Black Diamond Group Limited (BDI) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. My name is Elaine, and I will be your conference operator for today. At this time, I would like to welcome everyone to Black Diamond Group's Second Quarter 2026 Results. [Operator Instructions] I will now turn the call over to Emma Covenden, VP, Investor and Stakeholder Relations.

Good morning, and welcome to Black Diamond Group's Second Quarter 2026 Results Conference Call. With me this morning, we have Chief Executive Officer, Trevor Haynes; Chief Financial Officer, Toby LaBrie; Chief Operating Officer of Modular Space Solutions, Ted Redmond; Chief Operating Officer of Workforce Solutions, Mike Ridley; and President of Royal Camp Services, Jon Warren. Please be reminded that our discussions today may include forward-looking statements regarding Black Diamond's future results and that such statements are subject to a number of risks and uncertainties. Actual financial and operational results may differ materially from these forward-looking expectations. Management may also make reference to various non-GAAP financial measures in today's call such as adjusted EBITDA, adjusted EPS or net debt. For more information on these terms and others, please review the sections of Black Diamond's Second Quarter 2026 Management's Discussion and Analysis entitled Forward-Looking Statements, Risks and Uncertainties and non-GAAP Financial Measures. This quarter's MD&A, financial statements and press release may be found on the company's website at www.blackdiamondgroup.com and also on the SEDAR+ website at www.sedarplus.ca. Dollar amounts discussed in today's call are expressed in Canadian dollars, unless noted otherwise, and may be rounded. The format for today will be similar to prior conference calls. Trevor will start with a high-level overview of the company's performance and highlights for the quarter, including our view of the current and forward-looking operating environment. Trevor will then pass the call over to Toby for a more in-depth summary of the financials including details from the quarter, and then we will open the line for Q&A. With that, I'll turn the call over to Trevor.

