Thank you for standing by. This is the conference operator. Welcome to Black Diamond Group's first quarter 2022 conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there'll be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Jason Zhang, Investor Relations. Please go ahead.
Good morning, and thank you for attending Black Diamond's first quarter results for our 2022 conference call. With us on the call today is our CEO, Trevor Haynes, and CFO, Toby LaBrie. We are also joined today by COO, Modular Space Solutions, Ted Redmond, COO, Workforce Solutions, Mike Ridley, and CIO, Patrick Melanson. Our comments today may include forward-looking statements regarding Black Diamond's future results. We caution that these forward-looking statements are subject to a number of risks and uncertainties that may cause actual results to differ materially from expectations. Management may also make reference to non-GAAP financial measures in today's call, such as adjusted EBITDA, free cash flow, ROA, or net debt. For more information on these terms, please review the sections of Black Diamond's first quarter 2022 management's discussion and analysis entitled Forward-Looking Statements, Risks and Uncertainties, and Non-GAAP Measures.
This quarter's MD&A news release and financial statements can be found on the company's website at www.blackdiamondgroup.com, as well as on the SEDAR website. Dollar amounts discussed in today's call are expressed in Canadian dollars unless noted otherwise and are generally rounded. I will now turn the call over to Trevor Haynes to review the quarter.
Thank you, Jason, and good morning. Thank you for joining us to discuss our first quarter results. The company has had a strong start to the year as we continue to execute on our plan to grow and diversify the business. This is reflected by strong key performance indicators throughout the platform. We are seeing the intended results of these multi-year strategies while also benefiting from certain macroeconomic tailwinds. One of the results of the strength and stability of the company was the reinstitution of our quarterly dividend last year, which we have since increased for 2022. Specific to the first quarter of the year, we generated consolidated revenue of CAD 70.2 million and reported adjusted EBITDA of CAD 17.9 million. These were improvements of 7% and 35% from the comparative quarter respectively.
We also generated CAD 13.5 million of free cash flow in the quarter and our consolidated return on assets or ROA improved five percentage points to 17%, driven by increasing rental rates in MSS and the unlocking of operating leverage in WFS through increasing utilization of existing assets. Consolidated rental revenue of CAD 26.9 million increased 26% from the comparative quarter as MSS rental revenue of CAD 16.1 million and WFS rental revenue of CAD 10.8 million grew 16% and 44% respectively. MSS reported first quarter adjusted EBITDA of CAD 10.4 million, up 1% from the same quarter last year, and total revenue of CAD 34.4 million, which was down 3% from the comparative quarter.
Our MSS business unit continues to see healthy demand in all regions, and we anticipate continued growth in the second quarter and beyond with respect to our base of high margin recurring rental revenue. We expect continued expansion of the rental fleet, increased uptake in VAPS and ongoing escalation in average rental rates across the fleet, which for the most recent quarter was up 9% year-over-year on a constant currency basis. Custom sales revenue was down year-over-year, but can vary from quarter to quarter due to project timing. That said, the sales pipeline remains robust and we expect stronger sales revenues in the second half of the year. In WFS, Q1 revenue of CAD 35.8 million was up 17% from the comparative quarter, while adjusted EBITDA was CAD 12 million, up 97% from the same quarter last year.
We are seeing positive momentum across the platform driven by our efforts to diversify this business, streamline operations while also continuing to monetize underutilized assets. Average utilization in WFS has risen to 48% from 36% last year. We are seeing particular strength in Australia, where we are now essentially fully utilized, but have also seen continued improvement throughout our Canadian and U.S. markets. The outlook into the balance of the year is positive as the segment's increasingly diversified customer base remains active along with our expectations for existing larger projects to extend. LodgeLink, our digital marketplace offering that is bringing innovation to the crew travel industry, continues to scale.
