Q4 2020 Badger Daylighting Ltd Earnings Call

Ladies and gentlemen, thank you for standing by and you walked through the Bachelor of Daylighting Limited 'twenty 'twenty fourth quarter results conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask the question during the special need the press star one on the telephone if you require operator assistance. Please press star zero.

I'd now like the Dispensaries conference call per month per theater, you may begin.

Thank you Kevin and good morning, everyone. My name is promote Badger I'm, the VP of strategic planning and Investor Relations for Badger Daylighting welcome to Badger is fourth quarter 2020 earnings call on.

On the call. This morning are badges, Chief Executive Officer of Paul Vanderberg and debt on your Water-ski badges Chief Financial Officer.

And I, just 'twenty 'twenty anvil in the fourth quarter earnings of these MD&A and financial statements were released after market close yesterday and on available on the investors section of Badger's website and on SEDAR.

We are required to note that some of the statements made today, which 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 on always subject to certain risks and uncertainties and undue reliance should not be placed on the actual results may differ materially from those expressed or implied.

For more information about material assumptions risks and uncertainties that may be relevant to such forward looking statements. Please refer to Badger's Q4 press release 2020 M. D N E along with the annual information form.

For the such statements speak only as of today's date and Badger does not undertake to update any such forward looking statements and with that it's my pleasure now to ton of what the calls departmental Paul.

Thanks promote.

Before we review the quarter and the 2020 financial results I'd like to take a minute on health and safety safety is of course, it's a core value at Badger, we're proud of our 2020 response to Covid.

Really reflects the fact that badger is an essential services provider and.

On our ability to safely service our customers under all operating conditions was the real Testament to the hard work and dedication of the entire team.

You maintained procedures to address any situation that could come up and continue to adjust these procedures based on changes in local circumstances regulations in various health of orders.

Even though we are now looking past this pandemic and produce and positioning the company for market recovery, we continue to focus on maintaining safe working procedures for our employees and our customers.

Darren will talk in a minute about our financial results.

But I would like to touch on what I believe are the most significant accomplishments of the company achieved in 2020.

We're pleased with our 2020 of results, which reinforce the resiliency of Badger strong business model, maintaining solid margins and a solid financial position throughout the year.

We successfully completed our multi year ERP implementation in Q1, which now provides much better insight into our business and allows us to adjust to market conditions and opportunities in a much more proactive way than we could with their leg of the legacy systems.

When Covid hit North America, we were very proactive and Recalibrated our expense structure early in Q1, or Q2 and continued that lower cost structure throughout Q2 and into Q3.

In Q4, we began to position badger for market recovery the.

This involve hiring and training operators, which can take two to three months hiring sales and also operation staff.

There's a lag between staff additions and their impact on revenue, but the additions are required in order for us to be ready for a stronger 2021 that we widely expect.

In Badger's business, we always want to have a truck when the customer calls this is critical to our service delivery model.

We've continued this process in Q1 and in addition to preparing for an expected strong market recovery. We're also preparing for the traditional summer construction season.

Now a couple of comments about the fourth quarter.

Revenue in the quarter was in line with our expectations at $136 million of about 81% of the fourth quarter in 2019 and for the full year revenue was $558 6 million of about 85 per cent of the revenue realized last year.

While 2020 revenue was lower than last year. We believe this was a good result, given that North America went through the most severe economic contraction of more than 80 years. In fact, it's my view that it was more like of Widescale natural disaster than a traditional economic recession.

A couple of comments on the business updates and the business outlook.

We started off Q1, 2021 slow due to the extend of job site holiday shutdowns business really didn't get going until the week of January 11th this year.

We also saw severe winter storms that.

Blanketed the southern U S unprecedented storms there's the.

The quarter progressed, though we started to see signs of market recovery, and especially an increase in bidding activity, which is very positive and we expect that will benefit future months.

This year of storm activity in the winter has highlighted the potential future opportunity for the company, which could result in the need to strengthen North America as critical infrastructure.

We continue to build our company to capture the growing opportunity and to support our customers' infrastructure maintenance and renewal, it's our core business.

