Badger Infrastructure Q3 2026 Earnings Call Transcript

Badger Infrastructure (TSX:BDGI) reported third-quarter financial results on Friday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Badger Infrastructure reported record third quarter results with a 21% increase in revenue to $287 million and a 25% rise in adjusted EBITDA to $83.4 million, resulting in a 90 basis point improvement in adjusted EBITDA margin to 29.1%.

The company continues to focus on hiring, training, and the effective deployment of its fleet, supporting growth through pricing initiatives and investments in their hydrovac fleet, which increased by 11% year-over-year.

Badger Infrastructure anticipates 2026 fleet growth slightly above the 7% to 10% target, with continued investments planned for a new U.S. manufacturing facility to bolster capacity and operational flexibility.

The company launched two new service lines and an Operational Excellence program, which are expected to contribute to long-term margin growth despite an initial 60-80 basis point impact on margins in 2026.

Management expressed confidence in multi-year demand for infrastructure projects, driven by utility and infrastructure network expansions across North America, which are seen as recurring revenue opportunities.

The company maintains a strong balance sheet with a leverage ratio of 1.5 times EBITDA and plans to continue investing in growth while returning capital to shareholders through dividends.

Badger Infrastructure is seeing broad-based pricing improvements across regions, contributing to an 8% increase in revenue per truck per month (RPT), with expectations of continued but moderated growth.

Plans for a second U.S. manufacturing facility are progressing, aimed at reducing risk, increasing capacity, and potentially benefiting from tax and tariff implications.

Full Transcript

Rob Dawson (President and Chief Executive Officer)

Thanks, Rob. As Rob noted, revenue and adjusted EBITDA both rose by over 20% for the second consecutive quarter. As we have discussed for some time now, we remain focused on building scalability at every level of the organization while continuing to invest for growth. During the quarter, the rate of hiring and training of both new operators and our field operations team remained steady with the rate of fleet growth. We continue to benefit from the increased rate of hiring through the earlier part of the year.

We are also starting to see the benefits of our focus on the efficient deployment and maintenance of our fleet combined with steady execution on pricing. We are pleased with the progress of these efforts and their impact on branch and operations efficiency, leading to flow-through to gross profit margin. We have also continued investing in our long-term initiatives to add to shareholder value. The rollout of our Operational Excellence program is expected to continue through the remainder of 2026 and 2027 as well. The launch of the two new service lines is proceeding in line with our original business case. We are pleased with the progress on these initiatives to date. In the third quarter, these initiatives reduced our ongoing adjusted EBITDA margins by about 60 to 80 basis points, in line with the impact on margins in the first two quarters of 2026.

General and administrative expenses were $11.5 million in the quarter, or 4% of revenue, compared to the $10.6 million, unchanged at 4% of revenue in the prior year. Finally, adjusted earnings per share was $0.96 per share, up 5% compared to last year. Of note, during 2026 our effective tax rate has been elevated due to the impact of what is essentially a minimum tax in the United States. We anticipate that effective tax rates will normalize in 2027.

Year to date, with revenue up 21%, adjusted EBITDA up 22%, adjusted EBITDA margin up 30 basis points, and adjusted EPS up 10%, we are encouraged by the continued scalability and growth in margins, all while investing for growth. Turning to the balance sheet, Badger has for a very long time maintained a strong balance sheet combined with conservative financial objectives including relative leverage, available liquidity, and debt maturity profiles. This has served us well, allowing us to fund our growth largely from cash flows while continuing to return capital to shareholders through the dividend and our NCIB. Given the growth wave we have seen and expect to continue to see into 2027, and as noted by Rob, we are planning to produce at the top end of our narrowed 300 to 310 hydrovac production range this year.

Combined with the spending on our new service lines, 2026 capital spending is now anticipated to be about $203 to $222 million, at the upper end of our initial range. With the undrawn capacity on our five-year credit facility and our compliance leverage at 1.5 times EBITDA, the midpoint of our 1 times to 2 times targeted range, we have plenty of flexibility to continue investing in our organic growth strategy, to support initial investments in new service lines, and to fund a second manufacturing facility in the United States.

Further, we successfully renewed our NCIB in the third quarter, maintaining our ability to make opportunistic share purchases in addition to returning capital to our shareholders through dividends. During the third quarter we did not purchase any shares under the NCIB. So with those comments let’s turn it back to the operator for questions.

OPERATOR

Thank you so much, and we do have our first question that has come in. It is from Yuri Link at Canaccord Genuity. Please go ahead with your question. Welcome.

