Q1 2020 Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome. So the Bachelor Daylighting Limited Twentytwenty first quarter results that it's time, all participants going to listen only mode. After the speaker presentation. There won't be a question and answer session ask a question. During this session you will need to buy star one on your telephone please.
He hit by today's conference, it's being recorded if you require any further assistance. Please press start zero.
I'd like to hand, the conference over to your speaker for today, Mr. Paul Vanderburg, Sir you may begin.
Thanks, <unk> good morning, everyone. Thanks for joining bad years 2022, one investor called with me today is our chairman Glen her own.
R.C.F. old daring your worst ski and J. Bachmann R.V.P. a financial operations.
Badgers, 2021st quarter earnings Mdna and financial statements were released after the market close yesterday and are available on the Investor section of our website <unk>.
We're required to note the some of the statements made on today's call may contain forward looking information in fact, all statements made today, which are not statements of historical fact are considered to be forward looking statements.
We make these forward looking statements based on certain assumptions that we consider to be reasonable. However forward looking statements are always subject to rescind uncertainties and undo reliant should not be placed upon them as actual results may differ materially from those expressed or implied.
For more information about material assumptions wrists, and uncertainties that may be relevant to such forward looking statements. Please refer to R. Q1 press release and management discussion analysis, along with Badgers 2000 in 19 annual Mdna and the 2000 in 1980.
Further such statements speak only as of today's date and badgered is not undertake to update such forward looking statements.
So Q1.
Normally we jump right into the operating results for the corridor, but due to the onset of covert 19, we really need to begin with the discussion of health and safety.
If there was every time that society has become aware of health and safety Q. thousand 2020 is yet.
Safety is and remains Badger core value in the underlying reason Badger service in operations exist.
Work started on our pandemic response procedures and late February and continue to evolve through the month March with employee and customer safety procedures as our primary focus our health and safety human resources in operations team held daily coordination and planning calls to ensure we had appropriate plans to protect our employees are <unk>.
Summers in those in the broader communities, where we served.
In addition to adhering to government mandates, we have implemented internal guidelines for onsite work, our office environments travel, including social distancing in disinfecting.
Coordinated with scores of customers to provide them with our pandemic response plans business continuity plans and to ensure we coordinate with their site specific protocols and procedures.
We have had several employees can track the virus and thankfully these employees have successfully recovered.
Early self quarantine <unk> policies presented prevented he's employees from returning to the workplace. So we've had some good catches sadly several of our employees of last last family members due to the virus in our thoughts have been with them.
Overall, given that health and safety as Badgers overriding operating focus I'm very proud of the Badger teams response to the pandemic.
So on to Q1 2020 comments.
Seems like we really had two separate q. ones this year.
Regarding revenue the first part of Q1 was a period up until March 10th prior to the onset of covert 19.
And and knock on a path impact we've all seen his head on the economy financial and energy markets.
Revenue in customer activity levels in January and February had exhibited pretty much typical weather patterns in our nor normal markets with a range of regional activity levels do to park to regional economic conditions combined with typical ups and downs from winter weather patterns.
Our energy focused regions, where softening continuing the trends that we saw in late 2019 with Western Canada, continuing to be the slowest and then the energy markets from the decode is right down through the mountain states and into Texas, and New Mexico also beginning to slow down.
We did we provide some emergency response work related to tornadoes in a number of markets, but this work did not have a material impact in the corridor.
Excluding energy focused regions. The majority of our operating areas, where exhibiting a mix of consistent to higher revenue in the beginning of early spring activity.
Early March revenue was trending up nicely from February and it was evident that the spring construction season was getting underway.
R.P.T. was trending similar along to revenues.
Of course, all of this changed dramatically on our on or about March 10th where the virus related shutdowns.
With the virus related shutdowns, resulting in the second half March revenue at approximately 70% of the Runrate, we saw last year.
Market activity reflected thousands of individual customer responses to ensure employee safety and changing their job site operating practices, just like Badgers Pratt practices and procedures changed.
Often we would see customers halt work until they had their procedures in place and then continue.
We saw a wide variety of customer responses with some customers implementing extended shutdowns, while other customers continued to work right on through.
We saw a customer activity levels least impacted as it relates to essential infrastructure and we're getting certain project started up or in some cases getting them completed was critical.
Individual customers shut down decisions were then overlaid as we've all seen by governmental mandated shutdowns.
