Badger Infrastructure Solutions Ltd. (BDGI) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Shareholders of Badger Infrastructure Solutions Ltd. Please note, today's meeting is being recorded. It is now my pleasure to turn today's meeting over to Glen Roane, Chair of the Board of Directors, Mr. Roane, the floor is yours.

Thank you. Good afternoon, ladies and gentlemen, and thank you for joining us for the 2022 Annual Meeting of Shareholders of Badger Infrastructure Solutions Ltd. My name is Glen Roane from the Chair of Badger's Board of Directors, and it's my pleasure and responsibility to chair this meeting. Attending the meeting with me today are Paul Vanderberg, Director of the Corporation; and Badger's President and Chief Executive Officer; Darren Yaworsky, Badger's Senior Vice President, Finance and Chief Financial Officer; and Rob Blackadar, Badger's Chief Operating Officer. Certain of our other directors, officers and employees are also present for attending on the call. I would like to thank and acknowledge their contribution to Badger over the past year. We'd also like to take this opportunity to recognize Mr. Grant Billing, who will be retiring from Badger's Board of Directors as of today and is not standing for reelection. On behalf of Badger, I'd like to thank Grant for his 7 years of service to the company. Badger -- sorry, Grant's leadership and collaboration on the Board will be missed, and Badger has benefited from the significant contributions he's made over the years. Thank you very much, Grant. Before proceeding with the meeting, I note that in light of ongoing concerns related to the spread of COVID-19, Badger is holding this annual meeting virtually via live audio cast. Voting instructions and audio access information were provided in Badger's Notice of Meeting and Management Information Circular dated March 31, 2022, and on our website. [ Reid Yester ] Badger's Corporate Secretary will now provide further instructions regarding the virtual meeting procedures.

As this meeting is being held virtually via live audiocast, we note the following procedures for the orderly conduct of the meeting. Registered shareholders and duly appointed proxy holders who have properly logged into the audiocast will have the opportunity to ask questions during the meeting. [Operator Instructions] Please remember, questions that relate to a specific motion must indicate the outset the motion to which they relate and must be submitted prior to voting on the motion so they can be addressed at the appropriate time during the meeting. If questions do not indicate the motion to which they relate, or received after voting on the relevant motion, they will be addressed after the formal business of the meeting is concluded. Questions will be read or summarized by representative of Badger, along with the name of the person asking such questions and the entity which they represent, if applicable, and the Chair will then respond to the question or direct the question to the appropriate person. If several questions relate to the same or a very similar topic, we may indicate that similar questions were received and group such questions together. Please note that there will be a slight delay in the publication of the communications received during the meeting. Voting on all matters will be conducted by online ballot using Computershare's virtual meeting platform. Registered shareholders and duly appointed proxy holders may vote on each business item from the time polls are opened until the time polls are closed after the end of the presentation of the business items. When the polls are open, the vote icon will appear on your device or screen and the motions brought forth at the meeting will be displayed. To vote, tap or select 1 of the voting options. Your response will be highlighted. The number of items you have voted on, or have yet to vote on is displayed at the top of the screen. Votes may be changed up to the time the polls are closed. Note that if you submitted a proxy prior to the meeting, any votes cast on an online ballot will be counted and the previously submitted proxy will be disregarded.