Yuri Link (Analyst at Canaccord Genuity)

Hi, good morning.

Rob Dawson (President and Chief Executive Officer)

Hey, good morning, Yuri.

Yuri Link (Analyst at Canaccord Genuity)

Guys, lots of puts and takes on the margin front, and that was good color. Rob, on the 60 to 80 bps as we think about ’27, how do we think about these puts and takes in terms of your ability to get into the midpoint of that 25% to 30% target EBITDA margin range?

Rob Dawson (President and Chief Executive Officer)

Thanks for the question, Yuri. It’s Rob Dawson here. As we noted in the last few quarters, our expectation or anticipation was that we’d be pretty flat on margins in the second half of 2026 and start to see a return to growing margins in 2027. You can see now that for two consecutive quarters we’ve exceeded that anticipation by showing some bottom line growth, mainly due to the level of growth being what it’s been, as well as some better execution on our team’s part, particularly on labor and our maintenance and repair expense, as well as continued work on pricing.

So what does that mean for next year? We do anticipate moving towards the bottom end of that range over the next 12 to 18 months. Into the midpoint of the range, I think that would be unrealistic to expect that we get to the midpoint of the range within the next year, as you suggested in the question. But we do continue to see a steady march into that range for sure.

Yuri Link (Analyst at Canaccord Genuity)

Right? Progressing.

Rob Dawson (President and Chief Executive Officer)

Progressing, yeah.

Yuri Link (Analyst at Canaccord Genuity)

Okay, that’s great. On the tax rate, just to be clear, it sounds like another quarter in the mid-30s, and then you think we go back to, what, 20, 27, something like that next year? Because it’s been a pretty big drag on the bottom line.

Rob Dawson (President and Chief Executive Officer)

I’m sorry, Yuri, can you say that again? I missed the first part of your question.

Yuri Link (Analyst at Canaccord Genuity)

Just on the tax rate for Q4 and for ’27.

Rob Dawson (President and Chief Executive Officer)

For 2026. And we apply an annualized methodology to determine taxes. So I think the effective tax rate you’re seeing for the first three quarters of the year is expected to remain relatively stable Q4. We’re anticipating a move back to statutory rates in 2027, about 26%.

Yuri Link (Analyst at Canaccord Genuity)

Okay. Okay, that’s all for me, guys. I’ll jump back in the queue. Thanks.

Rob Dawson (President and Chief Executive Officer)

Thanks, Yuri.

OPERATOR

Thank you so much. Our next question is from Jess Root Baines, TD Cowen. Welcome.

Jess Root Baines (Analyst at TD Cowen)

Thanks for taking my question. Speaking on behalf of Tim James, I just have one question. In the press release you mentioned the multi-year expansion of utility and infrastructure networks as demand drivers. Could you guys expand on that a bit more? What are you guys seeing in those end markets today, and what gives you guys confidence that the strength is multi-year in nature? Thanks.

OPERATOR

Thank you so much. Our next question is from Ian Jelly at Stifel. Welcome.

Ian Jelly (Analyst at Stifel)

Hi, everyone.

Rob Dawson (President and Chief Executive Officer)

Good morning, Ian.

Ian Jelly (Analyst at Stifel)

I wanted to dive into the second manufacturing facility that you’re considering in the U.S. I mean, there’s the obvious benefits of new trucks, more trucks, tariff relief potentially. But the press release noted there seems to be some sort of tax benefits if you build a facility there. And is there anything else perhaps operational you’d want to highlight in and around that facility?

Rob Dawson (President and Chief Executive Officer)

Yeah, I mean, there was a mention of some impact on income taxes. And I’ll just reiterate what Rob said is that while there are some obvious benefits on taxes and tariffs to moving or to adding a manufacturing facility in the United States, that’s definitely not the core purpose. It’s just an outcome of that strategy. And really it’s just if your supply chain and your capital spend is in the same market that your majority of your operations and growth is in, then everything else is just simplified — your organization structure and the way that you raise money and fund growth.

So that’s all simplified by that. It just makes a lot of sense.

Ian Jelly (Analyst at Stifel)

No, that’s all very helpful, so thanks for that. Switching gears to RPT, it obviously showed pretty good growth year over year. Obviously some of that’s pricing you mentioned in the prepared remarks. Are you able to share at all whether it’s a few regions that are helping drag up overall pricing, or whether it’s kind of broad‑based across the U.S. and Canada right now?