There's been a range of regional shut down practices, just like now we're seeing arrange a regional practices to restart the economy.
We saw a positive trends in April activity relative to March April revenue trend. It at approximately 80% of last year and improvement from March as customers have procedures in place now for work sites and continue to want to get back to work.
Just as a note that they're percentages I'm quoting here today really tracks activity to previous year, rather than to previous month, because the seasonality.
As you know spring is the season, when Badgers volumes ramp up for the summer construction season, with cute too and Q3, historically being our busiest quarters.
In April we had on average 930 trucks working with 470 trucks idled.
For those trucks that worked the average R.P.T. was just over $30000 and we found this encouraging as utilization goes hand in hand, with our ability to manage direct labor costs with steady work supporting better manpower planning.
I can tell you that getting the fleet back working in especially getting our operators back working here's a top focused for our sales in management team.
We're now seeing the beginning of regional processes to reopen the economy, which will of course include all forms of construction.
Although it's still early as it relates to reopening we continue to see modest improvement in activity levels like we saw last month.
It's important to also know that the vast majority of the work. We do is on projects that are approved that are a pimp per also permitted and financed and we all know and construction completing a project is what drives start up but they're related infrastructure can the startup, but they're related infrastructure is what drives to cash flow.
So we expected owners will want to get going as soon as practical.
Just like we did in early March with pandemic planning, we're actively planning the processors is required to bring her operators back to work. So they were available when customers require service.
Let's talk about cost management.
The impact of the virus has been widespread.
Badgers reacted quickly and we believe prudently to make the changes required to our costs structure.
As I previously noted in mid March we began to see decline in activity incense than we have made and we're still executing on significant changes to the business to stay ahead of the unprecedented market changes that have occurred.
The business focus areas. We started 2020 with her certainly been shifted these past eight weeks.
We'll return to Badgers focus areas and a minute, but let's first review activity over the last eight weeks what have we been up too.
We focused on the actions and executed on actions to number one manage cost number to preserve capital and number three further enhance badger strong financial position.
An operating costs, we knew that with the revenue decline, we had to really get on top of cost quickly. We went through the income statement top to bottom in address costs were needed given existed Andy anticipated economic conditions.
Given the unprecedented uncertainty that we were in largely are still faced with and the many difficult people decisions that were required we started by cutting senior management in board of directors compensation.
April 1st I took a 40% salary cut in the board took a 40% cash compensation cut and Rvps all took a 20% salary cut.
On may 1st our senior operations managers and staff took a 15% salary cut and all other salaried staff took a 10% cut.
These reductions of been implemented for an initial 90 day period in Blue of course review them in light of conditions at the end of that period.
Precedented times requires significant changes and every one of us at Badger has skin in the game and we are committed to Badgers success.
Q1 is the time our operations typically get ready for spring work in in March we were set up and ready to go all areas across the business from operators to sales to support functions in order to service the anticipated ramp up in summer in spring activity levels.
Prior to the shutdowns throughout the Q1, we had hired and we're training just under 250 new operators.
They are in the process of Onboarding in training.
Of course, the economic shut down required we change all of this which we did as quickly as we could you can imagine the chaos that would ensue with that.
Are operators as everyone knows are called in and based paid based on the flow work. So unfortunately, many have not been called in.
Dramatic market changes come so quickly, there's definitely a leg and making adjustments to our labor costs and as a result direct labor took a number of weeks to aligned with changing activity levels. This process continued into April.
We found that the last eight weeks have been the most challenging time ever in planning for in managing our largest cost which is direct labor.
It's also been very challenging and personal for our operators, who only get paid as I said when they work.
The entire team is standing close to our customers to ensure that were there to work for them and we can bring our operators back on when customer activity is ready to start again.
In the shutdown process, some jobs were transition to a logical shutdown point customer by customer, but as I mentioned, many adjust shut down until new operating procedures were put in place.
The word chaos is really the operative word and it really created a lot of inefficiency.
Breeders are also called in or even got to the job site to find that customer plans that changed.
Are ops team performed extremely well in managing through this chaos little notice evolving and changing customer requirements made it almost impossible to effectively plan day to day.
These inefficiencies, we're obviously in our two one results with margins being negatively impacted versus the prior year.
As I said, it's good to see improvement in April and were closely monitoring labor costs to align local activity levels. In staffing. This is a branch by branch process and it's a daily process.