We were excited to share on our December Investor day, the growth, we see long term for our market of seven to nine times multiple from where we stay on to date.

For non destructive excavation.

There are multiple avenues to growth for Badger that we're capitalizing on.

Growth in new markets growth of increased fleet utilization and also growth in fleet size as required.

In 2020, we continue invest in growth right through the market downturn, we opened 21, new areas last year.

We continued to position badger to capture the long term growth we believe that's there.

There are many markets in the U S where use of non destructive excavation is in its very early stages.

As we've previously discussed we're actively recruiting for a head of sales and marketing to further augment our commercial leadership and to help execute on our strategy for market growth.

Last year, we built 85, new hydro Vacs and retired 57.

Ending the year with 1300 and 92 units for a net increase of 28 units from 2019.

As we previously discussed at our December Investor Day, our current fleet size can support revenue of over $700 million.

We continue to focus in the short term to drive the fleet utilization to drive return on invested capital which of course is.

As a as a real good long term shareholder objectives will add units new units when and if required.

Because of the near term focus on utilization. We currently expect to build between 20 and 30 units this year and retire 60 to 70 units.

We've kept our base level of production at the Red deer plant through the pandemic in order to routines key staff. This.

Of this maintains our ability to scale up production is required to respond the growth in the market conditions.

We're confident in our ability to ramp up production when it's required.

Regarding the plant, we're very pleased with the work that the manufacturing team has done during the production slowdown.

We've taken advantage of the slowdown to reconfigure process flows and upgrade parts of storage and warehousing at the plant.

This increases our capacity to at least 350 units per year.

The $3 50 compares to where our historical peak production of 220 units in 2020 and 14.

So for the foreseeable future, we will have enough capacity in red deer to adjust to market demand as needed.

We also see E. S. G is of critical success factor in the years ahead of non destructive excavation is closely linked to ESG object of objectives.

We made good progress on our ESG initiatives in 'twenty 'twenty aligning the these initiatives with our business and corporate strategy.

We will be sharing our inaugural ESG report with investors in the near future.

As discussed in previous quarters, we continue to review all of that aspects of the business to drive further enhancements and operating and financial performance.

We continue to focus on providing shareholders with sustainable and balance returns.

Badger always manages for the long term.

During 2020, we increased our dividend by 5% given.

Given the growth we expect in the business for 2021 and beyond we're pleased to announce that the board approved a 5% increase on our dividend effective with the March 2021 payment.

This increase marks the six year that we've increased the dividend and highlights the strong cash flow generation and the continued growth that we see servicing the non destructive excavation sector.

The board also approved the new N CIB program Badger seeking approval from the T. S X to repurchase up to one point in shares.

We expect the program will be approved in the normal course, and we will issue a press release when it's completed.

As a reminder, our previously on CIB program expired last may and we didn't renew it at the time due to the market uncertainty.

Our view is at the NCI B has a value and badger's long term capital allocation strategy and we're pleased to have another program in place.

Since we started our initial N C. I b back in 2018, Badger has repurchased and canceled approximately 6% of the float.

And now I'll turn things over to Darin to talk about financial results.

Thanks, Paul.

In light of COVID-19, we continue to see revenues in customer activity levels vary regionally across Badger's network in Canada, the United States.

As Paul noted our revenue for for your full year 2020 came in at <unk> 85 per cent of the level achieved in 2019, but given the economic contraction due to the pandemic.

We believe this is a good result.

RPT in the fourth quarter was approximately $24000 or $24000 compared to 31000 in Q4, 2019 and 28000 in Q3 2020.

For the trucks that operated in the quarter RPT was approximately 30000 versus 33000 in Q3 2020.

We look at RPT for trucks operating as it provides insight into operating efficiency, which shows that we have more room to grow the business through utilization of the existing fleet.

Gross margin for the quarter was 24, 1% or approximately 520 basis points lower than the prior period prior year.

Gross profit margin was impacted by slower activity levels due to COVID-19, as previously mentioned and higher labor costs.

