INVESTOR DAY November 15, 2018 www.badgerinc.com | TSX:BAD TODAYS - - PowerPoint PPT Presentation
INVESTOR DAY November 15, 2018 www.badgerinc.com | TSX:BAD TODAYS PRESENTERS Paul John Kelly Tracey Wallace Tim Reiber Wade Wilson Liz Peterson Jerry Vanderberg Schiefelbein Management in attendance but not presenting: Mike Tunney,
www.badgerinc.com | TSX:BAD
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Management in attendance but not presenting: Mike Tunney, VP North American Operations - Central Kevin Carnahan, VP North American Operations - West Jay Bachman, VP Financial Operations and Investor Relations Alan Richter, Director Financial Planning, Analysis & Tax Paul Vanderberg John Kelly Tracey Wallace Tim Reiber Wade Wilson Liz Peterson Jerry Schiefelbein
This presentation contains forward-looking statements reflecting certain current forecasts of certain aspects
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 statements regarding:
economic environment in both Canada and the U.S. is anticipated to be supportive of this growth;
destructive excavation;
branch network and business development function;
performance;
and for 2019 will be in the range of $170 to $190 million;
200 units and for 2019 will be approximately 190 to 220 units, and that hydrovac retirements for 2018 will be in the range of 60 to 80 units and for 2019 will be in the range of 40 to 60 units;
common shares under its NCIB;
for general and administrative expenses remains at 4% of revenue on an annualized basis. 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:
gas activity in North America;
with new customers;
conditions, competition, regulatory factors or other unforeseen factors;
disasters, global events, legislation changes, technological advances, economic disruption or
at the costs expected; and
expected time frame and in accordance with the expected budget. With respect to dividends, investors are cautioned that monthly dividends are always subject to approval from the board of directors of Badger, and may be increased, decreased or suspended by the board at any time. 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: price fluctuations for oil and natural gas and related products and services; political and economic conditions; industry competition; 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. 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
website (www.sedar.com) or at the Company’s website. The forward-looking statements and information contained in this press release 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. 3
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Badger has made significant progress towards meeting its long-term strategic financial targets.
(1) See Badger’s 2018 third quarter, 2017 fourth quarter earnings release, and the 2017 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.
2017 – 2018 Milestones(1)(2)(3) Double the U.S. business again within 3 to 5 years 32% U.S. revenue growth in 2017 and 28% growth in Q3 2018 YTD Grow Adjusted EBITDA by a minimum of 15% per year 20% Adjusted EBITDA growth in 2017 and 25% growth in Q3 2018 YTD Target Adjusted EBITDA margins of 28% to 29% Q3 2018 YTD Adjusted EBITDA margins up 120 bps (5%) Drive fleet utilization and RPT above $30,000/month 2017 RPT Of $30,075, 2018 RPT tracking to target 2018 – 2019 Outlook Adjusted EBITDA 2018: $150 to $160 million; 2019: $170 to $190 million Hydrovac builds 2018: 160 to 200 units; 2019: 190 to 220 units Hydrovac retirements 2018: 60 to 80 units; 2019: 40 to 60 units
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Broad operating network Diversification: geographic and end use market Organic growth opportunities Hydrovac design and build Strategic business initiatives
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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 other one-time items. One-time items applicable to 2014 as disclosed in Badger’s 2014 MD&A. Invested capital is calculated as total assets less cash and cash equivalent less non-interest bearing current liabilities. Note 1: Throughout this presentation trailing twelve months (“TTM”) includes the period October 1, 2017 though September 30, 2018. Note 2: Throughout this presentation Adjusted EBITDA as defined by Badger for the years 2013 through 2018, 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
CAGR: 17%
0% 5% 10% 15% 20% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 TTM 2018
200 300 400 500 600 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 TTM
$CAD mm’s
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The Badger Daylighting hydrovac utilizes pressurized water and vacuum to safely excavate underground infrastructure.
