Badger Infrastructure Solutions Ltd. Q1 2023 Earnings Call

May 4, 2023

The weather and other.

No removal like salt and sand and things that are really corrosive to the frame of the truck.

For trucks that are 10 years old and so we're.

A better way to say it Michael but we're kind of making hay, while we can here for the next couple of years.

And it also helps to smooth out our replacement cycle because as you know we do these peaks and valleys a couple of years of really high truck production and then we dropped down and now we're actually able to smooth that out a little bit more and have more steady truck production, which can continue to keep a very lower cost.

A production and continue to lower the cost of production because we steady stated the manufacturing and then our retirement schedule can be a lot more orderly as well we're not bringing in.

100, 5200 trucks a year during these peak months and then reducing out another 150, where actually you can do that in a more steady state across time so anyway.

That's a long winded answer but that's.

Kind of a deep dive on the refurbishment program.

Yeah, that's very comprehensive.

Just squeeze in one more.

Capex was a little light for 58 trucks being built in the quarter. Just wondering if you can break out capex expectations for 'twenty three new truck builds refurbishments.

PP&E.

Thanks, Michael its Rob Boston here.

I think what you see in PP&E there as the number of trucks that have been released from production into the field. So it doesn't necessarily represent the 58 trucks that were manufactured during the quarter.

And we have no changes to our expectations for.

How many trucks are going to be manufactured in the year, which I believe is 200 to 230.

Okay. Thanks very much.

Thank you Michael.

Thank you please standby for our next question.

Our next question comes from Christopher freezing of CIBC.

Hi, Thanks for taking my question.

I was just wondering you spoke about the.

New end markets that you're entering in that year.

Finding more demand and can you provide a bit more color on what those end markets are.

Yes, so traditionally Chris.

As.

We've been pretty heavily focused on oil and gas and as of late but a lot of emphasis on.

On infrastructure.

<unk>, specifically, how it relates to utility.

And a lot of the utility refurbishment and expansion.

Pretty good amount in the U S and Canada, and what we're starting to actually Chase is.

Some new <unk>.

<unk> that a few of our locations across the company had.

And having success with but we had not shared.

That those.

And markets across the organization.

<unk> had a pretty large sales meeting, where we are actually able to put all these people together in a room and our teams we're actually able to share. These good ideas across the organization some easy examples.

And again theyre going to sound a little out there, but this opportunity exist everywhere, we're actually starting to do a lot of work with zoom.

Zoos like where the animals are the zoo.

That a lot of times they have a lot of growth and they are very concerned about bringing in construction equipment around the animals where archrock.

Remote hose in and actually remove any kind of.

Debris or to help them with construction projects or infrastructure projects.

That market and again, we did that work in a few markets, but not all over the place. Another example is.

Food services and food manufacturing.

So we.

We found that a few of our trucks were being used to actually suck out waste product at the end of a food manufacturing plant.

They could not get.

<unk>.

It's really hard to get remote access to but there was enough access for one of our remote hoses to get into the plant and actually we were able to help these were able to help these plants be a lot more efficient.

And we can do it actually in off hours and not affect our production.

So we're actually starting to expand that all over another area that were just underway with starting so you would not see it in our current numbers Christa, but we see it as a future opportunity.

As government and military.

As some.

Some of our end market customers. So again, we're really expanding our thought process getting away from the historical oil and gas and only infrastructure and now looking at almost every single market of how can badger helped this customer and the customers are really receiving it well so.

Hopefully that makes sense, what I'm, saying.

Yes.

Great.

Very creative.

I was I was also.

I'm wondering if you can just speak to.

Any of the markets, where the industries that you're operating in.

<unk> seen some sort of weakness just given all the macroeconomic backdrop is right now.

Yes, so in the U S. We've seen a little bit of.

Again, we don't do a lot of residential.

Or around a lot of residential we support a few residential builders are very few.

And we've seen that soften up a little bit in certain pockets.

Especially where it's multifamily.

It's softened up a little bit.

The.

Some of the commercial space is starting to.

Commercial construction in certain markets is starting to soften up a little bit and in other markets.

Just in the Dallas Fort worth market.

A few weeks ago for a meeting.

And went and met with some customers and there is a tremendous backlog of work.

And in the same space so it's very.

Really in pockets Christa.

But theres nothing really consistent.

Now.

We're very mindful, we actually had this discussion yesterday with.

With some of our senior leaders and some board members yesterday, we're very mindful of.

No company, no business would ever be immune to.

A recession or anything that really turned on the markets, but we actually believe that.

We are so underpenetrated in certain markets, especially in the U S.

We can.

Again not.

Avoid being part of a recession, but we can help offset some of the effects by just continuing to be a little bit more creative as I shared previous question.

And just really open it up our minds as to okay. What else can we do with our trucks and again, it's being well received.

But theres no theres not one market that I would say of all of this thing is really just turned down we havent seen it.

Now.

So obviously with that.

Sure.

That's great. Thank you very much and I will jump back in queue.

Thanks, Chris.

Sure.

Thank you please.

Next question.

Our next question comes from Ian Gillies from Stifel.

Good morning, everyone.

Good morning.

I wanted to approach Chris's question in a little bit of a different way.

There's a lot of concern around credit availability in the U S and is there.

Any way for you to qualify your customer base on maybe large versus medium versus small customer or public versus private customers or anything of that nature to maybe just get an understanding of that breakdown.

Oh, Hey, it's Rob Dawson here.

Good question I would say when we look at our customer base. We just look at a snapshot of our receivables at the end of the quarter.

Over 90% of our receivables and as a look through.