After successfully managing costs in Q2, and Q3, we began recruiting and training operators sales and operations staff to ensure that our business is well positioned going into the 2021 construction season and to take full advantage of what we expect to be of strong market recovery.

We're a service business and we view these additional cost as an important investment to ensure the badger always has a truck and operator available when the customer requires it.

As we've discussed in previous quarters, our financial results are now, reflecting the lower G&A run rates that we talked about early in 2020.

<unk> expenses were approximately $22 $2 million lower than prior year, even after excluding approximately 100000 and in government related assistance.

As confirmed in our fourth quarter press release and consistent with our disclosure in 2020, we continue to anticipate our 2021 G&A expenses to be approximately $40 million of course, we always review any cost efficiency opportunities as the appear.

Adjusted EBITDA for the fourth quarter was $22 million compared to $35 8 million in the previous year.

Adjusted EBITDA margin was 16, 8% compared to 22% again expenses and EBITDA margin reflects our investment in direct cost to position for expected market recovery and the strategic initiatives to support long term growth and shareholder value creation.

Badger maintained a focus on ensuring the strength of our balance sheet and financial flexibility.

We've continued to make meaningful progress on accounts receivable since Q3 2020, we have reduced our outstanding receivables in the over 120 day bucket by approximately $8 million and subsequent to quarter end reduced it by another four and a half million dollars overall as of this past Monday, we reduced our.

Receivable portfolio to about $110 million are of DSO of less than 80 days.

The effective October 1st we signed an agreement with export development, Canada, which is the government of Canada Crown Corporation to ensure our trade receivable balances. This insurance will supplement the improvements we have made in our internal process and reduce overall collection risk.

Finally, we added in excess of $340 million in total liquidity through a combination of cash on hand, and our committed credit facilities at the end of the year.

Our debt to EBITDA ratio was 1.2 times well within the credit facility Covenant of four times.

I'd like to turn the call back to Paul for final comments Paul.

Thanks, Darren just a couple of comments before we open it up for questions.

We anticipate that the economic future few picture is going to become much more clear as the vaccination process is progressing very rapidly.

We're encouraged by this process and by the improvement in market activity that we've seen as Q1 has progressed very different situation at the back half of the quarter then in early in the quarter.

Our view of the significant U S and Canadian long term opportunity for non destructive excavation and Badger is long term growth prospects didn't change at all during 2020.

When we believe that the heightened societal safety awareness focus on the integrity of infrastructure and focus on ESG supports further demand for non destructive excavation.

We saw the impact of the infrastructure from last month's storms, we stand ready to help strengthen the maintain that infrastructure to mitigate the impact of vessels kind of of defense in the future.

So even though twenty-twenty created a bit of a pause here in the journey of Badger's growth. We continue to focus on health and safety looking forward to sharing our inaugural ESG report with you soon.

We continue to invest in our organization to capture future growth again, managing for the long term and these goals include doubling our U S operations revenue from fiscal 2020 levels over the next three to five years growth on our adjusted EBITDA margin to 28% of 29% that range over the next three to five years and continue.

The target revenue per truck per month to be over 30000 overtime.

And we continue to focus on overall shareholder returns, increasing the dividend by 5% and renewing the NCI program.

The address proven business model, our operating scale and flexibility diversification of end use and geographic markets combined with our strong operating track record that was tested and found very successful in 2020 and managing across all stages of the economic cycle support achieving our long term growth aspiration.

<unk>.

So with those comments, let's turn it back to Kevin to open it up for questions.

Ladies and gentlemen, free up the question of our comment at this time. Please press. The Star then the one key on your Touchtone telephone. If your question has been answered you assume of yourself from the queue. Please press the pound key.

Our first question comes from Yuri Lynk with Canaccord Genuity.

Okay.

Hey, good morning, guys.

Eric.

Paul I thought the all of the hiring was going to be in the first quarter.

So.

And all of the change.

<unk> was the change of plans in terms of the the the on boarding of of operators to do it a little bit earlier than the normal.

And secondly, maybe just drill down on that on on what the demand indicators are that you're seeing to start onboarding and training.