Rob Dawson (President and Chief Executive Officer)

Yeah, I think the heterogeneity of pricing in various markets earlier this year was a much bigger factor. I think now it’s more across the board. And by that heterogeneity I mean growth rates in markets with higher prices being higher than growth rates in markets with lower prices. So that would impact RPT, not necessarily impact profitability. We’re starting to see that be a lot more broad‑based.

Ian Jelly (Analyst at Stifel)

Understood. And

Rob Dawson (President and Chief Executive Officer)

Last point is diesel costs are up quite a bit and we do charge a fuel recovery fee, and we don’t earn a lot of margin on that, if any, but it has had a very modest impact on the rise in our RPT. I only mention that because when the inevitable decrease in diesel costs comes, that will be a minor reduction in RPT or an offsetting factor.

Ian Jelly (Analyst at Stifel)

If I could sneak one last one in — you may choose to pass on it. Can you maybe give some goalposts on how we should think about the new service offerings going into next year and capital spend, and maybe based on the success you’ve had this year, if you want to spend more, maybe you want to spend less? Just curious on that. Well, had to try. Thanks very much. I’ll turn the call back over.

OPERATOR

Thank you so much. Our next caller with a question is Krista Friessen, CIBC. Welcome.

Krista Friessen (Analyst at CIBC)

Hi, thanks for taking my question. I was just wondering if you could speak to what sort of margin variance you’re seeing across your branches at this point in time, and if they’re starting to narrow a bit or if there’s still quite a difference there.

Rob Dawson (President and Chief Executive Officer)

Yeah, I can — yeah, I’ll give some color, but you go ahead. You know, the data platform and the use of AI, Krista, is starting to allow us to see on almost a real-time basis not only revenue, pricing, utilization, but we’re moving towards margins. I think we’re still early on in our journey to try to tighten, reduce the standard deviation of margins amongst all our branches. But it is becoming more and more standardized. I think there is a great deal of awareness of where each branch manager and their branch sits within the bottom quartile, second, third or fourth quartile, or top quartile.

And they’re naturally quite competitive. So we see a lot of very positive changes. It’s not so much just the operating margin. We deconstruct it into various different things like maintenance, planned maintenance, repairs, direct labor, indirect labor, unbilled, billed, and we try to zero in on initiatives to drive efficiency in those areas and it’s coming to great effect. But I still think there’s a fair bit of heterogeneity in operating margins across our fleet and lots of continuing opportunity.

Krista Friessen (Analyst at CIBC)

Thanks, I appreciate all that color. Maybe just if I can ask one more on Canada and what you’re hearing from your customers here. Feels like it should be pretty optimistic given the major projects underway and the productivity mega deduction. And just—yeah, what you’re hearing would be great. Thank you. Thanks, I appreciate the details. Congrats on the quarter.

OPERATOR

Thank you so much. Our next question is from Sean Jack from Raymond James Limited. Please welcome to the call.

Sean Jack (Analyst at Raymond James)

Morning, guys. I appreciate it’s still early days and, you know, site hasn’t even been selected, but for the U.S. manufacturing expansion, how are you guys thinking about sort of optimal capacity right now relative to Red Deer, or can you give us any sort of direction on what we could possibly expect? Okay, awesome. Appreciate the color, guys. Last one for me. So just thinking about operational excellence, do you mind kind of commenting on sort of what phase any of you guys are in the rollout of the program, and should we be expecting any sort of step change in spending into 2027?

Yep. Yeah, no, that’s great. Helpful. Okay, thanks, guys.

OPERATOR

Thank you so much. Our next question is from Maxim Saichev. Welcome to the call.

Maxim Saichev

Hi, good morning, gentlemen. I had a quick question about pricing sustainability. I’m wondering if you can comment on the fact that we went from 14% year-on-year increase in Q2 to 8% in the Q. You know, how should we think about, I guess, from Q4 and into early 2027 from that momentum? And I guess the follow-up would be also just in terms of the diesel pass-through contribution. Like, for example, if diesel were to be sort of fully neutralized, would we be closer to, like, I don’t know, 6% or 7% maybe?

Any color you can give, that would be great. Thanks. Sorry. Yeah, it was just the pricing. Year-on-year it was 14% increase in Q2, and right now we’re seeing 8%. So slight deceleration in terms of RPT momentum. And I’m just wondering if we’re sort of staying at these levels and, you know, to which extent, for how long. Yeah, and we’ve talked about this the last few quarters because we were seeing, you know, above 10% growth in RPT for a few quarters there, and that’s a very good increase in RPT. I think longer term our expectation, you know, if you think about a neutral RPT, is it’d be inflationary, so say 3% or so, and to the extent that RPT exceeds that, that means that we’re driving more efficiencies in the business in addition to just inflation. And so, you know, our last four quarter trailing, so an annualized number that takes out the seasonality, we had guided to reaching, you know, $45,000 plus at our investor day in March of 2024.

