Thank you for standing by. This is the conference operator. Welcome to Black Diamond 's Second Quarter Results Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will 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 this conference call, you may signal an operator by pressing star, then zero. I would now like to turn the conference over to Emma Covenden, VP, Investor and Stakeholder Relations. Please go ahead.
Good morning and welcome to Black Diamond Group's Second Quarter 2025 Results Conference Call. With me this morning is Chief Executive Officer, Trevor Haynes and Chief Financial Officer Toby LaBrie, as well as Chief Operating Officer of Modular Space Solutions, Ted Redmond, and Chief Operating Officer of Workforce Solutions, Mike Ridley. 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 calls, such as adjusted EBITDA or net debt. For more information on these terms and others, please review the sections of Black Diamond's second quarter 2025 management 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. I will now turn the call over to Trevor.
Thank you, Emma, and thank you , everyone, for joining us this morning. The format for today will be similar to prior calls. I'll start by giving a high-level overview of the company's performance in the second quarter and year to date, including our view of the current operating environment and relevant outlook for growth and strategic progressions. Before handing the call over to Toby to review the financials in detail, we'll open the line for questions. Building on the momentum from the first quarter, consolidated revenue of CAD 105.4 million increased 10% from the comparative quarter, contributing adjusted EBITDA of CAD 29.2 million, 5% above the comparative quarter.
Rental revenue, which we consider to be the core of our businesses, reached CAD 38.6 million on a consolidated basis, a 9% increase from the comparative quarter, as we continue to see the positive impact of capital investment into fleet assets and a constructive operating environment. We continue to focus on prudent capital allocation that meets or exceeds our hurdle rates of return in support of organic business growth. Within the quarter, capital expenditures were CAD 32.5 million, in line with a comparative quarter of CAD 33 million net of the one-time acquisition of a large fleet of assets in Kitimat, B.C., which was closed in June of last year. Further, year-to-date capital expenditures amount to CAD 49.8 million, and commitments at the end of the quarter of CAD 27.5 million signify the breadth of opportunities across the platform to continue investing shareholder capital and compounding our growth.
The majority of this capital is for project-specific fleet units backed by long-term contracts, driving stable recurring rental revenues. As of June 30th, the company had over CAD 152 million of future contracted rental revenue, an increase of CAD 13 million or 9% from the prior period, underpinning the confidence in our constructive outlook for rental rate growth through this year and into 2026. Profit for the second quarter increased 23% to CAD 9.2 million, improving basic EPS by 25% to CAD 0.15 per share. When looking at the detailed performance of our individual business units, the core themes of stable recurring revenue and growth carried through. Our Modular Space Solutions business unit delivered another in a string of very strong quarters. Rental revenue in this segment set another quarterly record, reaching CAD 26.4 million, up 19% from the comparative quarter.
Contracted future rental revenue of CAD 120 million increased 12% from the comparative quarter, an indicator of strength in this segment, given the magnitude of contracted rental revenue secured in the last 12 months. Performance of the Workforce Solutions segment continues to trend towards modest growth, with fundamentals of the business improving. The revenue generated from assets and WFS is represented by both rental revenue and large services revenues, which on a combined basis increased to CAD 24.2 million, up 9% from the comparative quarter. Consolidated WFS revenue increased by 6% to CAD 46.7 million, showcasing a stabilization that is expected to continue through the second half of the year. LodgeLink also had a strong second quarter as room night bookings reached over 135,000, driving gross bookings to CAD 25.7 million, up 5% from the comparative quarter. This resulted in net revenue of CAD 3.3 million, up 14% from the comparative quarter.
As this platform scales and we realize the benefits from the accelerated investment in product development, the expectation is exponential growth within the large total addressable market for global workforce travel. On July 16, we closed a bought deal financing, raising net proceeds of CAD 40.7 million on the issuance of 4,657,500 shares at CAD 9.10 per share. The financing was very successful in that it was heavily oversubscribed, and our shares have traded well above the issue price since closing. This additional financial flexibility is deemed prudent given the company's current pipeline of highly attractive M&A opportunities, coupled with a step change in bidding activity within our WFS Canada segment. This increased activity correlates with the changing sentiment in Canada around major nation-building projects supported by the federal government's recently passed Bill C-5.