Well ahead of the the construction season, and I think it's a little bit earlier, but you can correct me if I'm wrong.

Yeah, well this is the unique year Yuri I mean, there's there's the traditional summer construction season, but there's also the recovery from this pandemic and and you know those two factors of aligning them as we see going into the spring and summer. This year is really the factor that drove us to start earlier and we.

Continue to invest for our long term growth opportunities, we've done a lot of work on market segmentation.

We went through that at the December Investor Day, and we continued to invest in those initiatives.

And again these are all for the long term so there's.

There is a not of just the traditional summer construction season.

But we're also looking at the recovery and also longer term.

On the indicators side, we've seen very good uptake.

The uptake uptick in our bidding them, especially as we've gone into Q Q1.

Yeah, that's very very positive those'll those the act of that activity will benefit of benefit it's in the future months.

On the other thing we've seen.

He has a pretty dramatic change in what was happening with Covid and just to give you a little bit of of the background on statistics and these are some statistics just from our population of people.

I don't know if badger is a good proxy for the U S and Canada, but from.

The end of March through early December.

Just within Badger the employee population, we were running about six cases a month.

So when we hit the beginning of December through the end of February.

Of that jumped to 40 cases, a month. So when you when you look at the impact we had in Q4.

You know that that's a pretty big jump.

March so far the Zip.

Aero cases.

So we've seen we've seen a real dramatic change and and very very positive but it.

It was up it was a rough COVID-19 quarter. When we ended up the Q4 and the holiday shutdowns were extended because of that but I just wanted to share of those of you just Irish statistics and it provides some color behind the type of shutdowns, we saw around the holidays. This year.

Okay. Okay.

On.

Anything you can help us with as we think about the first quarter.

You know of it sounds like it started off pretty slow it's typically the slowest quarter of the year. So my.

On my right and in anticipating the you know.

It's gonna look pretty similar to Q4.

Any color you could you could give us would be would be helpful.

Yeah, well, we're not we're not planning to do revenue guidance quarter by quarter. This year, we did it last year, because the downturn and Covid was so unprecedented and there. The reason we're not doing it. This year is because we had such fluctuation last year the year over year comparable is really.

Really aren't that relevant but the activity has picked up very significantly in March from where we started in January coming out of the holidays, that's probably the best color we can provide today.

Okay, I'll turn it over thanks.

Thanks Jerry.

Our next question comes from Maggie Macdougall with Stifel.

Good morning.

Maggie.

I noticed in your <unk>.

The common carrier.

You talked a bit about me.

You've done on Q4 I know previously.

And you've sort of stacked up ahead of us.

During the period ahead of better activity often times of people to work.

Hold on things that Charlie equipment.

Order.

I'm wondering if that's okay. Thank you for.

So.

Where you're at in terms of maintenance of you must be.

I had on.

Ahead of where you normally would be this time of year is that it.

Okay.

Yeah on the maintenance is really important as you know and you know Darren provided some statistics a couple of minutes ago about overall RPT and then RPT of units that we work.

And you know, it's it's good insight into the operating leverage and labor productivity, but.

But we wanted to we want to make sure that trucks, even trucks that are not being used are continued to be maintained so the ratio of versus revenue was higher in Q4, we just wanted to call that out but.

But again, we always managed for the long term and can you know of hydro vac units have pumps and water and the.

Systems that need to be maintained they do a lot better if they're running they're sitting so we want to make sure of the fleet is ready for our busy spring and some of them. So we continue to do the work that's required.

Okay great.

So wondering about.

Yes.

And what kind of progression in terms of increasing.

That's true.

I came on the facility.

Okay.

It was done in order to increase the capacity.

The head count.

When do you expect that will be concluded if theres any additional costs, we should be thinking of in the next couple of quarters and alternately how you feel this division.

Long term growth strategy.

Yeah no great.

Great question that as we as we'd indicated in the MD&A, we're very pleased.

With the progress the team at Red Deer is made.

This is work that we could not have tackled. If we were you know building 15 or 18 Badger's a month. So we had a slow time and we've taken full advantage of it but we've gone to a multiline process.