In addition to changes in salaries, we laid off were terminated approximately 30% of the non operator workforce that 30% figure is the overall percentage and include staff that we account for and both direct costs and and G.N.A.
We broke out the estimated financial impact of these costs getting actions in the press release and Mdna in order to provide direction on the mix these activities between direct cost and Gionee.
Cost reductions were implemented across all geography is and all staff functions.
A number of the announced job cuts were driven by implementation of shared services and the administrative consolidation both of which that flow from the new we are piece system implementation.
As you know R.E.R.P. goal lives were successfully completed in late January and since then we push to complete shared services consolidation and never accelerated actually in the downturn other E.R.P. related initiatives.
The acceleration is really because of slower volumes, Ken bit slower volumes actually help us mitigate implementation risks associated with moves like the shared service center implementation.
As a result of the operational changes and restructuring we were recognized at one time provision of approximately $4 million, but this will be in the second quarter because our activities were all in April.
Of that 4 million provision 2.4 million will impact G.N.A. with the remaining 1.6 million recognized indirect costs.
We anticipate that the restructuring activities will result in annualized Runrate savings of approximately 25 million with 10 million to that related to G.N.A. and 15 million related to direct costs.
As a result of the cost reductions, we anticipate at 2021 annualized runrate for G.N.A. of approximately $40 million.
So preservation of capital and another major focus area.
With the a lower anticipated volumes, there's no need in the short term to be adding new badgers to the fleet.
Accordingly be curtailed production at the plant on April 14th.
We time, the curtailment with the plan completion of their production run a generation for design Badgers.
As discussed last November at Investor Day, we were planning a production transition at the plant to the next generation Badger, which we call generation five at the end to Q1.
We completed our Gen for production on April 12th prior to the workforce reductions.
We'll ramp up production with Genfive when market demand dictates.
This timing has allowed for a clean supply chain and production cut off.
But also very very challenging to stick handle.
During the that type of challenges, we've seen with the volume reductions and the plant has done a great job.
R. Q1 build rate was 58 units with the previously communicated 2020 build rate of 200 to 230 units.
That was set up to produce these volumes won't in also while making the gen for Genfive transition.
I can imagine the gyrations required to cut the volume's, while also transitioning to a new generation, while making also all the supply chain changes required.
The manufacturing team performed excellently in making all of these changes and the people reductions.
Based on current revenue run rates, we expect to production will remain curtailed except for a limited number of specialty units in a small number of the generation five units that will be building in order to ramp up in streamline our plant processes. We retained essential staff, who are working on these units and also one decommissioned.
Retired units.
We are well position from the plant in supply chain perspective to ramp up production to meet demand as our markets recovered.
Just a final node on manufacturing, it's very interesting.
To note that since we began production of the generation for Badger design in November of 2016, we built just over 600 generation four units. It was a great run over a period of 42 months and it really reminds me the the strengths of our manufacturing team in the strengths of Badgers integrated businessman.
So some comments now on financial position.
The third major focus area since the onset of the virus has been maintaining badgers financial flexibility.
Badger continues to maintain a strong financial position.
As of May 7th the company had approximately 300 million and total liquidity through a combination of cash on hand, approximately 100 million in 200 million and committed credit facilities.
At the end of Q1 bad years total debt less all cash on hand to <unk> was 1.3 times well within the financial Covenant, a 4.0 times under our credit facility.
We'd like to think our lending group for this support during this unusual time.
As disclosed in our earnings release Badger implemented into a supplemental 100 million one year credit facility earlier. This week to provide the company with enhanced liquidity and the financial flexibility for anything that might come along.
The 100 million of additional liquidity is included in that in the number of 300 million of total eclipse liquidity.
I mentioned, just a minute ago.
Although we don't presently see the need to utilize the additional liquidity. We thought it was prudent to have the facility in place in light of the range of uncertainty and the potential for knock on impacts that might be an unanticipated in financial and credit markets.
Issues that we saw similar to 2009.
We also continue to focus on management of receivables in light of the broader economic environment, we continue to implement internal operational and process changes leveraging improve visibility into our operations from our new E.R.P. system to improve our management at the receivables portfolio.
Managing receivables has and continues to be a top priority for the team.
As we previously communicated we are optimistic that we will see improvements in R.A.R. metrics in the back half of 2020.
Badgers existing and <unk>.
The program expires on May 20th.
At this time the board is not renewing the program.
Prudent decision based on and be uncertainty and the economy and in financial markets.