I'd like to call the meeting to order. At the conclusion of the formal business of the meeting, Paul Vanderberg, our President and CEO, will give a brief discussion regarding Badger's business and answer any questions, attendees, including guests may have. I now propose to proceed with the formal part of the meeting. I will now call the meeting to order. As Chair of the meeting, I hereby appoint Reid Yester to act as Secretary of the meeting and with the consent of the meeting, I appoint representatives of Computershare Trust Company of Canada to act as scrutineer. Notice of this Annual Meeting of Shareholders of Badger Infrastructure Solutions Ltd. was mailed to all shareholders of record as of the close of business on April 4, 2022. I direct the proof of the mailing of the notice and the other documents mailed to shareholders be kept with the minutes of this meeting. Registered shareholders and duly appointed proxy holders attending the meeting will vote by completing an online ballot. It's important that you are connected to the Internet at all times during the meeting in order to vote when balloting commences. Once again, registered shareholders and duly appointed proxy holders will be asked to vote on each business item during the presentation of the business items. All votes will be conducted by ballot. The scrutineers will count all of the ballots, and we will read the results of the voting on each matter once the meeting matters to be voted on have been voted on accordingly. Voting results will be filed on SEDAR by the corporation in accordance with the requirements of applicable securities laws. I've been advised by the scrutineer that there are 52 shareholders present today, either in person or by having logged on to the audio cast, or represented by proxy, representing 28,956,760 shares, or approximately 84% of the company's issued and outstanding shares. Accordingly, we have a quorum present. Scrutineer's report is available for inspection by any shareholder, and I direct that a copy of the scrutineers' report to be filed with the meeting with the minutes of today's meeting. I would also ask and note that under applicable corporate law and the bylaws of the corporation, the corporation is permitted to hold this meeting by the electronic means that we are using. With that said, I now declare this meeting to be duly called and properly constituted for the transaction of business. To facilitate proceedings, I have asked David Trang and Julia [indiscernible] who are also shareholders or duly appointed proxy holders to move and second all motions. I will call on them at the appropriate time. This is not intended in any way to curtail discussion. The first item of business is the presentation of the audited financial statements of the corporation for the year ended December 31, 2021, which have been approved by the Board of Directors and together with the auditor's report thereon have been mailed to the registered shareholders in supplemental mailing list, and it is not proposed to read them into the meeting. Additional copies of the financial statements are available on request. No action is required to be taken by the shareholders on these financial statements. Are there any questions on the financial statements or the auditor's report? We have not received any questions or comments on this item of business. I now declare that the audited consolidated financial statements of Badger Infrastructure Solutions Ltd. for the financial for the fiscal year ended December 31, 2021, and the auditor's report thereon have been presented and received. As I mentioned earlier, voting for all the matters before the meeting today will be conducted by online ballot. I will now take a moment to ask that the polls be open to registered shareholders and duly appointed proxy holders. I will once again ask Reid Yester to provide instructions on voting through the virtual meeting platform.

The polls are now open, and at this point, all registered shareholders and duly appointed proxy holders who have properly logged in and who wish to vote will be able to see on the screen all motions being brought before the meeting. The polls will remain open until the end of the presentation of the business items.

Now in order to proceed with the election of directors. Information about each director nominee is included in Badger's Management Information Circular dated March 31, 2022. In accordance with our articles and bylaws, the Board of Directors has determined that the Board shall consist of 8 members. The name to those persons who have been nominated for election as directors until the date of the next Annual Meeting of Shareholders, or until their successors are elected or appointed are myself, Glen Roane, Catherine Best, David Bronicheski, William Derwin, Stephen Jones, Mary Jordan, William Lingard, and Paul Vanderberg. No other nominations were received in accordance with the corporation's bylaws, dealing with the requirements for advanced notice of nominations of directors. Accordingly, I declare the nominations closed, and we'll now ask for a motion that each of the nominees be elected to serve as Director.

Mr. Chair. I move that Glen Roane, Catherine Best, David Bronicheski, William Derwin, Stephen Jones, Mary Jordan, William Lingard, Paul Vanderberg, be elected as Director of the Corporation to hold office until the close of business of the next Annual Meeting of Shareholders or until their successor duly elected or appointed.

Thank you, David. Is there a seconder?

Mr. Chair, I second the motion.

Thank you, Julia. Are there questions related to the motion? We have not received any questions or comments on this item of business. As voting on the election of directors will occur together with the other matters, I will now move on to the next item of business. The next item of business is the appointment of the auditor. May I now have a motion on this matter?

Mr. Chair, I move the Deloitte LLP, Chartered Professional Accountants, to be appointed as auditor of the corporation until the close of the next Annual Meeting of Shareholders or such remuneration as may be fixed by the Board of Directors and that the directors be and are hereby authorized to fix such remuneration.

Thank you, David. Is there a seconder?

Mr. Chair, I second the motion.