With the multiline throughput as opposed to one line and we've also set up one of those lines that debt can do multiple types of equipment hydro vacs flusher units specialty equipment.

We're adding of new MRP system materials requirements planning system.

And I think investors will recall.

We did not.

Tac the MRP system for manufacturing as part of the Oracle implementation, because we wanted to have our new manufacturing leader on board and.

He's he's tackle that along with our it staff in the slow time, and we expect to have that up and running by year end, we're actually going to use Oracle functionality.

Which we'd already purchased so that's going to be a very modest.

Implementation and for ERP and ERP implementations in using the word modest it's it's a pretty pleasing outcome for me.

And then longer term.

We're saying we think these changes.

We will take us at least 350 units.

I think we can do it we will probably do better than that we just need a chance to test it and as the market recovery comes we will have a chance to test it.

And then the final comment on longer term strategy to your question. Maggie is this progress. We've made gives the badger of lot of Optionality on our long term strategy. So we can take a look at where we really really want to be long term and we can actually study of those factor cost and what the the long term best costing.

<unk> location to be building years, but this additional progress we've made gives us lots of optionality on timing and <unk>.

Future substantial capital commitments could be differed significantly so very very positive work that's been done during this downturn.

Thanks, Paul one of one final question for me I guess is the two part question just on costs.

So we've seen a lot of raw material cost elevation across a bunch of different commodity.

Wondering if that is starting to be reflected in terms of inflation.

Action on costs.

And then also perhaps tied to this is just how should we think about working capital you've made some significant changes in terms of improving efficiency in that category, which has generated a lot of free cash flow for you should we be expecting an increase in working capital intensity as activity.

Thanks.

Yes, I'll cover the cost comment and I'll, let Darren talk about working capital of his team has had wonderful progress made in the last couple of quarters. So I think he needs to talk about that one on the cost side.

On the cost that we've seen in.

In 2020 of mostly been volume related so its fixed cost the allocation and as everyone knows we maintained essential staff at the plant.

And we maintained a base level of build to keep those positions, but it's not as efficient nowhere near as efficient as if we were running.

We're managing for the long term and these are our key production leaders and supervisors.

Our ability to ramp up is greatly enhanced debt because we retain them. So the.

The cost in 2020 really reflects that but it's really more of an investment for the long term. It's the right decision and it's worked out really well for us on the on the factor cost the cost of factors that go into Badgers.

<unk> seen some modest increases.

In things like metals.

And modest increases in chassis, but nothing thats been would be considered material.

And the other thing we're doing with the.

The new manufacturing leader on board as we're actually reaching out to suppliers and doing a lot more traditional supply chain activities rfps expanding our supplier network.

Expanding our network beyond the Alberta across the U S and even the Asia. So we're in the early days on that but I'm pretty optimistic we're going to have some good success going forward on on the supply chain side also its early days, but encouraging.

Thanks, Tom.

On working capital.

And again I'm reminded of some previous previous quarter discussion with you.

You may be make some commitments and I'm glad to say that we're actually hitting those commitments. So.

Like I like I said in my earlier.

Earlier comments, we're running sub.

Sub 80 day Dsos right now, we anticipate whatever scenario debt that materializes itself.

To the upside we'll be able to continue to run at 80 day Dsos for your modeling purposes.

Why do I have that confidence.

When you start looking at or below 120 day buckets in our disclosure you can see that we've cleaned the moat.

And we've cleaned them out not because we were harvesting the receivables because we fundamentally fix the processes.

The promote that yet who opened up this call also covers all of the double duty on the collection side and credit.

As does Kim Kiggins, who joined the company about a year ago.

Fundamentally changed that process. So we've closed the front door on on allowing receivables to age out through our portfolio.

The other piece of it also gives me comfort in saying that we'll be able to really start to manage the working capital thoughtfully in 2021 is that we still have.

A fair amount of receivables sitting in the 120 day, plus bucket and we've made tremendous progress in that.

In that bucket over the last number of months.

We've evaluated all of the Collectability and we still think that.