So to close in before we open it up for questions.
These are unprecedented times.
For those of US who operate a business environment like the last eight weeks forces a laser focus on what is essential to protect the company and the interest of all of its stakeholders.
That's what we've been doing the last eight weeks, we've taken a range of actions to manage to this environment, which we believe our retry required and prudent.
We're positioning costs to make the most of whatever market opportunity is available where preserving capital to shirt ensure that in the near term capital is utilized as efficiently as we can and to also ensure that in the longer term capitals available to support the future growth that we continue to see in our induced markets.
Nothing in the last eight weeks causes us to change our view of Badger solid business model, which is supported by our operating scale diversification to Vandusen geographic markets, a strong operating track record across all stages of the economic cycle.
And the significant opportunity that exist in the U.S. market.
And additionally over the last 18 months, we've underpinned all of this and underpinned our operations and supporting future growth with the implementation of the new E.R.P. system.
One result of the pandemic is that all of us and everyone across society has become much much more aware of health and safety.
It's likely that this awareness will continue we've all learned and we all continue to learn from the crisis.
<unk> health and safety awareness bodes very well for the safety aspects of the non destructive excavation services that badger offers.
Despite the near turned economic disruption batch of remains focused on generating profitable long term sustainable growth to drive shareholder returns.
At our November 2009, Investor Day, we have updated and confirmed our long term strategic financial and operational milestones, which consist of doubling the <unk> business over a period of three to five years.
Targeting adjusted <unk> growth of an average of 15% over three to five years.
Targeting annualized adjusted EBITDA, the margins of 28% to 29% over that period in targeting revenue per truck.
Per month of over $30000 sole with those comments, let's turn it back to meet trust for questions.
As a reminder to ask a question.
I starved one on your telephone.
So what to draw your question press, the pound or Heskey. Please standby.
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Yeah first questions, what's on the line up with.
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Hey, Paul.
Morning year.
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Oh.
Downturns.
There was always.
There was always a market, where adger could could relocate trucks and and that's one of the reasons why.
I like the story so much you could you could adjust pretty quickly.
Are there any such.
And markets are regions in this environment or.
Ours My my sense is that this is completely different than.
And I have to wait and park a lot of sharks until until things we open.
Yeah now great Great question.
Let me, let me reverse the order of your question.
Oh I mean, when you when you look at what's happened with this economic downturn, we happen to tie in our time our conference call with the U.S. job report. This morning, So I'm sure everyone's looking at that on their screens, but this is an unprecedented.
Mix slow down.
Basically caused by governmental shutdowns to control a virus so we'd never seen anything like this before in any of our our business experience. So you know it does have a broader impact across all segments of the economy. Unlike past economic downturns. So it's very broad based but at the same.
Same time, we still see opportunities and again you know we're we're through our first eight weeks of responding to a lot to hits.
In in trying to figure out how to reposition things in the short term that looking past that we continue to see really good opportunities for geographic growth.
We continued to operate touch sorry to open new locations in Q1, despite all the all the challenges and we see new location opportunities for the rest of the year and we also see opportunities to continue to improve our penetration in existing markets and those sales and marketing Act.
<unk> continue so we don't see a whole lot of change in geographic.
And market penetration opportunity growth and that's actually a big part of our focus for the remainder of the year is our operations folks have gotten through this short term restructuring.
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Rested enough to be able to a sequential improvement.
Yeah, well, yeah. It's basically we're all thinking about the same thing right now you're each so.
Where I am this morning at least at least this is my view you know, we really scrambled in March and well into April.
And things are starting to settle in.
But I can tell yet.
The demand continues to be spotty.
And you know our biggest challenges you know is managing direct labor I commented on that a minute ago. So you know when you have steadier volume you can plan for that better. So you know April has continued to be spotty.
Pleased with the improved volumes over March but.
April's still has a lot of noise in the early part of it.
Just because we've continued to really scramble is our customers are scrambled. So I don't think we'll really good better view on on our direct cost.
Run rates versus revenues until may when we get a clean month, that's on on the direct labor side and I'll make some comments on more of the G.N.A. in the indirect costs side and the branches. We did all of our restructuring in the third week of April So april's really going to be a noisy month.
Worse internally. So you know that should all be settled in for the month may and we'll have our first decent look at not only direct costs, but also how G.N.A. and indirect direct costs settled in in the month domain.
I wish I knew all that now, but I don't.
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That would be versus last April yes.