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Safe and efficient Call out service: first call and emergency response Non-destructive Excavated soil/water remains on site or Badger arranges for disposition based on customer requirements - customer maintains ownership of materials
Hydrovac: non-destructive excavation in sensitive or confined spaces.
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SAFETY
REGULATORY ENVIRONMENT
usage
is a positive for hydro excavation PRODUCTIVITY PARTNER
methods
“In the United States, on average, a ‘critical strike’ of utility infrastructure occurs every 6 minutes from conventional excavation tools” - Pipeline Emergency Response and Damage Prevention training materials.
Complementary excavation
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Badger’s model: local customer focus underpinned with a national support network.
Area Manager – Key Roles
billing and collections
Department of Transportation regulations Local Branches Run By Area Managers Entrepreneurial model supported by:
BADGER’S BRANCH-BASED MODEL
Area Managers Have Full P&L Responsibility Monthly income statement Compensation drivers:
charge
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Badger’s focus is to be best-in-class in hydro excavation. Our extensive operating network has created a business model with unparalleled operational scale, delivering value to our customers across a wide range of end use and geographic markets, driving fleet utilization and
Extensive Branch Network
Fleet Utilization Operating Cost Leverage
Diversification
End Use Market Geographic
Sales and Marketing
Local, Regional and National End Use Market Focused
Fleet: Design & Build
Safety Operating Efficiency Life Cycle Costs
OPERATING SCALE
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The extensive branch network differentiates Badger relative to its competitors.
Customer Service Operating Leverage Fleet Utilization
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, 2018 and is for illustrative purposes only.
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Badger’s end use market diversification has been instrumental in successfully repositioning its business, growth and sustainable financial performance.
Revenue By Type
51% 28% 49% 72%
2014 TTM 2018
% of consolidated revenue
Oil and Gas Non-Oil and Gas
(1) (2)
$410 million $159 million $207 million $215 million
(3)
(1) Percentages source: Badger’s historical Annual Information Form. Consolidated revenue source: Badger’s historical Financial Statements. Consolidated revenue in Canadian dollars. (2) Source: Management. (3) Source: Badger’s historical Financial Statements.
Badger 10 Year Annual Consolidated Revenue(3)
CAGR: 17%
200 300 400 500 600 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 TTM
$CAD mm’s
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Continued evolution of Badger’s business is being driven by the following strategic initiatives.
Human Resources Sales & Marketing Common Business Platform Fleet & Technology
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Human Resources
Human Resources is critical to facilitate the growth of Badger’s business.
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Customer Development Technology Development People Development Systems Development
BEST OPERATOR & BEST TRUCK
Provide good value and service = satisfied client
AREA MANAGER
Attract and develop best operators, trucks and safety program in Hydrovac industry
REGIONAL, PLANT AND ADMINISTRATIVE STAFF
Attract and help Area Managers to be successful by providing fleet, safety and business support plus best trucks
CORPORATE OFFICE
Provide strategic direction, support for the organization and create a winning culture
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Recruitment to support organic growth opportunities.
Targeted operator recruitment Out of the box initiatives Partnerships
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Retention is an important strategy for growth.
Management Career advancement Onboarding Hiring
Human resources weekly team meetings.
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Payroll Compensation Benefits Talent management Labour relations Training
Standardization will ensure the sustainability of HR initiatives.
Human resources group training.
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Badger sales and marketing is key to driving growth and profitability.
Sales and Marketing
Matrix sales and marketing organization Professional sales and marketing processes Data and analytics End use market segmentation Geographic expansion
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Badger sales and marketing programs drive growth and fleet utilization. Diversified Markets End Use Geographic Geographic Focus National Regional Local Implemented in 2018
verticals
coordination
Corporate/National account focus
regional and national account support
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Sales force effectiveness measurements Lead generation tracking and accountability Sales training Standardized processes and procedures Implementation of Customer Relationship Management system (CRM)
Continuously developing programs and processes to drive growth and profitability for the organization and meet our strategic milestones.