All of that is collectible so that is working capital that gets.

It's really of latent capital that was carried over from previous periods that we're going to be able to release in 2021. So all in all I'm really confident that our working capital position will easily be able to manage any kind of recovery in the business.

The other pieces that we've really underscore debt by our liquidity, having over $300 million in liquidity.

<unk> provides the belt and suspenders to make sure that we can respond to any kind of market activity.

Thanks, Darrin, that's that's really clear I appreciate your time.

Thanks, Meg and ladies and gentlemen, again, ladies and gentlemen couple of question of our comment at this time. Please press. The Star then the one key on your Touchtone telephone.

Our next question comes from Jonathan Lamers, with BMO capital markets.

Good morning.

Hey, Jonathan.

On the Q4 of direct costs.

Is there any portion you can point to.

It will not be recurring in Q1.

And further out.

It sounds like recruitment costs would have been very high and there would've been some downtime for all of those Covid cases.

Yes, Jonathan.

The the categories.

Of hiring and training, bringing operators back and that will be continuing in Q1, because we are getting ready for the spring season.

<unk>.

The the.

The COVID-19 related costs, we don't see recurring.

I gave some statistics earlier about how the cases of spiked and dropped off.

But.

Youre going to see typical costs that we're incurring to get ready for the summer.

In.

The main thing is the way I look at it is the.

On the cost dollars are there, but as the revenue increases that operating leverage really drives the percentage of direct cost down.

And there's a there's a there's a very.

Variable and semi variable in our semi fixed and the fixed component of badger's operating leverage.

Within the direct cost category in that volume really works very.

Very very well once the the volume kicks in so on the percentage basis.

I think as we get into the the Q2 and Q3 periods I think we're going to see a lot of leverage as the volume materializes.

Thanks.

And the press release mentions that the fleet.

Of trucks could support $700 million on revenue.

Are you able to provide any sense of.

How the <unk>.

Number of operators.

Now has returned toward pre COVID-19 or.

The level that would support that type of revenue.

Yeah, well that's the that's the charm is managing the the operators in the seats that the.

Trucks out of the easy part.

Maggie asked about maintenance and we've made the maintenance investments required to be ready, it's all about timing for the operators and and.

As you know.

<unk> business model.

Includes labor.

As variable cost as we can make it so it's a real balancing act to have the right operators when they're needed. So that's the balancing act of Youre going to see us continue with once things get busy.

Then it becomes more of a steady state operation, but.

Right now and where we are in Q1 were continuing that balancing act and it's like that every spring.

But this year, it's really unique because we're not only seeing the spring up upturn, but we're also seeing major customers return to doing work. These are customers that had really stopped doing work a lot of maintenance and traditional things because of the downturn to <unk>.

Conserve cash so we're actually seeing new customer names back debt were major customers. The dramatic slowdowns last year because of Covid. So there's really multiple factors.

Taking the account for when we're balancing of the labor going into the spring.

Thank you and.

People are curious about recovering oil and gas end markets.

And any potential benefits from the Texas storms.

I know the press release, just mentioned that.

That's more of a longer term opportunity do you have any thoughts on.

Potential demand.

Demand creation from.

Neither of those two news the items.

Yes.

In our oil and gas markets I mean, we are very well positioned for a recovery.

The our team there in Western Canada in the Rocky Mountain region did a wonderful job in managing costs.

With the double whammy downturn that they had in 2020.

Given the commodity cycle and also COVID-19. So we're very well positioned there and operating leverage will be.

Pretty nice to see once we can put some volume back with the recovery in the in the commodity segment.

And.

Regarding the.

The.

The the other activity.

In general activity, we're generally very very well positioned.

Okay. Thanks for your comments.

Yes, thanks, Jonathan.

Our next question comes from reliance of Colas with Industrial Alliance.

Good morning.

Got it that's helpful.

Questions task.

Trying to get a handle on gross profit margin. So I want to first focus annually.

Would it be.

Kind of fair to think of 2021 gross profit margin of straddling.

Excluding COVID-19 2020 in 2019.