[indiscernible] we appreciate each of you taking the time to join us for Black Diamond's earnings conference call today. Yesterday afternoon, the company reported its second quarter 2026 results, demonstrating continued stability across the platform as we enter the second half of the year. Consolidated revenue of $129.2 million increased by 23%, driven by strength in recurring rental and lodging revenue streams, contributing to adjusted EBITDA of $30.4 million, up 4% from the comparative quarter. The moderation in margin is a result of the company's evolving revenue mix following the acquisition of Royal Camp, with increased contribution from lodge services revenue, which includes catering and hospitality that has lower margins than our core rental businesses. Nonetheless, this area of the business is performing well, further diversifies our service offering and provides a growing source of meaningful revenue and cash flow. Consolidated rental revenue increased 17% year-over-year to $45 million, and contracted future rental revenue remained healthy at $136.5 million at quarter-end, showcasing the resilience of this recurring revenue stream. The quarter reflected good progress against several strategic priorities, including the successful implementation of the new ERP system for our MSS and corporate divisions. This was completed by the team on time and on budget even though it was a multiyear project for us. And moving forward, it positions the business well for scalable growth as opportunities across the platform accelerate. And it also frees up key resources as we move into an accelerated operating environment. I'd like to thank our teams for their efforts and determination on this transformational project, which, while rare for these types of projects, we completed on time and on budget. And more broadly, I'd like to recognize the team across the organization for the good hard work being done to serve our customers and create value for our stakeholders every day. Total quarterly capital expenditures were $24.9 million, down 23% from the comparative quarter, while capital commitments of $34.2 million at quarter-end increased 24% and from the comparative quarter, which, combined, sets the company on a similar pace to the prior year and largely represent contract-backed asset additions that are expected to generate attractive returns upon deployment. The continued investment in our business reflects our disciplined approach to capital allocation. Looking ahead, we expect CapEx will accelerate in the back half of the year based on strong demand dynamics. We will continue to align fleet growth with customer demand, deploying capital where we see the strongest opportunities to drive utilization and long-term value creation. Overall, we remain confident in the trajectory of the business. Our base operations continue to perform consistently, supported by high-margin recurring rental revenue and attractive end market dynamics across Canada, the United States and Australia, while several growth initiatives provide meaningful upside potential. Within our WFS segment, the substantial breadth and scale of opportunities in the pipeline continue to reinforce our conviction in Canada's nation-building thematic. Our ability to participate in this investment cycle and support our customers is not a coincidence. Through the strategic acquisition of Royal Camp Services late last year, we have positioned ourselves as a leading integrated remote accommodations platform with the ability to rapidly deploy assets and provide full team turnkey services, including best-in-class catering and hospitality. Combine that with our long-standing track record of effective indigenous engagement with over 45 partnerships across Canada, the company is extremely well positioned as we look ahead to the coming months and years. While the timing of project mobilizations remains difficult to predict, we believe it is a matter of when, not if, these opportunities translate into demand for remote accommodations. Increasing utilization levels over the next several quarters will lead to the realization of the significant operating leverage embedded within the platform. To add context to the opportunity that lies ahead, WFS currently has more than $2 billion of formal bids outstanding in Canada alone, across more than 20 active projects, representing more than 2x the company's current available fleet capacity. These opportunities are broad and far-reaching linked to energy, mining, related infrastructure data centers and defense and military projects. MSS is also well positioned to benefit from this opportunity and is already seeing increased customer activity in Canada as seen through rental revenue growth and healthy utilization. Supported by a diversified customer base, recurring rental revenue, pricing discipline and continued expansion of VAPS, MSS remains well positioned to deliver steady compounding growth and value creation. And finally, LodgeLink delivered another record-breaking quarter, demonstrating the continued momentum within this area of the business. Investments made over the past several years in technology and product development and the strong execution from our growing and high-performing team is increasingly translating into positive operating results and accelerating adoption of the platform within a robust total addressable market of over USD 170 billion for workforce travel across Canada, the U.S. and Australia, according to the Global Business Travel Association. Booking activity, customer retention, new customer adoption and platform engagement remained very strong. And as our new LodgeLink software product advances toward general availability later this year, we see a meaningful opportunity to deepen customer relationships and accelerate market penetration. To summarize, we are pleased with the core strength that the business is demonstrated in our second quarter results. While lower levels of episodic project and sales activity moderated reported growth, the continued expansion of our rental revenue and recurring lodging revenue further underscores the quality, predictability and resilience of these revenue streams, which remain key compounding growth drivers for long-term value creation. With ample financial flexibility, disciplined capital allocation and a growing base of high-margin recurring rental revenue, we remain confident in our ability to create shareholder value. We are well positioned to deliver steady near-term performance while maintaining significant exposure to the demand catalysts across our platform. Before I turn the call over to Toby, I'd like to recognize Ted Redmond, our EVP and COO for our MSS business unit, as he looks ahead to retirement following many years of outstanding service to Black Diamond. Ted has made significant contributions to the company and to the growth of our MSS business, and we thank him for his leadership and commitment throughout his tenure. This transition also highlights the depth of talent within the ranks of our organization as 2 long-term leaders step into new senior roles and assume greater responsibility as we look forward to continued growth of our MSS platform. With that, I'll conclude and pass over to Toby.