Emergency response hydrovacs staging.
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Badger’s end use market diversification is a key differentiator and source of growth.
End Use Market Revenue Summaries – TTM 2018(2)
Utility 36% Oil and gas 28%
General construction 26%
Industrial 4% Transportation 3% Telecom 2% Engineering 1%
next 10 years(1)
construction
(1) Source: American Society of Civil Engineers. (2) Source: Management.
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Ensure quoted items are invoiced Strategic/value based pricing Regional/tailored approach Reduce revenue leakage
Badger is using sales and marketing data to drive customer growth and pricing initiatives.
Customer win/loss ratio 2018: 1.21
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Badger’s geographic expansion is driven by scale.
Developing internal growth (“DIG”) team approach Marketing, operations and staff functional support start-ups Leverage fleet in existing markets
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The Common Business Platform will provide Badger with the foundation for growth.
Common Business Platform
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The Common Business Platform strategy is to implement a range of processes to support current and future growth.
Centralized single source of data
Capture vehicle logs electronically and link to job ticket data Pre-populate job tickets with all standard billing items and common add-ons Automatically approve customer invoices that match original job quotes; approve supplier invoices that match PO’s Establish standard prospect follow-up times and create sales email follow-ups
Lean / automated business process Tech-enabled standard workflows Electronic business forms
Capture critical data electronically, managed through an enterprise data strategy Pre-populate forms with standard terms, SKU’s, and add-on services Streamline processes through automation Take advantage of notices and automatic scheduling to remind staff of critical deliverables and follow-up
Requirement: Example:
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High High
HIGH VALUE STRATEGIC QUICK WINS LOW PRIORITY
Low Low
Implementation Effort Impact on Performance
Blueprinting Portfolio of improvement
to address Value stream mapping Business improvement
identified and ranked
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Blueprinting and Value Stream Mapping Design and Build Test and Deploy Go-Live Target Completion: Mid 2020 Completed Current work phase Begins post build Staged by function Project Management Change Management
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Badger has assembled a team with the necessary skills and experience for a successful implementation.
Project Management and Leadership
Quality Assurance System Integrator Solutions Provider Compliance
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Expected benefits are administrative, operational and customer related.
Increase volume Credit and collections Strategic pricing
Labor productivity Asset utilization Procurement Employee retention
Safety Customer satisfaction Employee satisfaction
Benefits
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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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Life Cycle Costs Reduce initial capital costs, optimize total lifecycle costs Active management of repairs and maintenance – 2nd largest direct cost 10 year average life; 2017 average fleet age – 4.5 years(3) Hydrovac Count and Revenue Per Truck(1)(2)
(1) Source: Badger historical MD&A and /or Financial Statements. (2) RPT for September 30, 2018 is for the nine-months ended September 30, 2018. (3) Source: Badger’s 2017 Annual Information Form
Badger’s design, engineering and manufacturing is not only a key differentiator for Badger that maximizes truck utilization while minimizing total life cycle costs.
– 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 – 200 400 600 800 1,000 1,200 1,400
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Sept 2018
RPT ($) Hydrovac count Hydrovac Count (Canada) Hydrovac Count (U.S.) Revenue Per Truck (RPT)
Design and Engineering Design and Engineering Leader in hydrovac technology Continuous operator feedback Designed for safety and productivity
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Enter New Markets First mover advantage New geographies - adjacent geographies End use market exposure
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Penetrate Existing Markets Consistent and profitable growth in existing geographies Sales and marketing programs Ongoing oil and gas market improvements
FUTURE GROWTH DRIVEN FROM: Badger has successfully grown its business utilizing an organic growth model.
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U.S. REVENUE GROWTH(1)
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.
Current Badger service area(2)(3) MSAs per 2010 Census data; lower 48 states(3)(4)
(1) Source: Badger historical MD&A and /or Financial Statements. (2) 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 Areas as at September 30, 2018. (3) Location of Badger’s service areas and MSA’s is for illustrative purposes only. (4) U.S. Census Bureau, 2010 Census – an MSA is a geographic region with a population of over 100,000 people. Management estimates used for purposes of comparing Badger service areas to MSA’s.
