badger’s 2019 third quarter, 2018 fourth quarter earnings release, and the 2018 annual MD&A for additional details regarding Adjusted EBITDA, Compliance EBITDA, revenue, Adjusted EBITDA margin and RPT. (2) See slide “Non-IFRS Measures and Key Financial Metrics” for definition and additional details on Adjusted EBITDA, Adjusted EBITDA margin and RPT. (3) Starting point is Badger’s financial results for the year ended December 31, 2016.
Strategic Milestones(1)(2)(3) Double the U.S. business within 3 to 5 years
Successfully completed in Q4 2019; doubled 2016 U.S. revenue.
Grow Adjusted EBITDA by a minimum of 15% per year
29% Adjusted EBITDA growth in 2018; 8% Adjusted EBITDA growth in YTD
Target Adjusted EBITDA margins of 28% to 29%
2018 Adjusted EBITDA margins up 110 bps at 26.3%; YTD 2019 Adjusted EBITDA margins down 120 bps at 24.9%.
Drive fleet utilization and RPT above $30,000/month
2018 RPT of $34,347; 2019 YTD RPT tracking well.
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Opportunities, Challenges and Areas of Focus
Adverse weather Increased geographic diversification - 16 new locations opened YTD Sept. 30, 2019 Organic growth 116 net new units added to the fleet from Sept. 30, 2018 Operator recruitment Talent acquisition strategy Increase in general and administrative costs Common Business Platform successful go live underway
2019: A year of significant investment in Badger’s business model.
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Badger’s hydrovac focused model has generated strong financial performance across a variety of business cycles.
(1) Source: Badger historical MD&A and /or Financial Statements. (2) Return on invested capital calculated as follows: Net operating profit after taxes divided by invested capital. Net operating profit after taxes calculated as net profit adjusted for the after tax impact of interest, share-based compensation and
Note 1: Throughout this presentation trailing twelve months (“TTM”) includes the period October 1, 2018 though September 30, 2019. Note 2: Throughout this presentation Adjusted EBITDA as defined by Badger for the years 2013 through 2019, prior to 2013 was defined as EBITDA. See Badger historical MD&A for additional details.
Badger 10 Year Annual Consolidated Revenue(1) Return on Invested Capital(2)
Organically Funded Growth
10 year revenue CAGR of 17% 10 year average return on invested capital of 16% Flexible capital expenditures
U.S. Revenue Growth(1)
200 300 400 500 600 700 2010 2011 2012 2013 2014 2015 2016 2017 2018 TTM 2019 100 200 300 400 2012 2013 2014 2015 2016 2017 2018 TTM 2019
USD (milion's)
0% 5% 10% 15% 20% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 TTM 2019
CAD (million’s)
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(3)
28% 72%
Badger has successfully grown its business utilizing an organic growth model by adding one truck and
Note 1: Service areas are locations where Badger provides services to local customers. A service area may not have a physical location where hydrovacs and staff are located. Service locations are as at September 30, 2019 and is for illustrative purposes only.
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Operations Overview
The Badger Daylighting hydrovac utilizes non-destructive pressurized water and vacuum to safely excavate underground infrastructure.
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“An underground utility line is damaged once every six minutes in the United States” – Common Ground Alliance 2019
SAFETY REGULATORY ENVIRONMENT
increased hydrovac usage
materials
PRODUCTIVITY PARTNER
excavation
customer maintains ownership
Complementary excavation
HYDROVAC USES(1)
trenching and pits
END USE MARKETS
(1) See Appendix A for additional hydrovac uses
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Badger is committed to the highest standards for our employees and customers and has promoted a culture
Corporate Safety Culture Safety Initiatives Progressive discipline Badger “Rules to Live By” Mentor training Third party safety partners Defensive driving training
Badger’s Rules to Live By
Drive defensively I will always practice defensive driving and obey traffic laws Boom safety I will always know my boom position and practice safe boom procedures Stop work authority I will always exercise Stop Work Authority in unsafe conditions Fall protection I will always follow fall protection procedures Safety devices I will always respect and never tamper with or disable any safety device Confined spaces I will always obtain the proper permits before entering any confined space Incident reporting I will always report incidents immediately, no matter how small
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Extensive Branch Network
Fleet utilization Customer service Operating cost leverage
Diversification
End use market Geographic
Sales & Marketing
Local, regional and national End use market focus
Fleet: Design & Build
Safety Operating efficiency Life cycle cost advantage
OPERATING SCALE
Local branches run by Area Managers Area Manager – Safety, hire, train, customer, fleet, administration Area Managers - Full P&L responsibility
MSAs per Census data; lower 48 states Badger service locations
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The extensive branch network differentiates Badger relative to its competitors.
Customer service Operating leverage Fleet utilization
efficiencies
Note 1: Service areas are locations where Badger provides services to local customers. A service area may not have a physical location where hydrovacs and staff are located. Service locations are as at September 30, 2019 and is for illustrative purposes only.
The U.S. is a significant untapped market. There are approximately 270 U.S. Metropolitan Statistical Areas (MSA) out of 350 total MSA’s in the lower 48 states where Badger does not currently provide service.