Thanks, Trevor, and good morning, everyone. I'll focus my comments on the results of the overall business, our business segments, margins and on the balance sheet. Earnings per share of $0.01 was down from $0.15 in the comparative quarter. Adjusted EPS, which adds back ERP implementation costs, amortization of intangible assets from the Royal acquisition and a provision for PC sales tax [ assessments ] was $0.09, down from $0.18 in the comparative quarter. This decrease is due to lower margins as a result of a shift in the revenue mix towards more lodging revenue, and higher depreciation, interest costs and share count stemming from the Royal acquisition. While these costs have weighed on the business in the first half of 2026, we believe this is transitory and we are confident that the business is well positioned to take advantage of the very strong demand that we are seeing in our bid pipeline. With respect to the adjustments to EPS, I'd like to focus on the 2 new items. First, the intangible assets acquired as part of the Royal acquisition represent assets that were acquired on our books in excess of the consideration associated with the transaction. Therefore, we believe the add-back of the amortization of these intangibles provides a better view of the true returns from the capital employed in the business. Second, the BC sales tax assessment stem primarily from a retroactive application of a change in definitional interpretations that affects the tax rate the company is required to charge its customers and to remit the Province of British Columbia. Black Diamond and the broader industry strongly disagree with this new interpretation and how it is being applied retroactively through audit, and the company is challenging the assessments through an appeal process. And currently, we are invoicing our customers in order to recover the additional tax that the BC government has imposed. We have recorded a $3.6 million charge to income in the quarter associated with these assessments and have added this back to adjusted EPS as they represent costs that are unusual and nonrecurring in nature. Overall, the non-GAAP measure introduced this quarter, adjusted EPS, is intended to provide a more meaningful representation of the company's underlying earnings performance over reporting periods. Now turning to specific business unit performance, I'll begin with Workforce Solutions. Within WFS, revenue of $72.2 million increased 55% and adjusted EBITDA of $15.6 million increased 3% from the comparative quarter. The growth was driven primarily by a contribution from Royal Camp Services, which increased lodge service revenue by 174%. Rental revenue also grew by 35% and nonrental revenue increased 34% compared to the prior year. Sales revenue in this business unit declined 70%, reflective of our strategic decision to preserve fleet capacity rather than opportunistically monetize assets through used fleet sales. With fleet rationalization largely complete and demand visibility continuing to strengthen, we believe this approach better positions the business to capitalize on future opportunities. WFS consolidated utilization was 55.2%, leaving ample capacity to deploy assets on projects from within our unprecedented bid pipeline of over $2 billion as these projects move into their construction phase. MSS generated rental revenue of $28.6 million, up 8%, and adjusted EBITDA of $20.9 million, up 3%, from the comparative quarter. Utilization remains healthy at 77.9%, while average monthly rental rates increased 3%. MSS sales revenue declined 18%, driven primarily by softer customer sales as a result of typical sales activity variability and funding uncertainty within the education center sector. Looking ahead, we continue to see growing momentum across the MSS sales pipeline with a strong backlog of opportunities expected to advance through the balance of 2026. Growth in value-added products and services continues to be a key differentiator, with VAPS revenue increasing 35% and reaching 11.7% of rental revenue in the quarter. VAPS adoption continues to expand. We expect it to remain an important driver of -- in terms of both providing value to our customers as well as expanding our margins. LodgeLink delivered a very strong quarter with total trade value increasing 69% to a record $43.5 million, while net revenue increased 64 million -- or 64% to $5.4 million. Travel segment sold increased 44% to more than 215,000, reflecting continued customer adoption, strong retention rates and growing engagement across the platform. LodgeLink continues to demonstrate how it is becoming a driver of meaningful long-term growth for the company. Turning to cash flow and capital allocation. Free cash flow for the quarter was $14.6 million and funds from operations totaled $28.6 million. Working capital was impacted during the quarter by the successful ERP go-live, primarily through temporary delays in billing and collections. These impacts were anticipated, and we expect working capital to normalize through the balance of the year as processes stabilize within the new system. The successful completion of this implementation represents an important milestone that positions the company for improved efficiency and scalability moving forward. From a balance sheet perspective, the company remains in a very strong position. Net debt at quarter-end was $351 million, with net debt to trailing 12-month adjusted leverage EBITDA of 2.4x, comfortably within our target range of 2 to 3x. During the quarter, we completed the expansion of our ABL facility to $550 million, increasing available liquidity to nearly $200 million and providing significant flexibility to support future growth opportunities. Overall, we are pleased with the performance of the business. The combination of recurring rental revenue, growing cash flow generation and a strong balance sheet positions Black Diamond well to continue creating long-term value for shareholders. We remain confident in our ability to continue growing our business and compounding shareholder value with significant catalysts for acceleration. With that, operator, I'd like to turn the call -- open the call for questions.

[Operator Instructions] Your first question comes from the line of Kyle McPhee from ATB Cormark.

I'm hoping to get more color on your CapEx commitments. Committed CapEx is up 24% year-over-year. How much of that 24% lift is just inflation versus actual added volume of fleet units being added versus what you added last year? And then also, can you give me an idea of what pockets of your business this CapEx is going to? I assume it's mainly MSS at this point and you're not yet spending material CapEx for WFS fleet expansion.