Thank you, Julia. Are there any questions related to the motion? We have not received any questions or comments on this item of business. As voting on the appointment of auditors will occur together with the other matters, I will now move on to the next item of business. The next item of business is to vote on an advisory basis and not to diminish the role and responsibilities of the Board to accept the corporation's approach to executive compensation disclosed in the corporation's management information circular dated March 31, 2022. This is an advisory vote, which means the results are not binding on the Board. The Board will, however, consider the outcome of the vote as part of its ongoing review of executive compensation. The text of the resolution to accept the corporation's approach to executive compensation as set out on Page 10 of our Management Information Circular dated March 31, 2022. May I please have a motion on this matter?

I move that the resolution with respect to the corporation approach to executive compensation, as set out by Page 10 of the Management Information Circular dated March 31, 2022 be approved.

Thank you, David. Is there a seconder?

I second the motion.

Thank you, Julia. Are there any questions related to this motion? We have not received any questions or comments on this item of business. Now that we've discussed all the items of business properly brought before the meeting, we will provide registered shareholders and duly appointed proxy holders approximately 30 more seconds to complete their ballots. Once the online balloting encloses, the voting page will disappear and your votes will automatically be submitted. [Voting]

I would ask that the scrutineers compile the report regarding the results of voting on all items of business. I've been advised by the scrutineers that the ballots and proxies deposited for the meeting have been voted in favor of all resolutions. Each of the 8 nominees have been elected as directors of the corporation, with more votes cast for each of the nominees than were withheld. The appointment of Deloitte LLP, chartered professional accountants as the auditors of the corporation has been approved. The say-on-pay resolution accepting the corporation's approach to executive compensation has been approved. I therefore declare that all these motions have been carried and direct that the results of the poll be included with the minutes of this meeting, and that the final results to be announced in a press release in accordance with the policies of the TSX and filed on SEDAR. The formal items of business as set out in the notice of the meeting have now been dealt with. As there is no further business to come before the meeting, I declare the formal part of the meeting to be concluded. Thank you very much for attending. I'll now turn the meeting over to Paul Vanderberg, Darren Yaworsky; and Rob Blackadar to provide a brief discussion regarding Badger's business and answer any questions you may have. I would ask that all attendees who would like to ask a question use the text box or chat feature of Computershare's virtual meeting platform to do so. We will answer as many questions as time permits. [Operator Instructions] With that, I will turn it over to Paul Vanderberg.