$110,200 $150,400 $187,000 $196,100 $202,400 $268,200 $326,200 – $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 2012 2013 2014 2015 2016 2017 TTM 2018
USD (000's)
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Shares outstanding(1) 37.1 million TSX share price(1) $27.42 Market capitalization(1) $1.0 billion Enterprise value
(1)
$1.1 billion Monthly dividend per share
(2)
$0.045 Dividend yield
(1)(2)
2.0% TTM Adjusted EBITDA
(3)
$148.4 million Total debt less cash to TTM Adjusted EBITDA
(3)(4)
0.5X 10-year average return on invested capital
(5)
16%
(1) As at November 8, 2018. (2) Dividend yield calculated based on November 8, 2018 share price of $27.42 and November 2018 declared dividend of $0.045 per common share ($0.54 per common share annualized). (3) Adjusted EBITDA based on trailing twelve months as at September 30, 2018. For definition of Adjusted EBITDA see slide “Non-IFRS Financial Measures and Key Financial Metrics”. (4) Total debt less cash and cash equivalents as at September 30, 2018. (5) Return on invested capital calculated as previously defined.
Badger’s successful organic business model has created a company with an enterprise value of $1.1 billion.
Badger generated record revenue and adjusted EBITDA in the third quarter of 2018.
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(1) Presented in millions of Canadian dollars.
Note 1: Refer to Badger’s 2018 third quarter earnings release, Financial Statements and management’s discussion and analysis for additional details regarding Adjusted EBITDA, Revenue, Adjusted EBITDA margin and RPT. Note 2: See slide “Non-IFRS Measures and Key Financial Metrics” for definition and additional details on Adjusted EBITDA, Adjusted EBITDA margin and RPT.
Q3/18 Q3/17 YTD/18 YTD/17
Revenue(1) $168.7 $141.3 $436.8 $364.7 Gross Margin 34.5% 32.1% 30.9% 28.9% Adjusted EBITDA(1) $50.9 $38.9 $113.8 $90.8 Adjusted EBITDA margin 30.2% 27.6% 26.1% 24.8% Revenue per truck $35,500 $34,125 N/A N/A
Q3/18 Financial Highlights
Record revenue and Adjusted EBITDA; RPT of $35,500 Adjusted EBITDA margin 30.2% in Q3 2018 vs. 27.6% in Q3 2017 Gross profit margin 34.5% in Q3 2018 vs. 32.1% in Q3 2017
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Badger is making significant investments in its people and processes to build the administrative scale to manage Badger’s current and future growth.
Building Corporate Capabilities
Badger continues to target a long-term G&A run rate of 4% of revenue(1) Review of administrative processes in conjunction with common platform review Facilitate timely decision making Proactive hiring and talent upgrading
(1) Badger’s target for general and administrative expenses, excluding costs associated with the Common Business Platform, on a long-term annualized basis remains at 4.0% of revenue.
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Select cash flow information(1)
Annual 9 months 2015 2016 2017 2018 Change in non-cash working capital 32.9 (13.0) (17.3) (33.0) Dividends (13.3) (14.2) (15.4) (14.0) Interest (5.9) (5.0) (4.9) (4.8) Payments to lenders and shareholders (19.2) (19.2) (20.3) (18.8) Capital expenditures (39.0) (23.5) (83.6) (71.5) Other investing activities, net (0.7) 1.4 1.9 (0.6) Investments 39.7 22.1 (81.7) (72.1) Increase (decrease) in cash & cash equivalents 5.8 37.9 (16.8) (22.4) Cash & cash equivalents, beginning of year 19.2 25.0 62.9 46.1 Cash & cash equivalents, end of year 25.0 62.9 46.1 23.7 Total hydrovacs built 64 55 157 161
(1) Source: Badger historical Financial Statements and MD&A. Cash flow information presented in millions of Canadian dollars.