This business had another all-time record in the quarter with over 76,000 room nights sold in the first quarter, up 56% from the comparative quarter. Net revenue for the quarter was CAD 1.3 million, up 86% from the comparative quarter. At the end of the first quarter, LodgeLink had 7,337 listed properties, servicing 642 distinct corporate customers and their thousands of crew members. LodgeLink has had a strong start to the year, and we expect ongoing growth in volumes as we continue to demonstrate a unique value proposition by leveraging increased sophistication of our tech platform with this addressable market of approximately $60 billion.
We implemented a strategy several years ago to scale and diversify our specialty rental platforms and scale our crew travel platform, and as a result, are seeing a notable evolution in terms of the quality and stability of our revenue streams and cash flows across the Black Diamond portfolio. We plan to continue building on this momentum by expanding our MSS business, both organically and through acquisitions, and by improving utilization in our WFS business while aggressively growing our B2B travel tech ecosystem in LodgeLink. I will now turn the call over to Toby LaBrie for some further details on the first quarter financial results. Toby LaBrie.
Thanks, Trevor. As Trevor mentioned, total adjusted EBITDA for the quarter was CAD 17.9 million, an increase of 35% from Q1 2021. This drove diluted earnings per share of CAD 0.07, an increase of 40% from the comparative quarter. It is also worth repeating that total rental revenue for the quarter was CAD 26.9 million, which represented a 26% increase from the comparative quarter. The increase in our core recurring rental revenue as well as stronger lodging revenue resulted in an ROA for the first quarter of 17%. At the end of the quarter, net debt of CAD 156.6 million was down from CAD 169.2 million at the end of Q1 2021.
Our current net debt to adjusted EBITDA ratio as of March 31, 2022, of 2.3 times is within our target long-term range of 2-3 times. Our average cost of debt for the quarter was 2.3%, and over the last several quarters, we have entered into interest rate swaps to lock in fixed rates on approximately one-third of our debt during a lower rate environment. We believe our balance sheet is conservatively levered with almost CAD 110 million of available liquidity. We have ample dry powder to continue growing our business both organically and through acquisitions, such as the tuck-in MSS acquisition in our Alberta market that we announced earlier in the week.
On a consolidated basis, total administrative costs as a percentage of gross profit of 40.7% was down 2.4 percentage points from 43.1% in the comparative quarter. Total administrative costs in the quarter of CAD 12.3 million grew 22% from the comparative quarter, primarily due to an increase in staffing levels, more travel-related business activity as restrictions ease, and a slight increase in insurance and property taxes. Our asset rental model has continued to provide a strong base of growing free cash flow generation, and we continue to view our rental assets as an attractive investment in the current inflationary environment. While the value of acquiring new assets has been rising with inflation, we continue to meet and exceed our investment hurdle rates on assets deployed on contracts with term.
This inflation is also driving ongoing escalation in rental rates across the existing MSS fleet of nearly 9,000 units, which was acquired at lower costs, and therefore further increases our overall return on assets. Our WFS business is also seeing opportunities amidst strengthening commodity prices, which is improving utilization and rates with minimal capital investment in this business. In addition to reinvesting free cash flow from the business into growth capital and fleet expansion, we continue to repurchase preference shares of a subsidiary that were issued as part of the Vanguard acquisition. We have repurchased CAD 4.6 million of these shares over the past six months and intend to repurchase the remaining CAD 6.5 million in 2022. Once these are extinguished, we will have additional free cash flow available to reinvest in the business or return to common shareholders.
In closing, our outlook for the business is robust. LodgeLink is poised for continued exponential growth, and our low cost of debt on the balance sheet and liquidity position gives us meaningful optionality. We are pleased with the start of the year and remain optimistic about our business as we continue to execute on our strategies. With that, we'd like to turn the call back over to the operator for questions.
Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. Our first question comes from Matthew Lee of Canaccord Genuity. Please go ahead.
Hey, good morning. Good quarter from all of y'all. Just a question on the MSS fleet. You know, I know you're selling some units every quarter, but can you maybe give us an idea of the net growth in the fleet you're expecting for FY 2022? Then maybe how M&A fits into that picture.
Net growth on MSS fleet for 2022 and a rough split on organic and inorganic. Do you wanna start there, Ted?