Okay. Thanks, Glen, and thanks to everyone for participating in our 2022 annual meeting. As Glen mentioned, our COO, Rob Blackadar and our CFO, Darren Yaworsky, are here with Glen and I today. and the team is pleased to have this opportunity to provide a business update on Badger. Rob and Darren will also lead us in part of the presentation. A copy of the presentation is posted on our Investor Relations section of the Badger website. Before we begin, we want to remind everyone that statements made during today's presentation regarding management's expectations or predictions for the future are forward-looking statements. In fact, all statements made today, which are not statements of historical fact are considered to be forward-looking statements. We make these statements based on assumptions that we consider to be reasonable. However, forward-looking statements are always subject to certain risks and uncertainties, and undue reliance should not be placed on them. Actual results may differ materially from those expressed or implied. For more information about material assumptions, risks and uncertainties that we believe are relevant to forward-looking statements, please refer to Badger's annual management discussion and analysis for the period ended December 31, 2021, which is available on our website and on SEDAR. So let's begin. We always start Badger meetings with a safety moment, reinforcing our safety commitment to our employees, customers and communities. Safety is a core value at Badger and fundamental in all that we do. Badger is North America's largest provider of nondestructive excavation and related services. We work for contractors and facility owners in a broad range of infrastructure industries. These infrastructure segments are in areas such as energy generation, electricity, natural gas transmission and distribution networks, roads and highways, telecom, industrial, water and sewer treatment and general municipal infrastructure. Our customers in these segments operate or perform work on underground power, communication, water, gas, sewer lines and particularly in large urban centers where safety and economic risks are high, and therefore, the service we provide with nondestructive excavation is a safe alternative to traditional excavation on and around this critical infrastructure. We view nondestructive excavation to be in the early stages of adoption, especially in the U.S. Recent industry studies indicate that less than half of the excavation contractors today use some form of locating before they dig, including daylighting, to identify potential hazards. This relatively early stage of usage of nondestructive excavation in the U.S. versus Canada where this technology has been around for 30 years, signifies the growth runway that Badger sees. We've made a number of changes at Badger over the past year that we'd like to provide an update on today. I'll start off by reviewing Badger's strong track record and our compelling investment proposition. Rob will review our commercial strategy and the operating model that supports that strategy. I'll provide an update on our manufacturing strategy and our product lines, and Darren will provide an overview of our financial position and capital allocation process. Badger has had significant network expansion and revenue growth over the past decade. We've grown our fleet and our branch footprint by almost 4x in the last 10 years and achieved a 10-year revenue CAGR of 15%. The company's business model is strong in good times and in bad. We managed well through the oil and gas downturn in 2015 and 2016, and we continue to manage through the current COVID downturn. We've expanded our end-use market exposure to include a broad range of utility, construction and industrial segments. Expanding these end-use markets has supported a 23% compound annual growth rate in the U.S. part of our business since 2011. We estimate that Badger has a 20% to 25% market share of the truck-mounted, nondestructive excavation market in Canada, and a 30% to 35% share of that market in the U.S. Our scale of operations provides value to our customers and always having a truck when a customer needs one. Our operating scale also supports expense management, margin and asset utilization. Badger has always managed for the long term. Our strategy targets the long-term market opportunity that we see, along with improved operating performance and return on capital. Badger has successfully repositioned its business model over the past 10 years. In 2010, about 45% of the business was weighted in the oil and gas segment, mostly in Western Canada. Because of our success in expanding service to a broad range of infrastructure markets and expanding successfully across the U.S. geographically over the last decade, traditional oil and gas markets now represent approximately 6% to 8% of our total revenue. More recently, we navigated the economic and business disruption arising from the COVID pandemic. During this slower business period, we took advantage of it to reposition Badger for our next phase of growth, and Rob will talk about this in just a minute. As you can see from Slide 6, Badger continues to leverage our historical strengths as we always reposition the company for the future. In 2021, we completed a number of key foundational and strategic initiatives that will allow us to economically scale the business in response to the market opportunity we see. With these foundational initiatives completed, in 2022, we're now shifting focus toward execution of our commercial strategy to grow the business and expand returns back toward our historical margin levels. Our operational and financial performance in early '22 suggests that these strategic initiatives, and the very early stages of executing on our commercial strategy are just beginning to pay off. In Q1 this year, our revenue was up 33% and margins nearly doubled year-over-year despite having a slow start to the quarter with COVID quarantines. We continue to believe that the nondestructive excavation market with its growth and the opportunity there is substantial, particularly in the U.S. where the adoption rate of our technology, as we said earlier, is very early and in the early innings of the game. Our branch network and vertically integrated business model positions us well to capture the growth, with the existing branch infrastructure and the network we have with our organization able to service significantly higher volumes. Our strategic milestones for the next 3 to 5 years are focused on growth in revenue, margin and return on investment. We have had very good historical progress against these strategic milestones, which we initially laid out in November of 2017. Our strategic milestones for the next 3 to 5 years are; one, to double the U.S. business again over the 3- to 5-year period starting from the base year 2020; second, to achieve an average adjusted EBITDA growth over that 3- to 5-year period of 15%; third, to target a 3- to 5-year target of adjusted EBITDA margin in the 28% to 29% range; and fourth, to achieve average revenue per truck per month above the $30,000 level, which historically has provided excellent return on capital over the life of a Badger truck. So now we'll hand the presentation over to Rob to provide an update on our commercial strategy and the operations model.

