Dexterra Group Inc.

Thank you, Betsy, and good morning. My name is Denise Achonu, Chief Financial Officer of Dexterra Group Inc.

With me today on the call are Mark Becker, our CEO; and our Board Chair, Bill McFarland, who will provide some brief introductory comments. After a brief presentation, we will take questions with the call ending by 9:15 Eastern Time.

We will be commenting on our Q4 2024 and annual 2024 results with the assumption that you have read the Q4 earnings press release, MD&A and financial statements. The slide presentation, which supports today's comments is posted on our website, and we encourage participants to access the slides and follow along with our presentation.

Before we begin, I'd like to make some comments about forward-looking information. In yesterday's news release and on Slide 2 of the presentation that we have posted to our website, you will find cautionary notes in that regard.

I will not cover the content of the cautionary notes in any detail. However, we do claim their protection for any forward-looking information that we might disclose on this conference call today.

I will now turn it over to Bill McFarland for his introductory comments.

Good morning. Thank you, Denise, and thank you to everyone joining the call.

2024 was another strong year for Dexterra, with significant progress made towards achieving the vision of becoming a North American Support Services leader. A big thank you to Mark Becker, Denise Achonu, the entire leadership team and all of our 8,500 strong employees for their contributions in making 2024 a very successful year.

Our 2024 results included strong performance in our capital light support services business, including the purchase of CMI Management that helps us and will help us expand into the U.S. In Asset Based Services, we continue to be a leader in the Canadian marketplace.

We also reorganized the business following the closure of the modular sale and are well-positioned to build on our new foundation through organic growth and acquisitions. As we move into 2025, Dexterra has a very strong balance sheet, a supportive shareholder in Fairfax.

These attributes provide us with great flexibility and allow the management team to focus on building the business for the long-term and continue to create shareholder value. I'll now pass it over to Mark Becker for his comments.

Thanks very much, Bill, and good morning to everyone. And before I get started, just a bit of a health warning.

I picked up a bit of a springtime cold. So with my deeper voice, I'm not trying to telegraph anything to the market, and there might be a couple of sneeze interruptions during the call.

So please bear with me on that. Very pleased to report that we ended 2024 with record revenue from continuing operations of $1 billion and adjusted EBITDA of $107 million.

I really like to thank our dedicated employees across the organization, our clients, our business partners and the Board for their support, in reaching this achievement. We have a strong management team in place, with the continuity to build on our growth and evolution as a North American Support Services champion.

As we executed our plan to deliver predictable results and grow the company, we are pleased to see this reflected in the progress of our share price, which has increased about 40% since mid-last year. We delivered a return on equity in 2024 of 13.3% from continuing operations and returned $30 million or about 40% of our free cash flow to shareholders through dividends and share buybacks.

As Bill mentioned, effective Q4 2024, we completed the repositioning of our business from an operational and reporting perspective into two segments: Support Services and Asset Based Services. Support Services includes our capital light services and solutions that we provide to the public and private sectors across the full breadth of our businesses and geography.

Asset Based Services relate to our workforce accommodation structures, access matting and relocatable space rentals. Our results in the charts and our financial reporting is on the basis of this new segmentation.

Strong results in 2024 were driven by -- mainly by our organic growth, strong natural resource market activity levels and the addition of our IFM Services acquisition in the U.S. CMI Management.

Support services EBITDA rose significantly offset by lower EBITDA from our Asset Based Services segment, which was expected due to the abnormal level of wildfire activity in 2023. These 2024 results are consistent with our plans to increase the scale and profitability of the Support Services business.

You'll recall that in '20 -- in Q4 -- is traditionally a slower period due to seasonality and many of our clients shut down over the holiday period. Despite this, we achieved strong consolidated revenue growth in Q4 of over 7% compared to the same period in 2023.

The increase was primarily driven by annualized factors mentioned previously, partially offset by lower camp, demobilization and installation product activity in Asset Based Services compared to Q4 of 2023. Activity levels remain strong across the breadth of the natural resources market, including energy and mining, and that's expected to continue into 2025.

Adjusted EBITDA for Q4 of 2024 was $26.6 million, compared to $23.6 million in Q4 of 2023. This increase in profitability was driven by stronger revenues and margins in Support Services, offset by lower volumes in Asset Based Services as several large projects demobilized in Q4 of 2023.

The IFM portion of the Support Services business delivered 6.3% adjusted EBITDA margin in Q4 as expected. Speaking more specifically about our business segments, starting with Support Services on Slide 6.