Q3, 2026 is now above that $45,000 level. So we’re very pleased with all of the improvements we’ve made. I’d say the first half of this year we were continuing to get great results from utilization improvements, largely related to the way we’re deploying and managing our fleet using that BAP tool that Rob mentioned, as well as targeting areas with greater profitability and already high utilization in growing markets. But pricing is also an element to that, but just also remaining focused on adding trucks in the areas where they’re going to get utilized.

So there’s less of a drag in RPT in the way we’re deploying our growing trucks. But to grow our fleet at 10%, 11% and to be growing our RPT, we think we’re very proud of the way that’s being handled. And we continue to think that we can get those lower rates, but, you know, it’d be unlikely that we get back into those double-digit growth rates. When we initially issued that guidance, there was still a great deal of uncertainty. Well, there’s a great deal of uncertainty today, but even more uncertainty about what our total tariff per truck was going to be. So the top end of range just assumed a 25% tariff on the entire truck. We’re paying about a $70,000 tariff per truck now, which is quite a bit below what the top end of that range was initially. So we narrowed the range due to that. We’ve increased the number of trucks we’re building, so that reduction in tariffs is with a higher truck count as well.

So it’s just more. The tariff per truck is coming in, and there are—we continue to see plenty of opportunities to try to, you know, implement systems that help us to get to ultimate source of our entire supply chain. And there’s small opportunities to try to optimize tariffs as a result of that. But for the most part, that $70,000 a truck is a good number to think about. Thank you.

OPERATOR

Thank you so much. Our next question is from Trevor Reynolds, Acumen Capital. Welcome to the call.

Trevor Reynolds (Analyst at Acumen Capital)

Hey guys, just a quick question. Just given your highlighting of the unprecedented demand that you’re seeing, how should we look at seasonality here in Q4, if you think there’s going to be any changes to that, and obviously into Q1 as well?

Maxim Saichev

Thanks for the question, Trevor. And I’m always hesitant to use the term unprecedented. It’s just solid, strong demand. But we will always have seasonality. We will always have seasonality when we are in markets with seasons because there are certain areas that will slow down because of weather. There are certain areas that slow down for various reasons regarding seasonality, and so we will continue with that. The one thing that is very interesting is as we’ve grown the business, grown the fleet, we’ve become more urban dense. And it was part of our original strategy that Rob and I started with three, four years ago—let’s get more and more dense in some of these strategic markets with a lot of demand. We’re seeing less seasonality in some of those markets. But overall we run a large business across Canada, we run a large business across the northern part of the United States, and there will always be seasonality in there.

I think, though, it’s almost this concept we introduced, I think it was three or four years ago, Rob, this concept of lifting the shoulders, and you’re going to continue to see us doing that. I think you’re going to see that in the results going forward for Q4 and Q1, this concept of lifting the shoulders. But we never want to misrepresent that there isn’t seasonality in the business. That’s my perspective.

Rob Dawson (President and Chief Executive Officer)

Yeah. I think if you look at the percentage of revenue across each quarter for the last two or three years by that profile to this year and going forward, while there are some larger projects and we’ll continue to work on those projects, the impact of that we don’t think is going to have a major material impact on the seasonality our business faces. So once the American Thanksgiving happens, you tend to see a pretty good falloff for the remainder of the year in Q4, and that doesn’t start to pick up again until March or April in the following year.

And that seasonality is not going to change. It’s the seasonality of the construction industry as well as a lot of our utilities and infrastructure customers, and, you know, we’re going to continue to see that. So, if anything, you know, we see the equity analyst community understate the level of seasonality and stretch us a bit on the Q4 estimates, but we don’t see there being a major change in that regard.

Trevor Reynolds (Analyst at Acumen Capital)

Perfect. Thanks.

Rob Dawson (President and Chief Executive Officer)

Thank you, Trevor.

OPERATOR

Thank you so much. There are no further questions, so I’d like to turn it back to our speakers.

Rob Dawson (President and Chief Executive Officer)

Thank you, Operator. I’ll close with, on behalf of all of us here at Badger Infrastructure, I want to say thank you to all of our customers, employees, suppliers and shareholders for your ongoing support that helps to drive Badger Infrastructure success. Operator, you may now end the call.

OPERATOR

Thank you. This concludes today’s event. Thank you for your time and participation.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.