Sure, yeah. We've got significant CapEx plan for the year, so the fleet will continue to grow. It's a bit difficult to predict because net fleet growth is offset from used sales. We have been de-emphasizing used sales this year compared to last year. We definitely think we'll have significantly higher net fleet growth this year versus the prior year due to increased CapEx and lower used sales. What was the second half of that, the question?
Organic versus inorganic.
Oh, yeah. That's the organic piece. The inorganic piece, we had a nice pickup from the acquisition of Cambrian in our Calgary branch. It's hard to predict inorganic M&A sales or, you know, the sale's not done until it's done. Maybe I'll pass it back to Trevor if he wants to talk about the pipeline of M&A.
Yeah. Well, we won't comment on any specifics, Matt, but certainly we're actively looking at opportunities, and we have a pipeline. The timing of that and our success in buying within our framework for valuation and quality of asset, you know, we would like to do another tuck-in before the end of the year, if not more, but very difficult to predict. We're very focused on what we have control over, which is what Ted's mentioning with regard to the organic.
I think with you know, with the current CapEx profile that we see, you'll note that we have a significant amount of capital commitments in place. We also have secured manufacturing slots with our manufacturers so that we can guarantee some of that capacity because we do see tightness in the manufacturing market today. So with that, it poses some challenges to growing our fleet organically, but do think that we'd like to target in that 5%-10% growth range between the organic and inorganic fleet growth for the year.
That's great color. Maybe on the CapEx, if I think about growth CapEx, how does that split between your two segments?
The bulk of the growth CapEx is going towards MSS, which is consistent with the strategy we've shared over the last several years of scaling up MSS. We do, however, have a very robust market in Australia. The Australia business fits under our WFS business unit. We are on an organic basis adding net fleet, and we have CapEx in Australia, albeit at a significantly smaller percentage than MSS here in North America. Those are the two key areas that we have capital allocation. A little bit around the maintenance and repurposing side of WFS as we see opportunity to get some assets out to work, some of which haven't worked for a few years.
Sometimes it takes a small amount of capital to get those buildings operational again. Of course, we continue at about the same cadence with LodgeLink as last year in terms of capitalizing the technology development or the software build for that business. The bulk, Matt, is going into MSS.
All right. That's really helpful. I'll pass the line.
Thank you.
Our next question comes from Frederic Bastien of Raymond James. Please go ahead.
Well, hi, y'all. Hope you're well. Guys, I was surprised to see you make this tuck-in acquisition in your own backyard, so to speak. Can you just go through the rationale and perhaps expand on whether there were potentially other opportunities to expand the fleet in other regions, but you know, why did you decide to act on that specific one?
Good question. Thanks. Cambrian has operated in the Calgary market for, you know, 40-50 years. A well-known brand. They occupy a very distinct part of the market here. So the rationale works a couple of ways. We've talked to the owners for about 16 years, and the opportunity in terms of timing happened to be now. Also, as we look to shift our operations in the Prairies, as we built the fleet, it sort of mirrored what was happening in Western Canada with regard to resources. The fleet on the MSS side was more sized towards the larger 12 by 60s and complexes that would work on big projects up north.
As we've become increasingly focused in the urban areas, we found that we didn't have the complete fleet mix. Whereas Cambrian brought to us the other menu items, if you will, so smaller wheeled units, small amount of mobile storage. Really makes us much more competitive or more clearly matched to the different types of demand within the city of Calgary. We're also quite bullish. The city is growing again. We think it fits in really well. From a synergies perspective, we have a full operating branch here, and so we've brought over the assets and contracts, but don't require any people or infrastructure. It's a really nice, creative transaction, you know, from a well-respected seller who has a really good business.
We're quite pleased to be the owner. Ted, you can-
Well, just to add on to what Trevor said, it helps diversify our Calgary and Southern Alberta business to cover more industrial, commercial, construction-type customers. We think that that's a positive.
Perfect. Thanks for that good color. I guess the last conference call was only a couple of months ago, but a lot of this change in the overall financial markets, at least, and seems to be often as an indicator as to what's going on, what's gonna happen out there in the economy. How are you feeling about or has your outlook on the end markets and your own specific business or strategy changed dramatically since you last reported?