While these opportunities are on the mid-to-long-term horizon, the prospect of improved utilization within the business unit would be a catalyst for new capital investment supported by strong customer contracts. Looking ahead, we expect the operating characteristics and performance trends from the first half of the year to carry through the latter half of 2025 and into 2026. As we see the macro landscape shift in terms of priorities for resource and trade infrastructure development, we expect there to be an inflection point in terms of activity sometime in mid to late 2026. We will maintain focus on profitable growth, diversification, and scale of our portfolio of specialty rental accommodation and workforce travel management businesses with the intention of continuing to generate positive returns and shareholder value.
To summarize, we are pleased with the results of the company in the first half of the year, have confidence in its stability through the near term, and are optimistic about sizable opportunities on the horizon. We feel we are well positioned to respond to these market dynamics as they materialize. With that, I'll turn the call over to Toby for some more detail. Toby.
Thanks, Trevor, and good morning. As Trevor mentioned, we are pleased with Black Diamond's performance in Q2 and year to date. To provide more context on the results, review free cash flow, and provide further detail on our successful bought deal financing with an update on the ERP implementation project, and then open the line for Q&A. During the second quarter, consolidated fleet utilization was 76.7%, up 120 basis points from the comparative quarter. MSS utilization of 81.2% was up 50 basis points, which is at the high end of the optimal range and generally balanced across all regions. Looking beyond the 9% increase in core consolidated rental revenue, core rental revenue streams of the business, MSS sales and non-rental revenue improved 13% to CAD 14.9 million and 8% to CAD 17.4 million, respectively. In WFS, sales revenue of CAD 7 million was down 10% from the comparative quarter.
However, this was not unexpected and is a result of the intentional shift from used fleet sales, considering the rising rental demand for large format fleet assets, particularly in Canada. We anticipate this trend will continue in the second half of the year, with preference given to renting our fleet of assets and WFS used fleet sales trending lower than in previous years. Non-rental within WFS increased 11% from the comparative quarter to CAD 15.5 million, mainly from increased installation activity on major projects, which is also a signal for increasing recurring revenues ahead. Consolidated ROA for the quarter was 19% and represents an attractive return profile given the long life and low maintenance characteristics of our consolidated rental assets.
While increasing profit in the first half of the year is indeed indicative of our commitment to profitable growth, it is worth noting that the increase of 23% in the quarter is partially due to the write-off of a small number of assets destroyed by wildfires in Northern B.C. and related insurance proceeds. The one-time gain this quarter was just under CAD 2.8 million, and we expect to recognize additional proceeds related to the claim in future quarters as the insurance settlement is finalized. In connection with the event, we also recorded a decline in future asset retirement obligations related to the disposal of the units and site reclamation costs. As always, the safety of our team and customers is critically important. There were no health impacts or injuries as a result of the fires, as these assets, which were destroyed, were non-producing and unoccupied at the time of the event.
Accordingly, there is no negative impact to our people or WFS fleet revenue generation. Business's ability to generate stable and growing free cash flow backed by a very strong balance sheet is a defining characteristic of Black Diamond. With ample liquidity, we are well positioned to pursue our growth and operating strategies, further bolstered by the recent successful bought deal financing. Second quarter free cash flow, driven by strong revenue growth of CAD 19.5 million, increased 7% from the comparative quarter. At quarter's end, total debt and net debt were CAD 238.8 million and CAD 232 million, respectively. Our net debt, trailing 12 months adjusted leverage EBITDA ratio of 1.9x , is just below the typical target of 2x-3x , which puts our balance sheet in excellent condition.
The average interest rate paid on debt during the quarter was 4.64% and 163 basis points lower than what was paid in the comparative quarter. Since closing the bought deal in July, debt has declined to just under CAD 200 million, which will reduce interest costs and leave us with over CAD 230 million of available liquidity. While the net proceeds were initially used to reduce indebtedness under our ADL, this financial flexibility provides the company with the ability to seize the various growth opportunities ahead, as Trevor mentioned in his remarks. Finally, the ERP upgrade, expected to improve operational efficiency and support the company's long-term growth objectives, continues to progress both on time and on budget.