What do you mean by straddling.

Of our ISR.

The blend.

On where between 28, 4% on 37.

Okay.

No I kind of thought that's where your question was.

We can't really comment on that.

I can say, though that if you want to look on an annual basis.

You have the.

The slower Q1.

In the traditional summer pattern of Q2 and Q3 again.

<unk>.

Have the.

The double.

Spring and summer ramp up and the recovery from Covid going on this year. So I can tell you even internally and at our board meeting.

We are really taking a look at what the range might be depending on the activity and then of course in Q4, we generally see things slow down again, and we expect that margin will follow that pattern for all of the reasons I talked about with Jonathan earlier.

On operating leverage and it has a big impact on gross margin.

So the good news is.

Badger I'd always manages that cycle.

We have a good business model to control of our bigger biggest cost which is direct labor. So.

You'll see a similar pattern this year season.

Seasonally yes.

I wasn't focused as much on the quarterly, but but the annual I do know that there is seasonality.

So I can sort of move beyond that.

Moving to quarterly.

And again, noting that there is seasonality.

I guess when I think back at 2020, I was a little surprised at how.

How weak Q1, and Q4 were relative to 2019, and how strong Q2, and Q3 were again relative to 2019 and also given COVID-19.

So the question I ask so I started with the annual margin because it should be more stable, but now focusing on quarterly.

Is it possible that your ERP system.

Is the.

The.

But because its new not giving you the.

Some data.

<unk> all the time.

But Paul do you mind if I.

Go ahead Darren.

I'll start by saying that our ERP system is providing us with much better information than we've ever had and I think that probably gave us the ability to respond the way we did in Q2 and Q3.

So if if I try and blend of response to your previous question and this question on Unpacking Q2, and Q3 I think when you look at Q2 and Q3 that is us testing out the art of the possible for the company.

And so we've.

We've managed to make sure that we can run the company to be able to hit our strategic milestones one of the strategic milestones as the EBITDA margin.

<unk> of 28% to 29%.

That's the basis, which you may want to use to start.

Doing the math on on your initial question.

So we've got the 28% to 29% target EBITDA margin then.

And then we've we've largely fixed our G&A costs, which will give you of a.

An implied range of where we probably want to be from a gross margin perspective.

Some of the strategic initiatives that we talked about in the December Investor Day, we're investing in to lock that in so the value that we saw in Q2 and Q3 of 2020, we're investing to make sure that we we lock in that goodness in future periods and that means that we're going to have to invest the.

<unk> upfront to be able the lock that value in.

That's the way I would look at your math on an annualized basis is that we've been able to fix as much as we can on the G&A costs. So it's not variable.

There are some.

Fixed cost and semi fixed cost in our direct costs and I won't get into that in great detail that we're really trying to drive a lot more efficiencies in.

And like I said, that's what we've been investing in in Q4, and we will continue to invest in in Q1 to try and lock in that value all of which gives to Paul's point is you get an inflection point, where our operating leverage starts outs outstripping revenue growth.

That's.

We demonstrated that ability in Q2, and Q3 and like I said, we want to lock in that that value proposition in the outer years.

Paul I don't know if you want to add anything to that none of them units.

I think those sort of relevant comments.

2020 was an absolutely unprecedented year and we flexed on the downside and we're very pleased with the results. We came up with it just happened to be on the heels of the ERP implementation and I can tell you of the kpis in the dashboards our people our people have today Elias are dramatically different than they are.

We were 12 months ago so.

Weekly P&l's daily looks at Labor I mean, we didn't even have any of that of a year ago. So.

Very very excited about debt from the ERP, but it's early days on.

Using that information and but the way I look at it it's going to help dramatically.

Overtime.

Okay.

That's it for me.

Most of my other questions are answered so thanks very much.

And I'm not showing any further questions at this time I will turn the call back the call for any closing remarks.

Okay. Thanks, Kevin and thanks to everyone that participated today on behalf of all of us at Badger, we thank our customers employees, our suppliers and shareholders for your ongoing support that really makes badger successful. So Kevin please end the call.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.