Similar percentage of all of our sales are to customers that we would consider having a very strong credit outlook and by strong. We mean would have metrics that would map it to being an investment grade many of them don't have credit ratings. As you noted there is a private public spent I don't have that private public split.

On hand here.

So, but we do feel that a great proportion of our of our revenues and customers are very good credit quality.

Another thing that we've done recently is.

A vast majority of our smaller more regional customers are pay upfront.

Credit card or cash and so they're out of receivables. There is no credit risk involved with them at all and that program has been taken up with increasing.

With increasing frequency over the last year or two as well so credit something that we're following very very closely we're not seeing any clear signs of deterioration in credit quality or issues with our with our with our credit.

Far.

Thanks, that's helpful and it was also along the lines of available capital for future projects, but that's been well covered off.

The second question I wanted to ask is that.

The truck build costs I thought were quite encouraging in the quarter.

Can it get better from here he can they go lower or.

Is it is this kind of a good number to be thinking about moving forward.

I'll cover that and if Rob or one of the other guys want to add more of it.

Thank you.

We are actively continuously looking at what can we do to.

We continue to build a better truck.

At the same or less cost and our truck manufacturing leader.

Based out of Red deer that is his background and we're already seeing the benefit of his efforts.

And I think we will continue to see some improvements, but I don't want us to I don't want anyone on the call I think it's going to get.

We're going to be step change.

Costs down because all of our suppliers just like we are with our customers.

They have pricing pressures themselves from their raw materials and they do their best to pass along and we do our best not to.

Not to take a price increase and we meet somewhere in between.

But we do believe we will continue to have inflation on some of our manufacturing manufacturing partners.

Really the suppliers.

We've certainly seen it in some of our chassis.

Suppliers as well as.

Certain key suppliers and we're doing our best.

What can we do to get a little bit more creative to keep one of the best quality made trucks with the longest life in the market.

What are we doing to continue that quality of a build and keep the cost like I said, the same or lower.

But I.

I don't want to be unrealistic with anyone on the line I think to think it's going to be step change lower is just not realistic I think what youre seeing.

Is pretty real and again, we have inflationary pressures ourselves from our suppliers.

You want to add.

Yeah.

No that's great and very helpful. I'll turn the call back over thank you very much.

Thanks Ian.

And lastly, our next question.

Our next question comes from Dalian of PD Cohen.

Hey, good morning, everyone. Just one quick one from me with respect to the airbag trucks, and just where youre at in terms of the rollout of that.

Is that new.

New vehicle.

Yes so.

We continue to be in prototype.

With the air Max.

And as you saw we built one this last quarter.

It's still in the prototype.

Mode.

We still believe that air back will be a part of our customer offering and solution in the future, but we really are spending the first half of 2023 really focusing on our hydro vac production.

Because we want to make sure that the high direct production doesn't have any distractions to deliver the results that we need and the volume of trucks that we need coming out of the plant and Youll start to see us ramp up the airbags the back half of 2023.

But we're going to do that in a very orderly fashion, so as not to distract the hydro production.

We.

Anything you would add to that either one of you guys.

So pretty straightforward, we just we don't want to try to be all things to all people all at the same time and really confuse up our manufacturing process. We now have a nice rhythm and production and we don't want to screw that up so hopefully that makes sense.

Yes.

Great color it sounds like the right approach that's it for me. Thanks.

Thank you.

Please standby for my next question.

Our next question comes from Michael due May of Scotia Bank.

Hey, Thanks for the follow up guys.

I wanted to go back to maybe the price versus utilization.

Thought process, because obviously RPT really lumped together that too so a little bit hard to break out.

So the two but it sounds to me like utilization is running relatively high.

<unk> that will be higher in the seasonally stronger Q2 and Q3.

And as you said I think in response to <unk> question prices lagged cost inflation.

So I'm wondering now why not.

For price.

Obviously prices better flow through to margins just trying to get your thought process for the balance of the year.

Yes, Mike we don't think you have to if we.

Continue to pushing up demand into the business. We don't believe you have to trade.

Utilization price.

And we actually think that you can actually do both.

And.

We I will tell you, though your thought process.

Is music to the ears of everyone in the room over here in Calgary is.

A fair amount of pricing.

But realistically they can actually work together.

The opportunity that we have shared and continue to share with a lot of folks.

Internally as well as pricing as the company's biggest opportunity.

We spent.

A lot of time with our field leaders and our sales teams and our managers.

In the month of February .

Walking through pricing training development.

The finance team and the <unk> folks that work with promote and Rob to Austin and Trevor.

They have really kind of upped our game is to our data analytics regarding pricing and we're actually empowering our field leaders to actually.

Have start to have pricing confidence empower tied to the strong demand.

I can assure you.

If the opportunity comes down to either hold utilization or take some pricing. We will have we will we will start to lean on pricing, but again, they don't have to be mutually exclusive they can actually be complementary we believe they will be for 2023.

Got it thanks.

Thanks, Michael.

Thank you.

I'd now like to turn it back to Bob for closing remarks.

Thank you operator, and thank you everyone for very good questions.

I would like to remind everyone before I wrap up the call. This afternoon.

We will be having our annual meeting of shareholders, our AGM at $3 30, eastern $1 30.

Mountain time here in Calgary.

If anyone has an interest.

Free to dial in.

And Thats on our press release, so on behalf of all of us at Badger, Thanks to our customers employees suppliers and shareholders.

Your ongoing support that helps to drive badger's success. Thank you.

Okay.

Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

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Badger Infrastructure Solutions Ltd. Q1 2023 Earnings Call

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