At the present time, we have invested CAD 4.6 million, and approximately CAD 7.3 million remains from the initial project budget prior to the scheduled go live for this phase of the project in the first half of 2026. While a project of this scope and magnitude is indeed a huge undertaking, our core project team is performing very well and working diligently to ensure we remain on time and on budget. As we look ahead, we are confident in the strength of the business and expect to carry momentum through the latter half of the year. Our best-in-class team is positioned to continue delivering against our strong track record of providing an unmatched level of service, acting as a reliable partner within our networks, and exceeding our customers' expectations. To our shareholders, we remain laser-focused on building a world-class company, being exceptional capital allocators, delivering value, and compounding returns.
With that, operator, I'd like to turn the call over for questions.
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. The first question comes from Matthew Lee with Canaccord Genuity . Please go ahead.
Hi guys, thanks for taking my question. Maybe a big picture item to start. You talked about deploying capital towards M&A opportunities and new workforce bids. Maybe expand a bit on that. Are there more assets coming to market now that look attractive relative to last year? On the WFS side, I'm guessing winning the bids requires some level of CapEx spend.
Morning Matt. Thanks for the question. I would say from an M&A perspective, our approach to the market and working our M&A pipeline has not changed significantly from prior periods. With regard to what we're seeing on the workforce side and a capital investment cycle into workforce assets, in the first increment, what we'll be looking for is the underutilized component of our large format camp fleet to go to work. Corresponding to that will be an increase in cash flow and EBITDA. Once we get to utilization levels and higher rental rates that would support investment in new fleet assets, we would, provided that we've got customer commitments, look to invest. In the first sort of increment of increased number of projects in Canada requiring camp support services, we would be using our available capacity in terms of our existing fleet.
Okay, that's helpful. On the M&A thing, I mean, you know your approach hasn't changed, but you know maybe the changing macro, has that changed the view of sellers at all, you know in terms of what they're asking or you know willingness to sell?
I would say on the WFS side, I don't think characteristics have changed all that much. Perhaps there's a growing interest in transaction there. With regard to the MSS side, we see expectations perhaps have softened slightly on a multiple basis, but the amount of competition for good assets remains across North America. In that regard, I would say the characteristics of the M&A market have not changed substantially. Perhaps there is a growing interest in the workforce assets within the market, although we've seen a couple of deals recently and the multiples seem not to have changed dramatically.
Okay, that's helpful. Maybe if I can sneak one last one in here. On the lodge revenues, two quarters of significant growth against 2024 numbers. Anything change there in terms of business model or demand that's caused that growth? Maybe how should we be thinking about that business model going forward?
No, I'll pass it over to Mike Ridley to give some color there.
The first half of this year has been very active. We expect sort of level over the balance of the year, maybe a little bit down. There is activity in other markets that we're currently in with disaster relief, with homelessness across the country. Our pipeline continues to be active in all the markets in Canada. You know, sort of going down to the U.S., a very solid base of business down there. Construction is active. The Permian Basin is good. Disaster relief is solid. Flipping over to Australia, again, very, very solid business there. Education, the classroom business is very strong, robust. We have a growing branch in Melbourne. In general construction in the resource sector, we're seeing growth in those areas as well. Fairly optimistic when we look ahead.
Thanks Mike.
That's fair. I'll add to that. I might add to that, Matt, that when we think about utilization of our assets in WFS, it includes both the rental revenue stream as well as lodging. Both use our assets. At any given time, that mix between the two streams, depending on the need of our particular customer, may shift, but we tend to think about those two in combination when we think about the utilization of our asset base.
Okay, that's helpful. Kind of the running half.
Bidding activity for full-service camps that would include lodging continues to be reasonably strong and probably improving gradually. Mike.
Yeah, no, we're definitely seeing good bidding activity and projects of all sizes as well. Smallish camps, which I would describe as 50 beds - 200 beds, active, and then potentially further down the road, larger project opportunities as well. It's active at all levels.
Okay, that's helpful. I'll pass the line. Thanks.