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Badger focuses on environmental, social and governance initiatives throughout its operations to have a positive impact on the communities in which we operate.
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Continued evolution of Badger’s business is being driven by the following business initiatives.
Fleet & Technology Sales & Marketing Human Resources Common Business Platform
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Badger continues to implement and assess new technologies across all aspects of the organization.
Fleet and Technology
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Continuous Operator Feedback Integrated Supply Chain
Operator satisfaction
Automatic Transmission
Increased labor pool Cost management: Life cycle costs
Leader in Hydrovac Technology
Cost efficiency
Improved Safety Features
Operator safety = top priority
Safety Manufacturing efficiency Updated electronics Optimized life cycle costs
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(1) Source: Badger’s 2018 Annual Information Form
Badger’s approach to design, engineering and manufacturing is a key differentiator that maximizes truck utilization while minimizing total life cycle costs.
Life Cycle Cost Management Preventative maintenance and repairs – opportunity costs Reduce initial capital costs, optimize total lifecycle costs Manage downtime for repairs – parts supply chain 10 year average life; 2018 average fleet age – 4.4 years(1) Utilization = Operating Leverage
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Sales and Marketing
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Badger sales and marketing programs drive revenue growth. Diversified Markets End Use Geographic Geographic Focus National Regional Local Matrix Organization
coordination
verticals
Corporate/National account focus
national account support
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The CRM Module within the Common Business Platform provides effective sales and marketing tools.
Sales force effectiveness Lead generation tracking Regional/tailored approach Standardize processes & procedures Strategic/value-based pricing Ensure quoted items are invoiced
Organic growth Margin enhancement
Customer Lead Opportunity Quote Convert to Job Complete Job
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Continuously developing programs and processes to drive growth and profitability for the organization and meet our strategic milestones. Consistent customer and job data capture Manage what we measure
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Badger’s end use market diversification is a key differentiator.
End Use Market Revenue Summaries – TTM 2019(2)
next 10 years(1)
construction
(1) Source: American Society of Civil Engineers. (2) Source: Management.
Utility 41% Oil and gas 24% General construction 14% Industrial 11% Transportation 5% Telecom 2% Engineering 3%
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Human Resources
Human Resources management is critical to facilitate the growth of Badger’s business.
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Enhanced sourcing strategies to better attract qualified candidates and reduce time-to-fill. Third party partnerships Applicant tracking system Alignment of recruitment and onboarding initiatives with diversity and retention objectives
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Military career fairs and networking events Troops in transportation Sponsorships of military appreciation events Partnerships with military/veteran organizations
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“Women Building Futures” Women/minority owned franchises and OP’s Women connect networking group First Nations and Indigenous partnerships
Female Representation 2019 2018 Board 2 1 Management 24 26 Operator 58 43 Admin/Support 197 186 Total 281 256
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Operator and Area Manager retention is an important factor to support future growth.
Pulse/ Engagement survey Career progression (“Job levelling”) Referral programs Competitive benefits program
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Standardized training drives improved customer experience, reduces operator turnover and reduces overall costs. Badger University
April
to 48 operators per month
program by the end of 2020
retention
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Badger Management Training Program (“BMT”)
management, operations, safety and sales
Front Line Leaders Program
work, and business
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Leaders
Employees have great respect for their leaders. They feel they are treated with dignity and respect.
Change Culture Communication
Employees feel positive about the changes that are happening. Employees feel positive about Badger leadership effectively communicating. Employees feel Badger is a great place to work and feel a sense of family and team.
Trust
Employees trust their leaders and trust the company to do the right thing.
Compensation & Benefits
Employees feel their pay expectations are being met and benefits are competitive.
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The Common Business Platform provides Badger with the foundation to facilitate future growth.
Common Business Platform
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Blueprinting and Value Stream Mapping Design and Build Test and Deploy
Go-Live Target Completion: 2019 Year-end Completed Current work phase First three steps completed. Currently in the go-live phase.
October 1, 2019 November 4, 2019 December 1, 2019 January 2020
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October 1, 2019 marked the successful go-live of the first phase of the system implementation.
October 1, 2019 November 4, 2019 December 1, 2019 January 2020
Finance Human Capital Management Fleet Health, Safety, Environment
Central Operating Center East Operating Center Franchises & Operating Partners
Realization
West Operating Center
Current work phase
Ongoing Support
Completed
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Revenue Growth Intangible Benefits Operating Leverage
Common Business Platform
management
The focus in 2020 will be to realize the benefits of the Common Business Platform.
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Volume Strategic Pricing Credit & Collections
Increase Revenue
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Labor Productivity Procurement Asset Utilization
Operating Leverage
management
Employee Retention
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Safety Employee Satisfaction Customer Satisfaction
Intangible Benefits
reporting
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Financial Strategy
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Increasing financial capacity to support current and future growth in working capital requirements and capital expenditures in addition to the management of future debt maturities.