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Okay. Thanks Uri.
Your next question costs on the line of Maggie Mcdougal would stifle G.P.M.
Yeah.
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Good morning, Paul.
Oh.
Thankful to my question. So I wanted to just touch on the restriction weren't they.
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An operating environment, but.
We'll be Kerry how much of that.
All people down over time.
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Opportunities that commodity E.R.P. off.
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Yeah.
Maggie I can I can tell that.
<unk> P. is still implementing their work at home initiatives. So good on you.
It takes me back about 25 years and my own life. So that's good but no. Great question. You know we didn't implement the majority of the restructuring in April.
Things like shared services are in a transition period, but we did announce it in talked to the affected employees.
Will be a two three month transition to transfer that knowledge from red deer down to our Brown's Berg Admin Center. So you know we announced it but the work continues.
But we're not done we're going to our intent is to take full advantage of this downturn to really take a look at the business top to bottom and drive whatever efficiencies we can.
It's the right thing to do.
It's the thing we need to do and and also.
You know we it it's a chance to really do a reset and to think differently about the business. The thing that the timing of the E.R.M.E.R.P. implementation.
It's really interesting is our timing is great.
You know we went live in January so it gives us are really knew.
Chance to look at the business and really change things. So thank goodness, we were not in the middle of the goal I've when all this happened but.
We're going to continue to to look at that and will continue to tweak things as we go.
Thanks, Paul Paul Paul Yeah, it's been an interesting work from home carried for sure. So the other question I had related.
I'm wondering what's it all at souls in terms of how.
Your competitors are responsible on whether or not you think for mobile from opportunities to pick up market share.
Downturn.
Some other smaller players struggling.
Yeah, no. We've we've totally expect that there will be challenges for competitors and and and you know that a lot of times are smaller competitors have narrower customer.
Less than we do so you know if they have.
Smaller number of customers and two or three of those customers are not working.
That creates a bigger problem then for Badger, where we are much more diversified so I think we're going to see some of that.
You know, we're watching that very closely.
But it's still early days.
And you know we expect that you know it typically like we've seen in past downturns people try to hold on hold on until they can't anymore. So I think we'll see that coming.
Would not be surprised in that at all and.
You know, we'll we'll certainly benefit from that in picking up customer list from customers, where we share clients in various markets. So we'd we'd definitely think there'll be opportunities there.
We're seeing it in oil and gas already in oil and gas markets and and you know it just depends on how long the downturn continues in some of these other markets.
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Yep, that's a great when Maggie this is one that we've considered very carefully and you know we're still in that environment with an extraordinary amount of uncertainty and you know eight weeks into this is still very early days.
You know I don't think anyone really knows what potential knock on effects there might be in the economy and you know we all watched statistics of all kinds and there's a wide range of opinions about what's going to happen next and whether it's say you are and now all or a v. and what happens here, but are are <unk>.
<unk> approach so far has been to make sure we were preserved preserving capital at Badger in liquidity, we're in great shape on all that and you know this is not just the short term preservation of capital. It's not just a short term strategy. It's also a long term strategy because our opportunity is significant.
In our markets and it's also long term so we want to make sure that the capacity is there to support growth for an extended period of time and we're we're in great shape on the short term liquidity concerns, but we're also looking at the long term and we see great long term opportunity. So we don't want that to be impinged.
We were obviously change our view on all that based on conditions and based on how uncertainty gets removed overtime.
Thanks, very much I'll get back in it so well.
Banks Maggie.
As a reminder to ask a question you wouldn't need separate star one on your telephone.
No question to press the pound ASCII please standby.
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Earned a question of what's on the line of Jeff federally with Peters and company.
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<unk> a couple of clarification.
Statements made so when you talk about.
In the press release is that revenue on an absolute terms or is that P.T. measure.
That would be absolute revenue dollars.
And so breaking it into pieces you mentioned earlier for the first part of the corner or up until the 10th of March give or take your.
Was approximately flat on your your basis did I hear that correctly.
Yeah.
Generally the case up until mid March.
So can you give us a sense of what the the the twos and froze were to get to that number of just try to reconcile with with the fact that you're fleet count was 13% higher.
As well so what would what would be driving your R.P.T. down by 10% to 15% a year prior to all of the corporate stuff happening.
Yeah, well that the the R.P.T. and we talked about this a little bit in the last corridor.