Strong year-over-year revenue growth in Q4 of over 18% in Support Services compared to Q4 of 2023 and 10.5% for fiscal 2024, was primarily related to the acquisition of CMI and organic growth as several new larger contracts mobilized in the second quarter of 2024. Adjusted EBITDA and adjusted EBITDA margin as a percentage of revenue also improved quarter-over-quarter, 8.8% in Q4 of 2024 compared to 7% in Q4 of 2023 and year-over-year 9.1% compared to 7.4% in 2023.

These increases are primarily the result of operational improvements, a better business mix and the positive impact of the CMI acquisition. Key success factor for 2024 was replacing the unprecedented wildfire activity over 50 million in revenue that we saw in 2023 with new longer-term contracts.

Collectively, these factors resulted in a net positive impact on adjusted EBITDA and margins, which are expected to continue to exceed 8% on a go forward basis in support services. Our pipeline of new sales opportunities also remain strong in all areas of Support Services, including integrated facility management opportunities on both sides of the border.

We are seeing the benefits of our investments in both our pursuit teams and leveraging our CMI platform in this regard. Moving to Asset Based Services on Slide 7.

For Q4 of 2024, Asset Based Services revenues and adjusted EBITDA of $41.3 million and $13.9 million respectively were lower compared to Q4 of 2023, due primarily to a more normalized wildfire season in 2024. Adjusted EBITDA as a percentage of revenue was 33.7% in Q4 of 2024 compared to 27.6% in Q4 of 2023.

The increase in adjusted EBITDA margin in Q4 of 2024 is related to strong camp utilization in 2024 as a result of the active natural resource market versus higher camp demobilization activity in 2023, which is contracted at lower margins. Asset Based Services revenues and adjusted EBITDA for 2024 of $191.8 million and $56.2 million respectively were lower compared to 2023, primarily as a result of the more normalized wildfire activity in 2024, as I previously mentioned.

Adjusted EBITDA margin for the year was 29.3% compared to 36.7% in 2023. While the access matting and camp equipment utilization remains at high levels over 90%, the lower adjusted EBITDA and adjusted EBITDA margin in 2024 is due to the mix of business, primarily the wildfire camp mobilization and rental activity, which occurred in 2023 versus new long-term contract mobilization activity in 2024.

Adjusted EBITDA margins in this business in the future are expected to fluctuate between 30% to 40% depending on our mix of business. We will also continue to explore opportunities that offer high quick returns on targeted capital investment in the natural resource and infrastructure sectors.

Finally, Dexterra paid dividends of $0.35 in 2024 per share and declared a dividend for Q1 2025 of $0.0875 per share for shareholders of record at March 31, 2025 to be paid April 15, 2025. With that, I'll now turn it over to Denise for her comments.

Thank you, Mark. I'll now provide a little bit of more color on our re-segmentation and financial position on Slide 9.

In the past 12 months, our business has gone through a significant transformation. We sold our modular business, added new long-term Support Services and Asset Based Services contracts, and expanded our IFM capabilities through the acquisition of CMI.

These changes gave us the opportunity to reorganize our business from an operational and reporting perspective. As Mark mentioned earlier, we repositioned our business in Q4 resulting in two new business segments.

Our capital light Support Services business delivers operation, maintenance, and hospitality services in both urban and remote locations, with long-term contracts serving a diverse client base, including natural resource, aviation, and education sectors, among others. The nature of this business and contractual relationships support our ability to deliver sustainable, predictable revenue and EBITDA with larger contracts across a diverse client base.

From an operational point of view, the repositioning of the business will help in the scalability and operational efficiency in delivering these services. Our Asset Based Services include the rental and installation of workforce accommodation facilities for owned and client camps, access matting rentals and sale, and rental of modular space units in remote locations.

We are a leader in the Canadian market in this space. The margins from this business can fluctuate depending on the mix of business, with project work like camp installations and demobilizations having lower margins compared to the longer term rental of camp equipment that supports natural resource and infrastructure operations, which are at higher margins.

This reorganization streamlines our businesses with similar economic characteristics and provides clear strategic direction and focus for our teams. It will also help investors better understand the key drivers of our business, profile and opportunities.

On our website, we have posted the comparative information under both our new and legacy reporting segments for 2024 and 2023. Going forward, we will only be reporting under our new segmentation.

Turning now to our financial position. Adjusted EBITDA conversion to free cash flow was 70% for the 2024 year and above original expectations compared to 54% in 2023.

Our free cash flow reflected strong operating results and working capital management and nominal cash taxes payable as the company utilized tax loss carry forwards in 2024. We will continue to have the benefit of paying nominal income taxes in 2025, as our 2025 tax installments will not be payable until early 2026.