Thanks, Paul. Good afternoon. My name is Rob Blackadar, and I am the Chief Operating Officer here at Badger. And as Paul mentioned, I am pleased to share some exciting updates about our commercial strategy and our operating model with everyone this afternoon. So let's go on to the next slide. Our commercial strategy and supporting operating model have been repositioned to thoughtfully approach the different market opportunities that we have in front of us. Historically, Badger has addressed all markets equally, 1 truck and 1 operator at a time. As Paul outlined in his overview of Badger's time line, this approach served us well in the past, but we needed to reposition Badger to support even greater growth opportunities that we see in the future. Specifically, our core and strategic markets present a tremendous growth opportunity with the resources and approach to address these markets being meaningfully different than our extension markets, which was our historical approach to growth. Given the uniqueness of each market area we have, the Badger commercial and operations team -- teams have developed regional plans to capture these growth markets. We've also resized our regional and market area coverage to align our resources with a corresponding market opportunity. More on the next slide. Badger has historically been a very decentralized business with local and regional management and focus, and we have evolved that decentralized structure into a standardized operating model. The most significant change that we've made to our decentralized operating model is sizing the regions and market areas to correspond with their respective market opportunities. We've not made any material changes to our branch locations, but rather, we've grouped them differently into regions and market areas. We still maintain operations leadership in the field I'll speak further about the changes to the field service delivery model and capability shortly, but the resources and organizational support will be sized with the opportunities within each region and market area. As I mentioned previously, each market opportunity is different. The new region and market area structure was implemented at the beginning of 2022, and all positions were staffed and resourced by the end of this quarter -- this previous quarter. We have also shifted to a more function-focused structure with key functions supporting our branch network. Our operational teams, operations, fleet management, sales and marketing, are supported by our corporate support functions, manufacturing, health and safety, human resources, finance and IT. This structure will maximize our ability to scale the business and flex our operating leverage. As part of these changes, we've equipped our branches with additional sales and marketing capabilities. These capabilities focus on customer opportunities within key market areas and within our national accounts, leveraging our size and scale across all of North America. This is a key differentiator between Badger and any of our local or regional competitors. So let's get into some more details on our operations, sales, marketing structures on the next slide. The objectives for our new operations, sales and marketing structure are really threefold, ensuring that our customers get a consistent, safe, reliable solution from Badger regardless of which branch the customer receives his or her service from, standardizing our service offering across our branch network and properly resourcing key markets for growth. And lastly, respecting our Badger history while embracing our future. I'm confident that we've met these objectives in our new structure, and I'd like to take a few minutes to explain the new structure. Let me start with Liz Peterson, who I suspect is already well known from our time here at Badger. Liz is responsible for North American operations to ensure consistent service delivery and positive customer experiences across all of our branches, market areas and regions. Next, Tim Reiber, who I also suspect is already well known from his time here at Badger, is responsible for our North American franchise and locating services business development. Our franchisees represent 15% to 20% of our consolidated revenue and play a key role in our service delivery in key markets, especially across Canada. Our locating services business is a newer service offering that will be another value add for our customers. Lon Brown our new VP of Fleet is new to Badger. He joined the company late last year and brings 25-plus years of fleet management experience to Badger, and Lon oversees our North American fleet management and procurement for all of our fleet support group. Bobby Love is also new to the company in the role of Vice President of National Accounts. Bobby joined Badger in late 2021 and brings also over 25 years of national accounts and sales management leadership experience across all of North America. Bobby leads our national accounts group that was formed earlier this year. And finally, Chris Gunn joined Badger in late 2021 as our VP of Field Sales. Chris also has over 25 years of field sales and marketing leadership experience to the company. Chris leads all field sales teams, which consist of our regional, market area and local sales professionals who are in the field with our branch managers, GMs and regional VPs. These are the most significant changes that I spoke about on the previous slide. Our service delivery is overseen by our field leadership and their respective teams. Tom Ellis, Paul Casselman and Wade Wilson are proven Badger field leaders who are responsible for service delivery in the U.S. East, the U.S. Central and the Canadian regions, respectively. Logan Mellott joined Badger in late 2021 with over 20 years of field and operational sales leadership experience and is responsible for service delivery in our U.S. West region. Finally, each region has a general manager, or GM, responsible for each market area, and that GM oversees those branch managers who fall within their market areas. As a reminder, we've sized and resourced each market area based on the opportunities within each market area. We have also added sales resources in each market area, and branch, again, based on the opportunities we see within each of those areas. We are laser-focused on achieving 3 outcomes for 2022: capturing market driven pricing within each branch market area and within our key account customer base; maximizing margins within each of our branches, market areas and regions; and lastly, optimizing the utilization of our resources, both human capital and assets. Next slide, please. We are still in the early days of executing on our operating model, but we are pleased with how the company is responding to the changes so far. I suspect that many of you have seen our Q1 2022 results where our revenue was up 33% and adjusted EBITDA was up 84% year-over-year. This provides an early glimpse into the effectiveness of our operating model and the ability to affect operating leverage. I'm also encouraged by some improving trends in the underlying nonresidential construction market fundamentals, particularly in the U.S. After 15 months of consecutive year-over-year declines in the U.S. construction put and place numbers, the market trends appear to be returning to year-over-year growth, albeit off the lower levels experienced in '20 and '21. It now appears that the wins might be changing from a headwind to a modest tailwind in our favor. At this point, I'm going to hand the presentation back to Paul to speak about some exciting advancements in our manufacturing capabilities and product lines.