You know would have been impacted by typical regional up and downs, we that's very normal let badger, we have stronger regions and less strong regions you might have a big job and in particular quarter and one region that didn't occur or you may have one starting up so those are all very normal the the one drag we did have which has been.
Consistent for the last couple of quarters was in our oil and gas areas and that's been reflected in our Canadian R.P.T., we've seen a lower Canada R.P.T., the less I will corridors than in the U.S.
So that that continued in the corridor.
And.
Of course as you said, we did add units to the fleet.
That goes into denominator as soon as a truck is built it goes into the R.P.T. calculation.
On the Canadian side given that.
S B activity was 10% to 15% higher.
Q1 is the weakness that you saw and all and gas related to customer mix or.
<unk>, what factors would cause badgers.
Canada, it'd be down relative to industry being.
Yeah. It would it would be the mix of our business. You know we had a lot of line three work that was in play last year that didn't did not have them counterpart. This year. That's that's.
There were some other big projects that we would ahead last year that weren't recurring.
Okay.
And then the commentary on April.
So as you mentioned earlier you had a boat 70% of your units running in April.
P.T. over 30000 on average.
The press release, you talk about how on a year of your base revenue Runrate was down about 20% so.
Correct and implying that are P.T. was higher.
Basis, then to reconcile units down 30 per cent, but.
20%.
Okay. So the the 70 per cent year over year Runrate applied to the back half a march.
Are a month.
You said earlier that you ran an average of 930 trucks in April with an R.P.T. on average about 30000.
Would imply about about 70 per cent give or take of your fleet was running in April.
When you run rate was only down about 20%. Your every year just trying to reconcile those two numbers.
Okay. So so I might have missed spoken the speaking notes, but our April revenue was approximately 80%.
Of our revenue in April last year.
Within the month.
We operated the 970 trucks and had the remainder of the fleet title.
Trucks, we operated on average.
R.P.T. just over 30000 for those trucks that operated.
Okay and.
I know, it's a little granular and I apologize, but when we look at April as you said activities choppy, but would you run.
Have been any better at the end of April versus the beginning of April and and or is it today in the first week of me any better than it would've been a month ago.
Yeah, I'm not going to comment on me.
We did in increase our granularity of our of R. Q1 reporting because it's such an unprecedented time, but we'll be commenting on I run rate on on a quarterly basis and to go forward.
In <unk> I think everyone appreciates the granularity you've given in terms of March and April. So thank you for that is very helpful.
Just last question in terms of liquidity side, how long.
Expect to be carrying the excess cash on the balance sheet.
Well for right now it feels pretty good.
And.
When when you look at what happened a few weeks back when daring took down the line.
You know we had a lot of the financial markets frozen and that was before the federal reserve stepped in with their extraordinary support.
It's it's amazing how the view changes in as a few short weird weeks, but we'll be monitoring things and we'll adjust accordingly.
Just like the the adjustments.
Daring had made in a very proactive way over the last six or eight weeks.
And I'm just trying to understand recognizing obviously your credit facility has a fairly wide covenant.
Notes have a little bit tighter covenants associated with them and you don't get full credit for that cash. So when you look at the 2.75 times a covenant tied to your notes should we expect that you might look and redeeming. Those notes ahead of time in order to push the covenant more towards the four times or how do you how you manage.
Excess cash on the balance sheet relative to the 2.75 times covenant.
Yeah, darn I I've been talking a lot. This is this is one that Darren loves to talk about so when you go ahead during.
Yeah.
<unk>, we we have a car vote arrangement in our our senior credit facilities for that exact point. So if he were too trip up to Kevin with Prudential, we'd have the ability to refinance that with the credit facility and that's why we've we've expanded the credit facility for that opportunity.
T or specific question about Kevin is your right to senior notes have a covenant of 2.75 times I think at at the end of Q1, we calculated our position to be around 1.71, 0.8 times. So we still have ample room within that covenant in that in that threshold and just for everyone's benefit the senior.
Notes allows us to deduct $10 million worth of cash the other new ones in the notes is the they may call provisions. So at this point in time, it's not economical for us to take the notes out, but we want to make sure that we have l. belts and suspenders in place should the opportunity change.
So is it reasonable to assume.
As your T.T. on me, but dot comes down and you get closer to the 2.75 times. If you were to approach it or trip but.
Essentially just routine the notes and rolled them into the credit facility.
Yeah. That's that's the way we designed the credit facilities last year actually.
Great. Thank you push it.