Strategies haven't changed dramatically. I guess tactics, perhaps. We are seeing a renewed strength around our energy customers and a different type of discussion, whether it's in Canada or the U.S., which has us reacting to a certain extent, I would say, Mike, to demand in areas that we may not have predicted as being as strong. You noticed in Workforce in this past quarter, our lodging revenue volumes into, we're not a big player in the open lodging business, but our Sunset Prairie Lodge has been very active. We're seeing field-level activity also on the pipeline construction camps. We've seen much higher loading than had been expected.
Upstream oil and gas from our small format camp business has, I think, safe to say, surprised us in terms of the strength of activity. U.S. side has been a bit slower, but we're starting to see that uptick, and you certainly have a read-through from some of the energy services businesses. It's not just oil and gas. We're seeing our mining customers Australia and Canada. Those are areas and I'll let Mike give some color here in a second. The other part of it is spending a lot of time thinking about inflation and how it works into our business model. We're convinced that we are a beneficiary of inflation, the way that rate increases work across such a large asset base that has a fixed cost.
We're also, you know, adjusting like everybody is to cost inflation. We have a small footprint in terms of people relative to the size of our business, but those are a couple of things that you know, we've been focusing on and thinking about how we adjust our tactics. The most notable, I think, is around our workforce business, and maybe Mike, give a
Sure.
A little bit more color there.
Hi, Frederic. Thanks for your question. You know, I think the good news is we've worked really hard, as I think you probably know, the last few years to sort of employ a much more diversified strategy. With that, I think when you look at the macroeconomic environment, being far more diverse is a much better way to go than just being focused, sort of, not solely on the oil and gas sector, but primarily on the oil and gas sector. Geographically, Eastern Canada, we have 2,100 beds now on rent tied to mining projects and other types of projects. The US, we're seeing opportunities with disaster relief, with construction, with green energy, migrant housing, colleges, universities that are looking for overflow dorms.
In Australia, a very good solid market, very diverse market. Education, we're becoming one of the premier classroom providers in that marketplace, as well as a really good workforce base with mining and infrastructure. I think our strategy of being very diversified geographically, industry-wise, is really working, and I think will hold up even when there is a bit of a downturn. Super happy with the results that we're getting as a result of that.
Yeah. The other piece I would add, Frederic, is this is more or less the trajectory that we thought the market would be going in. From a financial and balance sheet perspective, that was the impetus for locking in some of our rates in 2021 and locking in a third of our debt at fixed rates that we saw at that time. As I mentioned in my earlier comments, we feel that that gives us good stability and surety of what our fixed costs will look like going forward.
Great. Thank you so much, guys. I'll pass it on.
Thanks, Frederic.
Once again, if you have a question, please press Star, then One. Our next question comes from John Gibson of BMO Capital Markets. Please go ahead.
Morning, guys, and congrats on what I thought was a pretty good quarter again. First off, margins saw a nice jump in both segments, and I know a portion of this was due to higher rental revenue contribution, but wondering how much you've seen pricing increase. I guess if you could even touch on both segments.
For sure. You want to start off too? Margins in general.
Yeah, general margins, we are seeing good margins on, you know, we typically will look at it by revenue stream. On a rental revenue basis, we've seen good strong margins from that perspective. In our workforce business, we did see some recovery of costs incurred in previous periods. That you know in the current period skewed things up a little bit. Looking at that on an average over the last few quarters is really a good way to think about how those margins trend out over the longer term. In MSS, we saw a pretty sizable change in our mix of revenue.
Typically with that, you would expect an increase of margins because we had a higher proportion of rental revenue, which attracts higher margins. We didn't quite see that full uptick when you compare year-over-year. A big part of that is due to some of our non-rental margins being a little bit lower than we would typically expect, and that we will typically expect going forward.
On some of the final integration of our Vanguard business, doing some final training and systems integration, as well as some reorganization internally, we incurred approximately CAD 600,000 of non-recurring costs there and have completed that integration, so don't expect any further costs there.