Amended and upsized the Credit Facility on September 30, 2019
flexibility available to Badger
available to Badger
Note: All amounts in CAD Millions unless otherwise noted
$100 $145 $150 $300
Base Credit Facility Accordion Option
Jan 2020 Jan 2021 Jan 2022
U$25 U$25 U$25 Credit Facility Limit: $300 Limit with Accordion: $450
Ample liquidity to refinance future term debt maturities, on-going
next three years
Notes maturities, operating and capex requirements over the next three years Credit Facility Limit Senior Notes Maturities
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Adding financial flexibility to support long-term strategic growth.
Previous Credit Facility Current Credit Facility
2.75x 4.00x
Current Leverage:1.1x Target Leverage: 1.0-1.5x Surplus Covenant Capacity
Long-term leverage target of 1.00 – 1.50x Debt/EBITDA
all market conditions and prudently respond to long-term strategic
Additional covenant flexibility
strategic opportunities in a timely manner
Capital cost efficiency
broader cost of capital efficiencies
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Deploying capital in the most accretive manner for Shareholders.
Surplus Cash/Capital Organic Growth Acquisitive Growth Return Capital to Shareholders
most efficient manner, as informed by the Intrinsic Value model
better than organic growth; unless:
Corporate Strategy
(1) For further details refer to Badger’s 2019 third quarter MD&A.
2018 Actual 2019 Forecast
4.8% of revenue
~$10.0 million HR & Payroll: ~20% Finance: ~30% IT: ~25% Network Upgrade: ~25%
General and Administrative Expenses Specific plans to remove ~$10 million in excess general and administrative costs in 2020.
~$10 million in general and administrative expenses to support the CBP implementation full-year 2019.
additional general and administrative costs as at September 30, 2019, with the remaining balance forecasted to be spent
~$10 million in general and administrative around mid-year of 2020 to achieve 40% - 50% of costs savings in the full year.
near the historical 4% of revenue.
$29.6 million ~$45 million
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Working capital reduction initiatives to support organic growth.
Accounts Receivables Day Sales Outstanding
Dec 2017 Jun 2018 Dec 2018 Jun 2019
$112 $154 $159 $172 82 92 95 102
The growth in Day Sales Outstanding has outpaced relative growth in Accounts Receivable
million of working capital being tied up in Trade Receivables since December 2017
Aligning internal policies and procedures
between Credit, Collections and the Business
Targeting meaningful release of latent capital for use in the business
release up to $40 million in capital over the next 2 years
C$ Millions Day Sales Outstanding
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Conclusion
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(1) For further details refer to Badger’s 2019 third quarter MD&A.
Adjusted EBITDA - 2019: $155 million to $170 million; 2020: $175 million to $195 million Hydrovac builds - 2019: 190 to 220 units; 2020: 200 to 230 units Hydrovac retirements - 2019: 40 to 60 units; 2020: 50 to 70 units
2019 - 2020 Outlook(1): Key Themes(1) Operational improvements to drive margin Non-destructive excavation usage continues to increase Capture U.S. market opportunity Leverage Common Business Platform implementation across the business
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Profitable Growth
Proven Business Model Attractive Markets Focused Strategy
Badger has made substantial strides in achieving its strategic milestones.
2020 – 2024 Strategic milestones
Double the U.S. business operations over a period of 3-5 years(1) Target annualized Adjusted EBITDA margins of 28% to 29% Target annual Adjusted EBITDA growth of 15% on average over 3-5 years Target annualized RPT over $30,000
(1) Starting point is Badger’s financial results for the year ended December 31, 2019 using revenue from the U.S. business operations in U.S. dollar terms.
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ATCO Centre Ⅱ Suite 400, 919 – 11th Avenue SW Calgary, Alberta T2R 1P3 Telephone (403) 264-8500 Fax (403) 228-9773 Darren Yaworsky, Vice President, Finance and CFO Jay Bachman, Vice President, Financial Operations and Investor Relations
(1)
This presentation 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 corporations or entities. These financial measures are identified and defined below: “Adjusted EBITDA” is earnings before interest, taxes, depreciation and amortization, share-based compensation, gains and losses on sale
profitability and is therefore useful to management and investors as it provides improved continuity with respect to the comparison of our
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 our control and it excludes share- based compensation as these expenses can vary significantly with changes in the price of our common shares. “Adjusted EBITDA Margin” is Adjusted EBITDA margin as defined earlier, expressed as a percentage of revenues. Key Financial Metrics “Revenue per truck per month” (RPT) is a measure of hydrovac fleet
calculated by combining Canadian and US dollar hydrovac revenue, without converting foreign currency revenues into a Canadian dollar equivalent, dividing the total mixed currency hydrovac revenue for the period by the number of hydrovacs in service throughout the period, and further dividing by the number of months in the period.
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(1) For further details and related reconciliations refer to Badger’s 2018 third quarter MD&A.
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Badger serves a broad customer base across a diverse range of infrastructure end use markets.
Utilities Oil and Gas Telecommunications Transportation
pot holes, sight holes
for power and drainage lines
Industrial Engineering Construction Other Applications
(potholing)
Note 1: Selected uses provided, list not exhaustive of all potential hydrovac uses.