Thanks, Jeff.
Her next question, what's on the line of Matthew weeks with Industrial Alliance security.
Oh good morning.
<unk>.
I just wanted to start by talking about the truck felt a little bit and I know that the guide and had had been withdrawn and Chuck builds on suspension I am wondering if the previous guided provided around truck retirements.
It's still more or less good though enough trucks are being retired at the same rate that they were planned on.
Yeah, I think for that you know the truck retirements are based on the the demographics in the fleet in general and.
I wouldn't see those changing dramatically.
And and you know, we we don't want to age the fleet out.
And you don't want to have a period that goes by where you don't.
Renew your fleet because what happens then in the longer term is that our second biggest operating cost which is maintenance repair on the fleet will tend to go up. So that's always the balancing act on retirements, but we don't see that changing significantly.
Okay. Thank you second question focusing on on the U.S. and revenue they're.
Looking at.
Sorry, the activity you typically get <unk> municipalities are using any kind of slow down there.
Maybe they're they're seeing some pressure and collecting last sales tax due to the economic slowdown are you thinking to have a slowdown in.
Segments.
Yeah. That's a great question, we're we're watching that very issue across our regional markets. Its little early days to to identify that specific type a trend.
But we're watching it very closely.
We found in general is is as customers with the essential infrastructure have powered through this more than than customers that are more on the construction side of things. So that would include the utility in municipal segment and you know your your question about where revenues of very.
I guess governments come from is a really good one municipalities tend to have a higher percentage of their revenues from property tax to a lesser extent sales tax states have more sales tax. So we're watching that very closely and you know what we found just to provide a little more background over the last eight.
Weeks as.
We have every single customer has their own process of how they're going to handle the downturn in handled a virus and then that's overlaid with governmental.
Frictions, we see that as far as our reopening going the opposite way so each and every customer has their own set of circumstances and that would of course for reopening the subject to government overlays. So we're watching that very closely and and it's amazing, but we don't see there's no regional major read.
Gentle trends, it's really a customer in infrastructure owner by infrastructure owner trend that were really seeing as the most prevalent out there.
Okay, great. Thank you.
Last question for me and I know this was touched on a little bit earlier.
Trying to manage the the days receivables outstanding and utilizing the E.R.P. for that are you at this point seeing any stretching.
Fever balls, the pandemic has hit in the early days here.
Yep, we haven't seen any major trends, we have seen some stretching the receivables over the last two quarters, but that has been more part of the transition from our old legacy systems to our new E.R.P. system and internal admin processes with that.
We that as well identified and there's a very close focus on all of that.
But this is something we're watching on a weekly basis and you know that's the concern that I think all of us have than trying to identify if there might be economic knock on effects that come from.
From this artificial shut down of the economy.
I think we're probably in the same position is just about every other company and monitoring that.
Okay. That's great. Thank you appreciate the color and I'll kind of call back.
Thank you Matthew.
Or next question costs on the line of Jonathan Nightmares with female capital markets.
Good morning.
Orange Jonathan.
All I believe you mention $15 million.
And your whole costs that had been taken out.
Just to clarify it does that include.
Hey, you for variable revenue hours that would normally go down with revenue or is that purely sex caused.
<unk> are you are you thinking about pay for operators that would be on the trucks is that your question Jonathan.
Yes, I'm trying to figure out the impact to direct costs and gross margins.
Yeah, no that would not include operators that are laid off that would be non all all those actions were taken in it from the non operator workforce.
Okay. So the okay. Thanks.
How're you communicating with your front line employees I'd like how quickly do you believe that you can bring people back to staff that 400, plus inactive trucks ones demand is there.
Yeah No. That's that's that's a Tracy Wallace's here with me this morning, and that's that's something near and Dear to her heart <unk>, but you know, we're staying very close to our laid off employees and when you look at operators. Those are those are folks that are we have not terminated them, they're laid off and and a a layoff can go for 30 days.
Period, after which you either have to move to a termination or you're a new those lay offs and we continue with people laid off to be on benefits. So we maintain that connection and our local managers are staying very in very close contact with those operator. So you know we're we're.
Doing everything we can do have that flexibility.
And we we feel very good about our ability to be able to ramp backup.
So our operators want to work you know they want or 50 hours a week plus that's what that's that's the sweet spot for them and and you know we are very focused on helping get them back up as soon as we can but it's all based on what our customer needs are and we're also staying very very close to our customers to make sure when they're ready to go where there.