Yes, Kyle. I appreciate the question. CapEx, as you suggest, is primarily committed to MSS at this point in terms growth CapEx. We haven't seen that significant an inflation rate year-over-year. I think we're 3% to 4% inflation on MSS buildings. And so there's not a significant adjustment you need to make in terms of sort of fleet growth or the dollar amount of CapEx committed. And roughly Q1 was a little bit lighter than previous year, [ commitment at end of ] quarter, a little bit higher when you average it out. We're, at this point, in comparison to last year, right around the same cadence, probably 3% higher. So there's your inflation. We don't have very much CapEx focused on WFS at this point. However, quick to point out, over the last couple of years, we have added modest amounts of fleet both in Australia and Canada, more around our rapid deployment of smaller format accommodation units, which are actually, from a utilization perspective, quite tight, if you think of the Montney, for instance. And also in Australia, we've been running fairly high utilization on our workforce fleet. So as we're picking up contracts, we're typically adding some incremental square footage. So we do have some growth in WFS. And of course, we have our maintenance capital across all parts of the business, and modest amount of corporate capital. So the bulk of what we've disclosed for Q1 and our outstanding commitments at quarter-end are for MSS growth. And again, we typically have line of sight with customer contracts, so it's pretty low-risk deployment.

Okay. And then your comments also call for acceleration of organic investment in 2026 and '27. So what's driving that acceleration? Is that just a preemptive comment given all the demand you see for WFS, and you predict you will, in fact, need to expand the fleet beyond the 6,000 excess beds you already have?

The acceleration, we do quarterly capital allocation. And what we're seeing is fairly significant growth opportunities around MSS, specifically in the Southern U.S., Southeast U.S., there's a read-through on data center activity for our big construction customers. We're also seeing a significant uptick in demand in Western Canada where our utilization for MSS has tightened up. There's just a plethora of project activity and often BOXX is deploying bid to field level deployment, is a little bit quicker in terms of cycle than our camp business. The acceleration for camps in terms of CapEx would be a ways off. We've got reasonable spare capacity, still sitting, I think, Mike, Jon, 5,300 to 5,500 beds of capacity available to match up with demand. And so we'll absorb that obviously before we spend capital to increase bed capacity.

The next question comes from the line of Matthew Lee from Canaccord.

First I want to congratulate Ted on his career. [ Wish him ] great times. So congrats, man. Hope you have fun. Okay, onto the business. I want to think about utilization of Workforce Solutions, because I'm going to assume that if you win half of the bid that you've kind of mentioned you'll be at maximum. But what is maximum utilization of Workforce Solutions? Is it kind of like 80%, similar to MSS, or 90%, 95%?

Yes, you'd have to go back many years to -- in our [indiscernible] that we can run in the 90-plus percentage range, and we did for many years. The sales cycle for WFS is such that we have longer visibility of forward demand. And so you can run a little bit higher in utilization, if we do, in fact, get there. Mike, pass to you.

Yes. Just a couple of other points around utilization. Firstly, all these projects are not going to go away. So it's not going to be 6,000 beds now to the market. They're going to happen over a period of a few years. There's going to be opportunities to move assets with any project or tied to other projects along the way. We view, from time to time, use third parties to subcontract assets through, so we'll explore those avenues as well. And if we can get good term and good return, we'll certainly look at deploying capital to grow our asset base further.

Yes. That makes sense to me. Maybe we can talk about the $2 billion in bids then in Workforce Solutions. I mean how long are those contracts generally? Like is it like 3 or 4 year contracts? Or are these like 10-year-plus contracts?

Well, it's 2 different numbers there. There's a typical length of time the customer will keep the assets in terms of how long it takes on [indiscernible] site. But a typical time line is usually 36 months as an average. Jon, you're very close to this.

I would say on the infrastructure -- pipeline infrastructure projects, you're looking at a maybe 3 to 4-year time frame from start of the project to end of the project. Within that 3 to 4 years, we'll be moving along the line. Some of the larger construction projects that we foresee coming, think a mining project or something like that, it could start with 3 years of construction leading into operations that mines 20-plus years.

But in terms of the specific bid pipeline, the projects and the quantification of that is based on a roughly 3-year average term in the bids.

Yes.