Our next question comes from Kyle McPhee with Cormark Securities. Please go ahead.
Hi everyone. First question, you know, you guys raised some equity capital, some of which is for eventual WFS fleet investment. Investment in the fleet following this potential rise in utilization that you have coming, given all the demand emerging. When might we actually start to see this play out in your results, this utilization increase? Is that an early 2026 start when we see it, or are we probably waiting longer?
Yeah, there's sort of two components to your question. With regard to increased activity around our Canadian workforce assets, we're seeing the front end in terms of bidding activity increasing. We're seeing the macro increasingly supportive with a policy like C5. However, we need to keep in mind that these larger projects have a time component to the front end of getting all their costs in place, contracting their subcontractors who will perform the work, and then mobilization. I think what you would see in our system over the course of 6 months- 12 months would be sort of increased front-end work operations related to transportation and install of equipment. Following that would be the recurring revenue streams when we are in operations, or if it's simply a base rent arrangement that the rental revenues would come in.
The other component of your question, I think, is the assumption that the financing is directly correlated to investment in building camp assets. What we anticipate is that we can meet quite a bit of capacity in the first ramp-up phase here with existing capacity. Our view in terms of ensuring we have liquidity is more closely correlated with our prospects on the M&A side of things, and also our view of the potential for accelerated investment in our space rentals business. As Toby mentioned earlier, we're running almost 82% across the platform. We're seeing good market characteristics from a demand perspective, and we'll anticipate continued growth into the MSS business, perhaps at a stronger clip than we've been seeing in certain parts of that platform. I would characterize our view of liquidity and ensuring we've got a balance sheet as supporting all three of those.
A little bit farther out, potentially a healthy growth cycle in build-out of our workforce fleet, supporting some really interesting prospects in terms of M&A, and then continuing to have the ability to fund our MSS growth strategy even at a faster pace than we've seen.
Okay, thank you for all those details. Next one for me, just over to MSS rental pricing. It's still tracking higher year over year, but at a lower rate versus what we've seen in recent quarters. I think your MD&A commentary is calling for modest price gains in the coming quarters for MSS. Is this change in rental price momentum happening because contract rollovers to catch up to current day pricing is diminishing now? The rollovers have largely already happened, or is this price cadence change because we're seeing spot rental rates in the market maybe turning negative year- over- year? Any color on that would be appreciated. I know your peers seem to suggest spot rates are still slightly higher.
Yeah, I'll pass it over to Ted Redmond to provide color there.
Yeah, Kyle, as you said, the rates are still up significantly. The average unit rental rate is still up significantly year over year. On the sequential quarter, it was more flattish. As we're doing renewals or signing new contracts, compared to what those assets were out on rent at, we're seeing the increases. The sequential quarter flatness is due to a couple of things. One is just, in any given quarter, we don't have that many contracts rollover, so there's just the normal fluctuation quarter to quarter. We also saw a small decline in the exchange rate, so there's a bit of an exchange rate influence there from our U.S. assets that are renewing. Overall, just looking at the trend over the last, say, six months, we're still seeing modest rate increases as we go forward. The spot rates are still steady or slightly increasing on average.
I think the word that we used in the printed material, modest, is the right terminology.
Got it. Okay, thanks for that color. I'll pass the line.
Let's go.
Our next question comes from Frederic Bastien with Raymond James. Please go ahead.
Thank you. I'd like to extend that rental rate kind of conversation to WFS. Obviously, you've got assets sitting higher level that you're open to deploy in the next several months, several quarters. Once you've achieved, you know, an adequate level of utilization on the workforce side, can we expect the same sort of dynamics that you experience on the MSS side and see like good rental rate growth over a number of years?
Yeah, the correlation of rental rate and utilization, the dynamics are the same with the WFS asset as they are with MSS. In the first instance, we would anticipate seeing utilization rise at current spot rates. As available capacity begins to tighten, we would see rates begin to rise with utilization. I would point out with the cost of current private washroom dormitory, mobile dormitories in the Canadian market, current spot rates are almost a third of what would be required to support the investment case in terms of an ROI on new capital.