On a normalized basis, cash taxes would be approximately 15 million. Adjusted EBITDA conversion to free cash flow is expected to continue to be above 50% over the medium term, with Q3 and Q4 experiencing the highest conversions to free cash flow as a result of the seasonality of the Support Services business.

Net debt at December 31, 2024, was 0.6 times adjusted EBITDA or $68 million compared to $102 million at Q3 2024. The decrease in debt from Q3 2024 was expected as our accounts receivable from the strong summer activity levels were converted into cash as the business moved out of its normal seasonal peak activity period in Q3 2024.

We are managing our balance sheet prudently and have significant unused debt capacity and flexibility under our debt facility for share buybacks and acquisition opportunities. We are also in the process of renegotiating our debt facility.

Finally, we bought back and canceled just under 1.2 million common shares in 2024, as part of our ongoing normal course issuer bid for a total consideration of $8 million. We will remain opportunistic with share buybacks in 2025, as we still believe our shares are undervalued.

I will now turn it back to Mark for closing comments.

Great. Thanks very much, Denise.

Closing-off, we made meaningful progress in 2024 on delivering strong results, growth and enhanced profitability with a focus on our core capital light services model, including the successful divestment of our Modular Solutions business (ph). In addition, we expanded our IFM footprint into the U.S.

via our CMI acquisition. Our strategic focus remains the delivery of strong profitability, consistent and predictable results and a return on equity for shareholders in the near term of 15%.

The key to achieving this return on equity will be through continuing to deliver profitable organic growth and in identifying accretive acquisitions that add critical integrated facility management capability, technology, and scale. The recent transition of the U.S.

government and the possibility of increased protectionist, trade and other policies pose risks to both the Canadian and U.S. economies.

We think of tariffs from a direct and indirect perspective. On the direct side, a large majority of our costs are labor and materials that are sourced domestically with some cross-border supply commodities, so we are to a large degree insulated from the potential impact of tariffs.

We are also working proactively to mitigate the potential impacts of trade and our inflationary pressures through supply chain initiatives, leveraging our contract inflation terms and pricing adjustments as necessary and by implementing cost management and other operational initiatives across the business. From an indirect perspective, the impact on the general Canadian economy remains uncertain.

However, to the extent there may be broader impacts, our mitigation measures are similar from a supply chain and contract price management perspective. We will continue to proactively monitor any economic developments and adjust our mitigation plans as needed and currently do not expect a significant impact on our 2025 results.

And as shareholder value remains a priority for us, our capital allocation priorities each of which is an important pillar in our long-term strategy, including maintaining the current dividend level, supporting and sustaining selective high return capital investments, opportunistic share buybacks under the NCIB, and accretive acquisitions that are consistent with our strategy of building larger capital -- building a larger capital light by IFM business. I am very pleased with our 2024 results and very proud of the progress we've made.

We are confident in our new streamlined business is the right direction for Dexterra. I fully believe that we will continue to provide even greater opportunities for our people, more value for our clients and will further enhance total shareholder returns.

I would like to thank -- again, thank our employees and our clients for their support. I'll now turn our call back to Betsy, who will facilitate our Q&A portion of the call.

Yeah. Good morning, folks.

So maybe just starting, I guess, with the support services and thinking about next year. So historically, part of the discussion around IFM was organic growth, which is going to be something in, kind of, a high-teens number.

And if you think about kind of what we saw in 2024, it was sort of there, but that included the CMI acquisition. So can -- now that we're re-segmenting and maybe kind of re-baking, how do we think about your intentions or expectations for growth in 2025 on an organic basis?

I appreciate that question, Chris, and good morning. I would say, if we think about each business unit, our pipeline is strong in both areas, in both segments of the business across all of our business.

We're very happy about that. I would say, looking at Support Services specifically, we would target 5% to 7% range for organic growth.

I think on the ABS side, we would target maybe 2% to 5%. And, I think, we certainly haven't seen any pullback from the market and from our clients on any plans around new contracts and new contract opportunities either side of the border or across any of our segments, which is a real positive.

And I think just given the uncertainties and given what's going on, this year, I think on balance, if we were to see 5% this year on organic growth across the entire combined business, I think that would be pretty positive how we'd view that.

All right. That's helpful.

Thank you. And then my other question, just looking very quickly at Asset Based Services, as you talk about what the business is going to look like on a go-forward basis, there's a pretty wide (ph) range of margins.

Thinking to deck, you talked about 30% to 40%. Can you talk a little bit about how we should be thinking about -- what takes you to the bottom end of that range?