For them.
Oh, Thanks, and our follow up question on that.
I know historically the company has operated one operator per truck in some markets and two operator for trucks and other markets, where the customers require them to are you seeing any shift in those customer requirements from two operator toward one operator.
Yeah No great question, we've we've really worked hard the last eight weeks with our customers to push one operator for truck. It it's really required and it has been required from the social distancing perspective.
And that's been part of our Badger operating protocol, we've made some progress with a number of customers in in accepting one person on the truck versus their past procedures that required to.
For those customers over the last eight weeks that have required to on the site, we'd been sending out the second operator in a chase vehicle in in charging accordingly, but what we've had is an opportunity over the last eight weeks to show. These customers that have always wanted to that badger can work safely and.
<unk> with one man on the truck and that's really been the advantage of us designing and building our own trucks, because we designed them to work safely and efficiently with one operator and and we we think we've made some progress on that and we've shown that we can do that successfully and safely. So.
So far so good and you know you always try to take advantage of anything the market's give us and that's been in opportunity we've had the the last little while.
Okay and.
Switching top one last topic for topics just a technical question the cost per truck and Q1 same that normally low.
You're explain why that was.
Well I didn't think it was our abnormally low I thought it was great and.
And you know, we built 58 trucks in the corridor and and you know basically reflects the efficiency as you get when the plant gets up and running so I think the the guys did a great job.
And you know so I think that's basically basically where we are.
I'm just asking if it's reflective of the longer term run rate for costs per truck out you know future years one.
Demand returns to normal levels.
Yeah, I think that you know it's good that's going to remain to be seen I mean, we've we've curtailed the operation now just down to a very low level of some special units in a few gen fives, but as we start back up again, we're gonna have to walk through those steps yet again, Jonathan but you know we've the plants proven that.
Deficiencies are there and and you know I would I would expect that the performance will be there longer term the teams proven it.
And for 2020, and the 2020 quarters with the level of maintenance cap acts and Q1 be reflective of a good runrate use for the remainder of the year.
Yeah as far as retirements are concerned.
Correct.
Yeah, well you know the.
Their retirements I mean, what will be retiring trucks, but we you know obviously with the build down you know, we're not going to be having the additions or the net additions that we might have otherwise. So I think you know with a downturn like we've seen in 2020, there's probably going to be a little blip in our fleet additions here <unk>.
Additions that they'll just go into our future demographics of our fleet similar to what we saw in the downturn in 2010, I just hope, it's not that long and downturn.
Okay. Thanks for your comments.
Yeah, great great questions.
Your next question because one of the line up <unk> industrial online securities.
Good morning, I'm, sorry, I just questions bass jumping between a number of calls <unk>.
I've got a question regarding the salary reduction both at the senior board level senior management level and.
Started the employee level. These reduction fire are wider and deeper taxiing in most companies and.
The epicenter of the crisis that being energy energy service companies.
I'm curious with this.
Initiated by the board management or or both.
Yeah, well. This this was a joint discussion between myself and the board and you know you you got to remember that these were the first changes we made before we did any other restructuring or layoffs or curtailment at the plant and and we wanted to make sure that everyone.
Inside and outside the company knows that the senior group has skin and the game and is committed and we're not going to ask anyone to make a sacrifice that myself and the board in our V.P. level employees, they're not making themselves. So we started there and we wanted to be aggressive.
And we intend to continue to be aggressive in managing our costs. So you know you got to start with yourself Elias and that's where we started.
Okay I I appreciate that color that's it for me. Thank you very much.
Yeah, Okay. Thanks.
At this time I would like to turn the conference back over to management.
Okay. Thanks to everyone. We appreciate the participation in in the call this quarter.
And as we close off I'd like to remind our fellow shareholders in any other interested parties that are 2020 annual general meeting takes place at 130 P.M. Mountain time. This afternoon at her badge or office based on the Alberta Health guidelines and as we previously communicated in our press releases attendance in person is.
Recommended in fact, we don't have any food or drink today, but we encourage participation through the web cast or the conference call and that'll be set up and details for that are included in our Q1 press release, so with add on behalf of all of US, we think our customers employees, our suppliers and shareholders for the younger.
Support that you have and what that really drives badgers success. So matrices. Thank you again to call.
They didn't gentleman this.
Often call. Thank you for participating you may now disconnect.
Yeah.
Oh.
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