Thanks, Rob. I'm sure that most participating in today's meeting are well aware that Badger is North America's largest contractor when it comes to nondestructive excavation services. But what we'd like to talk about right now is about our vertical integration and that we're also one of North America's largest manufacturer of nondestructive excavation equipment, and we have been that way since day 1. This vertical integration is a significant competitive advantage. It comes from the design and manufacture of our units, and this is based on millions of hours of direct field experience each and every year with our operators on the trucks and our customers who provide real-time feedback on how we can improve the safety, the efficiency of our units and also how we can maximize their useful economic life. This experience also assists on new product development, and I'll talk about that a little bit more in a minute. The vertical integration provides us with certainty of supply of nondestructive excavation units. This is increasingly important with the recent supply chain constraints and the challenges we've seen in the industry and also because Rob and his team are ramping up our commercial strategy. We want to make sure we have enough trucks for Rob. Finally, our manufacturing group provides us with a cost advantage. We can manufacture our units at a meaningful discount to purchasing from third-party manufacturers. Additionally, our vertical integration allows us access to critical replacement parts to ensure that repairs are quick and downtime is minimized and fleet uptime is maximized. As you know, we curtailed production in late Q1 2020 in response to the initial COVID shutdown. During the slower production levels we experienced in the rest of 2020 and throughout 2021, we took full advantage of this as an opportunity to enhance our manufacturing capabilities and the capacity at the Red Deer plant. We established a second production line to increase throughput, and our stated annual throughput on a one-shift basis is now 350 units a year. We established a 4-day, 10-hour work week. This is on a single-shift basis. This enables us the opportunity, if required, to provide a 20% weekly capacity if we were to drive over time and move to 5 days a week, great flexibility. In addition to that, we also have the ability to add shifts. We also took a lot of time and effort and implemented a materials resource planning system, or an MRP system for our manufacturing process, which standardizes processes and targets both process and procurement efficiencies and improvements. Our current production capacity at Red Deer provides us with sufficient capacity to support potential unit retirements and expansion. We note that the retirements in this chart, Slide 15, are illustrative and they're based roughly on fleet additions that occurred 10 years ago. We manage our retirement program through the fleet management practices that Rob mentioned a minute ago. With the market opportunity that we see, and with our commercial strategy implementation in the early stages, we want to always have enough capacity to handle demand for growth units in the future. To that end, we secured a property adjacent to our current Red Deer facility to expand our footprint and optimize production and efficiency. We signed this deal in Q1. As we go through the integration process of these adjacent facilities, we'll provide updates on how the progress is going in future quarters. We'd next like to talk about the different nondestructive excavation unit types that we design and manufacture. Our Tri-Drive Hydrovac, our Tandem Hydrovac, our Tandem rail gear Hydrovac, which actually allows us to work on railroads, and excitingly, I'm able to introduce our latest product, which is a Tandem Airvac. We've been field testing Badger Airvac units, actually, the name is the Badger Airvac with intellectual property in that regard, in a number of certain markets across our network. The Airvac is similar to the Hydrovac in that it performed safe excavation, but the Airvac uses air versus water that loosens the soil cover before vacuum up into the storage tank. This application eliminates the use of water and can assist in customer material management in certain applications. While each different type of excavation unit has different applications, they all can meet the unique market and customer needs across their network. And we're excited about the Airvac because we believe that this technology will broaden the applications for nondestructive excavation. In addition to our core nondestruction excavation product lines, we also produce and source equipment to provide complementary service to our customers that goes hand in hand with nondestructive excavation. These units are placed in markets to service the customers' unique requirements. A lot of times customers ask us to provide complementary services, and it complements our core service offering. We see opportunity for growth across the entire range of Badger's products and services. So with that, let's turn the presentation over to Darren on financial strategy.