Shareholder returns and debt repayment Counter-cyclical cash generation; no equity expected to be required Capital expenditures Working capital
Use of Cash
Badger’s organic hydrovac first model has generated strong financial performance across a number of business cycles.
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(1) Return on invested capital calculated as previously defined. (2) Represents index based on total return as at September 30, 2018. Assumes reinvestment of dividend income at prevailing share price.
Total Return(2) Return on Invested Capital(1)
Badger’s business model has historically provided high return on invested capital – allowing Badger to continue to
200 400 600 800 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
%
Badger Daylighting S&P/TSX Composite Index 0% 5% 10% 15% 20% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 TTM 2018
Balance Sheet Management
Badger manages its business to generate superior shareholder returns.
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36% increase in dividends in previous 18 months NCIB put in place in 2018 Continue to assess Net leverage at Q3 2018: 0.5X Prudent balance sheet relative to peers Capacity for business expansion and other capital allocation 16% 10 year average ROIC $84 million in capital expenditures Manage working capital growth with growth in business
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(1) Statutory rates in both Canada and the U.S. will vary dependent on the province or state where the income is earned. Current and future income tax rates and the related income tax provision are subject to
government and regulatory change.
U.S. tax legislation changes positively impacting Badger’s 2018 financial results
from 35%(1) Current taxes benefit from ongoing U.S. capital spending
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Beginning in the fourth-quarter of 2018, Badger plans to simplify revenue and RPT disclosures. Current revenue segmentation
Hydrovac revenue Other service revenue Truck placement fees
Hydrovac service Other hydrovac related revenue Truck placement fees Fieldtek and other equipment Administrative income
Q4 2018 revenue segmentation
Hydrovac revenue Other revenue
Hydrovac service Fieldtek and other equipment Other hydrovac related revenue Administrative income Truck placement fees
Current revenue per truck disclosure
Q4 2018 revenue per truck disclosure
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(1) For further details refer to Badger’s 2018 third quarter MD&A. (2) Due to the nature of construction operations, Badger does anticipate a seasonal slow-down in its northern markets due to winter weather, the exact nature and timing of this impact is highly variable and dependent on
regional specific weather.
Key Themes(1)(2) Increased usage of non-destructive excavation Macro-economic environment in Canada and U.S. to be supportive of ongoing infrastructure construction Badger anticipates increased year-over-year activity levels realized in 2018 to continue into Q4 Continued focus on operational improvements to drive growth and margin
Adjusted EBITDA - 2018: $150 to $160 million; 2019: $170 to $190 million Hydrovac builds - 2018: 160 to 200 units; 2019: 190 to 220 units Hydrovac retirements - 2018: 60 to 80 units; 2019: 40 to 60 units
2018 – 2019 Outlook:
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(1) Starting point is Badger’s financial results for the year ended December 31, 2016.
Profitable Growth
Proven Business Model Attractive Markets Focused Strategy
Strategic Milestones (3-5 years)
Double the U.S. business again within 3 to 5 years(1) Target Adjusted EBITDA margins of 28% to 29% Grow Adjusted EBITDA by a minimum of 15% per year (1) Drive fleet utilization and RPT above $30,000/month
Badger has made substantial strides in achieving its strategic milestones.
his chest
around the man
man was extracted safely from the trench
could take too long
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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 Gerald Schiefelbein, Vice President, Finance and CFO Jay Bachman, Vice President, Financial Operations and Investor Relations
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Metrics
(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.
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(1) Source: Badger historical MD&A and /or Financial Statements.
HISTORICAL REVENUE(1)
HISTORICAL ADJUSTED EBITDA(1)
200,000 300,000 400,000 500,000 600,000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 TTM 2018
Revenue (CAD $000’s)
40,000 60,000 80,000 100,000 120,000 140,000 160,000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 TTM 2018