Okay. That's helpful. So some of these products might have extensions as well then.

Our next question comes from John Gibson from BMO Capital Markets.

Just starting on WFS. Obviously, a lot of bids outstanding. I was wondering what your customer conversations are like based on this. Are they recognizing the flurry of activity that's going to happen due to supply crunch and potentially [indiscernible] equipment ahead of the flurry of activity? Or is it just primarily sort of FID dependent on winning this work?

Yes, it's interesting. I think there is a growing sense of competition for limited services and assets. Again, John, you're very close to these conversations.

Yes. We are definitely getting calls to get a sense of the whole industry from certain points that we're close to, and they just want to know the full scope of it, for that exact reason, to get ahead of it and plan their projects. Some projects are trying to move ahead and get ahead of other ones. So there's definitely phone calls that are happening.

We do have many customers who have secured assets on rent in advance -- well in advance, when their project is going to start off. And I think that's entirely, Jon, because they're concerned the assets won't be there...

100%.

When the project kicks in.

Yes.

Quick to point out, John, that's a limited set that are doing that yet. But thematically, it's coming through. Sorry. Go ahead.

Yes. Got it. I appreciate that. Just second one from me, how can we think about demand strengthening across the MSS platform? Obviously, you gave us the numbers you are bidding on for workforces. Is there a way to quantify that? Or is it kind of like a second derivative of Workforce going ahead and then MSS picking up on the back of that?

Yes, MSS, one of the great things about the platform is that services so many verticals across so many different geographies. And that's by intent. Where the verticals and the geography overlap with our Workforce business, very similar drivers. All these big projects also need project offices, training facilities, security, laboratories and lunch rooms. So there is commonality and we get some visibility there. I don't think, Ted, we've got -- certainly, we haven't disclosed the aggregate bid value. But we do know that our bid pipeline is growing for MSS, correct?

Yes. Our backlog, because the projects we've won is ahead of where it was last year at this time, so we have a larger backlog, that we mentioned out earlier. Also when you look at our proposals in progress and proposal delivered, both of those are above where we were at this time last year. And in addition to the big nation-building projects, we have a lot of, I would call them more industrial type projects, so petrochemical projects, data center projects in both Canada and the U.S. that are well underway and that we have units on those sites. And we expect as those sites continue to ramp up, we'll have more units on it. So that's what's driving the firm backlog that we have today, is existing rentals. And then we know that the customers are going to have additional rental demand over the next 12 months as they ramp their projects up. So it's both kind of our normal industrial education, commercial type business, in addition to -- there's definitely a pull through from the nation-building projects that we're expecting.

And where we also see the impact of that is increasing utilization, and we're starting to see more of the front end as well as, Trevor mentioned, in the capital commitments that we're seeing for growing our asset base to meet some of that demand. And so we expect on more of a lagging basis, we start to see that going through our results in coming quarters as well.

Got it. If I could sneak one more in actually, just on pricing in WFS. I know it's been a while now, but what would like-for-like pricing be now in WFS versus, say, the peak period when you were running at 90% plus utilization?

It's a tough comparison, John, because of inflation the asset base, et cetera. I would say, on a payback versus new or cost of replacement, on that ratio, rates are still well behind. I would think, Mike, Jon, bid rates have come up. They're probably up easily 50% from trough 2-plus years ago. But we still need to increase, probably doubled from where we are now to justify CapEx on brand-new camp gear. But again, we're dealing with day to day. Jon?

Yes, definitely, the cost of the dorm has gone up considerably. So the rates need to follow. Right now, we're bidding with all our existing fleet. So not really taking that consideration today, but it is in consideration as we move forward on some of our of these bids.

Yes. I'll turn it back, but congrats on the return, and you've put the MSS business in a pretty good position here.

Thank you. We've got some good people that are going to keep it in a good position.

Absolutely.

Our next question comes from Razi Hasan from Paradigm Capital.

My first one, just a follow-up on John's, did you say bid rates are up 15% from the trough, 15, did I get that number right?

5-0.

5-0, okay. Great. And maybe just switching gears a little bit on gross margins, down year-over-year. Was it all just the product mix that was related to -- or was there anything else to stick out in terms of an elevated cost?