Thanks, Paul. Actually, I'm pretty excited about the changes that we've made and the opportunities that lie ahead of us. Thanks, guys. Before I get into outlining the ample financial capacity that we have to fund -- self-fund our growth and thoughtfully manage our shareholder capital, I'd like to take a few minutes to outline some changes we made to our financial disclosure. Effective January 1 of this year, we changed our reporting currency from Canadian dollars to U.S. dollars. This change minimizes the impact of currency fluctuation as over 80% of our revenue is U.S. dollars. Effective with the March 31, 2022, dividend payment, we have moved from monthly distributions to quarterly distributions. Our Q1 cash distribution of $0.165 per share will be paid on May 15 to all shareholders of record at March 31. And finally, effective January 1 of this year, we revised the methodology in which RPT is calculated. Briefly, we are excluding finished nondestructive excavation units, which have not been sold to the transportation entity from the RPT calculation. Additionally, RPT now reflects the growth the gross revenue earned on a unit by an operator partner and franchisee versus the previously reported net revenue. We believe these changes are more accurately reflect the utilization of our fleet. With these formalities complete, let's move on to the next slide and talk about our financial capacity and capabilities. With our current CAD 400 million 5-year committed credit facilities, we maintain ample credit facility capacity to fund our growth plans and support the nondestructive excavation build program. We have made material strides in shortening our cash conversion cycle through substantial changes to receivable management, and we continue to explore further options to shorten our cash conversion cycle. The financial covenants associated with our committed credit facilities provide considerable financial flexibility to accommodate our growth plans and also manage through potential and future shocks of the capital [indiscernible]. Based on our covenant structure, our target leverage is 1 to 2.5 -- 1 to 2x debt to EBITDA. And at the end of Q1 2022, our leverage was 2.3x. We anticipate further reductions to our leverage position as the year progresses. Let's move on to the next slide. Our commitment to managing our shareholders' capital is the most -- in the most accretive manner remains unchanged. In pursuit to the market opportunities that Paul mentioned in his opening comments, coupled with the operating discipline that Rob mentioned, our primary focus and most accretive application of capital is to find organic growth. We continue to look at M&A opportunities, but none of these opportunities provide the return profile that our organic growth opportunities provide. We remain committed to our disciplined approach in evaluating all future M&A opportunities. Finally, we'll continue to return surplus capital to shareholders in the most accretive manner. Thank you for your time this afternoon. And at this point, I'll hand the presentation back over to you, Paul.

Okay. Thanks, Darren. So in closing, as you hear today, the team is excited about the opportunities that are ahead of us in our markets, and how we're positioning your company to pursue them. So with that, I'd like to thank everyone for their participation, but we would also like to now open the call up to any questions. Okay. It looks like we don't have any questions now. And as everyone knows, we're always available as folks have interest, and please call us. And at that point, let me turn it back to Glen to close off the meeting.

Thank you, Paul, and thank you to all of the shareholders who did attend this year's virtual Annual General Meeting, and I hope that you found benefit, particularly in the presentation that management provided and the update on the company's activities and our strategy. So with that, I will thank you very much for attending, and wish you all the best.

This concludes the meeting. You may now disconnect.