As we see a tightening in available capacity with more projects underway in Canada, which is our anticipation with C-5 and various nation-building initiatives underway, our customers will see the need for additional capacity or perhaps desire to have a newer camp to attract the more productive trades to their project versus other projects competing for those trades. That is where we would see rates and the commitment, taker pay commitments that would support our industry deploying capital. We have seen it work exactly that way in prior cycles. The dynamics underway right now seem very similar to what we have seen in prior periods.
I would see our utilization rising and then a quickening of increase in utilization ever in rental rates as utilization rises to the point where it is supportive of the capital investment to bring on more square footage capacity or a number of beds capacity to meet demand in the marketplace. That is our current thesis of what we should see happen, provided that sort of the macro thematic plays out.
That's exciting. Thanks for that call, Trevor. My other question relates to LodgeLink. Can you provide a bit more color on the tuck-in acquisitions you made in Australia?
Happy to. Not material, very small, but interestingly, it seems to be getting attention. We did acquire a very high quality, well-built, small corporate travel company in Australia called Spencer, and it strategically supports our expansion of LodgeLink from our workforce travel product into the Asia Pacific region, which we think is a good match for LodgeLink in that a high degree of workforce travel around the resource and remote infrastructure industry, specifically in Australia, travels to where the work is, and the duty of care and quality of accommodation is equal to or higher than what we see in North America. The inefficiency in terms of cost and administrative time is even more acute for those potential customers.
What we needed, though, was the ability to have all of the infrastructure in country to support that volume of travelers that we anticipate bringing on as LodgeLink moves into that market. Spencer gives us all of the components required in terms of IATA and GDS payment systems and a very qualified team of travel consultants on the ticketing operations side. To be able to provide to our customer in Australia, they tend to move their workforce crews by air, whereas here we see more ground movement. We needed the full complement of capabilities, not just for accommodation, but also air. We're really excited. It moves us forward meaningfully in that market and also brings a profitable, well-run business into our portfolio. However, I would go back to the first point. It is small in terms of dollar value on the acquisition. It feeds into our long-term strategies, Frederick.
It doesn't step change many economics for Black Diamond in the near term.
I understand. Does it potentially have capabilities or expertise that you could export to or import back into Canada?
Into North America, absolutely. There are some capabilities, and there are some elements of the software platform that they've assembled that are quite interesting to us, and we think are applicable in North America. We'll be looking at all of that for sure.
Thank you.
Thank you.
Our next question is a follow-up from Kyle McPhee with Cormark Securities. Please go ahead.
Hello again. Just one more quick thing on the MSS side of your business. Specifically, the shorter-term rental side of that segment, the transactional side of your fleet, I think it's about one-third of your mix. How is that pocket of the business doing? Is volume still firm, tracking flat or higher year over year? I know there's probably some regional variability, but overall, how has it been performing and how would you characterize the near-term outlook?
Yeah, that's a great question. I'll turn it to you, Ted, to...
We're seeing the transactional business remain steady. I think utilizations, if anything, are increasing slightly. That business remains strong. U.S. remains strong. Canada, we saw a small dip in utilizations in sort of late 2023, early 2024, but that's recovered again. The outlook going forward, as I think we said in our MD&A, depends on general economic activity, but so far, we're seeing a nice steady or slightly increasing utilization in the transactional business. I think it's probably more than a third of our rental revenue as well.
We're continuing to build it out in various markets, especially in the U.S., by adding more transactional fleet, correct?
Yes. One of our growth strategies is to move transactional units into all of the Vanguard locations that we've acquired, and we're well along with that strategy, adding units into our Southeast branches. That's going well. We're also in the Moncton and Montreal markets. We're also moving transactional units into those markets. Overall, we're continuing our strategy of growing that business.
Okay, great to hear. Thank you.
Thanks, Scott.
Thank you.
This concludes the question and answer session. I would now like to turn the conference back over to Trevor Haynes for any closing remarks.
Thank you. Thanks, everybody, for joining. Four themes here. Business is running well. Our strategies that we've talked about for years are progressing as expected, and we've got a constructive outlook on all three businesses through the balance of the year and into 2026. Thank you for your interest in Black Diamond, and hope everybody has a great day.
This brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.