Got it. Thanks. I'm gonna kinda touch on the organic growth you spoke about earlier. Where are these new assets headed? Are they pretty spread out across your various MSS businesses, or are you seeing more areas of strength in one area?
We've got a couple of areas of strength. Ted, why don't you give color there?
Yeah. We're investing across the platform because we're seeing good demand, high utilization, and we're able to meet our hurdle rates. That said, there are regions that we're, you know, focusing on to grow. Again, on the West Coast of Canada, we're seeing strong demand in some of our BC markets, so we're investing there. Ontario and Québec, we've been moving into the Québec market over the last 18 months very successfully. Very high utilization in those markets, so we're investing to put units to work there. I would say percentage-wise, we're growing quicker in that Ontario and Québec market than, like, in terms of the amount of investment versus the existing asset base.
The percentage of unit growth is higher in that market than our U.S. markets. Again, we're seeing strong demand, especially on the East Coast. Education demand for new rental units remains strong. We've had a significant investment program in our US East business and but also still investing in our US Southwest business. Strong across the board and investing across the board with those couple areas I noted of extra emphasis.
Okay. Got it. And last one for me. Typically, we've seen a bit of a drop in room bookings for LodgeLink in Q2. Just given how your customer base has probably diversified outside the oil and gas space over the last few years, do you think it's possible we could see an increase next quarter, or will seasonality affect here?
Well, the trend we're seeing, and we've been pushing hard into the U.S. market and building up our commercial presence there, and I think you'll see that the percentage of U.S. revenue to Canadian is going to be shifting. That trend was in place in Q1. We're seeing that continue in Q2, and that certainly helps us. That certainly helps us in terms of muting the effect of spring breakup, which is what you're alluding to there. You know, here in Western Canada, as the frost comes out of the ground, very difficult to move heavy equipment, so we have a slow period, specifically around oil and gas services, but more broadly than any heavy equipment movement on big projects.
We've seen that show up in the numbers in LodgeLink for volume specifically in the April month period. But increasingly as we expand into servicing other industrial sectors who also have crew movement logistics where we add value and as we push in specifically to the US, those factors don't apply. I'm pretty confident, John, on a year-over-year basis, you're gonna see the business continuing to grow and that you'll see, you know, a less pronounced effect of breakup on the LodgeLink volumes.
Maybe put another way, John, to give you an idea of how April is shaping up, you know, April was pretty much right in line with January and February. You know, hard to know what'll happen in May and June, but that at least gives you an indicator of how we've been trending.
Got it. No, appreciate the color. I'll turn it back.
Thanks, John.
Our next question comes from Keith Dalrymple of Dalrymple Finance. Please go ahead.
Hi. You'd spoken a little bit about M&A in the pipeline you have. Could you give us a little more color on what's happening with M&A in the industry in terms of multiples and what might be driving any changes in multiples, whether it's competition for deals and money chasing new assets, or is inflation beginning to creep into M&A from like an asset perspective?
Yeah. Thanks for the question, Keith. We have seen over the last several years quite a bit of consolidation in the MSS space, specifically within the U.S. market. During that period of time, we've also seen, you know, key drivers improving for the sector as far as utilization on these fleets compared to long-term average. We've also seen multiples rising as there's fewer targets of consequence, I guess. Consequence being size and the desire from the strategics in the marketplace to continue to consolidate. View that as positive. As an acquirer ourselves, it certainly makes M&A difficult from a valuation standpoint.
Stay within our framework for valuation, and we take a long-term view of value and you know, this asset class and how it performs over the cycles. That's a little bit of color on what we're seeing out there. However, we continue to have a good pipeline, and we have strong relationships. I think we're after any of those looking to sell their businesses.
Great. Thank you very much. That was helpful.
Thank you.
This concludes the question and answer session. I would like to turn the conference back over to Trevor Haynes for any closing remarks.
Thank you, operator, and thank you everybody for joining us this morning and listening to the conference call and joining the discussion. I hope you have a great day. Thank you.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.