What takes you to the top and how we should be thinking about, kind of, call it, a normal fire season, normal operations, and where you think you end up?

Yeah. I think on that front, Chris, if I was to kind of characterize it for you and you kind of look at the recent past, like, years like 2023, where we've got a really, well, unprecedentedly strong fire season, we're pushing that 40% kind of margin point because of things like that.

Similarly, like, if you look at this year, we mobilize a lot of contracts. You'll see that in our commentary about mobilizing new contracts, demobilizing at the end of 2024.

Mobilization, remobilization of workforce accommodations tends to be contracted at a lower margin, but ongoing rental of equipment tends to be a quite a bit of higher margin. So this year, 2025, we would have a lot of new comps on stream, on rental that are going to run through the year.

So again, we're going to be pushing that 40% sort of number. So I think it does depend on mix of business.

And I guess in this new re-segment and world, what I would offer up probably through Denise, we'll kind of be very transparent about what we see in terms of mix of business for current years and coming years, so that it will help you, kind of calibrate where the model should be going.

Thank you. Good morning, everyone.

Congrats on the quarter.

Thanks very much, Zach.

No. you mentioned…

You want me… Sorry, go ahead. Sorry about that.

No. I was just going to say you won the conversation to the earliest report out last night.

We try.

You mentioned that you have some cross-border supply commodities exposure. Can we dig a bit deeper into what that specifically is and a little bit more on your mitigation strategy at the moment would be helpful?

Yeah. So if you think about direct impact and the direct tariff impacts, the biggest cost within our business is really labor.

And obviously, we employ labor on both sides of the border, so that's not really exposed to that, and that's our highest cost component of our business. Food, a lot of our food is sourced domestically, either in the U.S.

or in Canada. But there is some cross-border just climate related where you get food sourced from.

And those are the things that we've been looking at. And we've been working on that over the last two months just because of all the tariff discussions that have been happening since November.

The other area would be supplies and commodities like paper products. Paper products, actually, we do source domestically.

So we look at all that, we're pretty active on going through our supply chain and looking at alternatives related to that. We're making some, what I would call, no regrets moves initially just to kind of give us proactive head start and then just being ready on the other front.

The other thing we do as well in the food business is just looking at our menus that we offer to our clients and what is on those menus, exactly where it does it come from. So we're actually actively making adjustments and planning adjustments such that, that helps us sort of on the supply chain front.

And really, I think labor, I think if we see something that's going to be a little more related to indirect impacts more the overall Canadian economy and how that might look. And I think that's a longer cycle view of it.

So I think the short-term is really our supply chain that we're really attacking and we're feeling good about what we're seeing there and what we're doing there. And then, really just beyond that, just really monitoring how the economic conditions sort of play out.

How the government reacts if we do see significant economic impacts in Canada, for example, they're going to be stimulus offered. How does that impact things like interest rates could be interesting depending on how that plays out, if we do see economic impacts in Canada.

And then really, the last thing is, just our contracts do allow -- we have a majority of our contracts really have inflation factors built into there or other pricing factors that we can access or in some cycle of pricing renewal. We're in better shape than we've ever been on that and just our experience through the pandemic and post-pandemic hyperinflation.

Our contracts are in better shape in that regard. And to be honest, we've kind of gone through a cycle where we've done a lot of pricing adjustments, working collaboratively with our clients in partnership to work those pricing adjustments.

So if we do have impact we want to rely on our contracts and our contract relationships and our client relationships to kind of work those numbers back out and really protect the margins towards what we've been targeting.

That's really helpful. Thank you.

And then for question number two. You mentioned that the pipeline is strong across all areas, and you're happy with how the year is shaping up.

Can you give us a better idea of the areas that you're targeting in ABS?

Yeah. And ABS still means it's really underpinned by that natural resource environment.

So things like energy, and we're still seeing really strong activity in energy, in Western Canada. A lot of our working clients are in the Montney natural gas region.

A lot of those clients are hard piped through CGL to the LNG Canada project. So that's filling out.

We're very active on the LPG projects, the new LPG projects in Prince Rupert. We've got workforce accommodations active there.

And then similarity lighting space, more of that in Central Canada, Northern Canada. And we're still seeing a lot of active gold prices have remained very high.

We're still seeing a lot of investment. We're still seeing a lot of new projects.

We're seeing a lot of expansion there. And lastly, I'll mention as well, infrastructure.

We just kind of came off the last couple of years [indiscernible] power line, where we provide virtually all the workforce accommodations for that. We're seeing our client there now putting in the next tranches, the next stages of Northern Ontario power infrastructure.

We're contracted into that. We're contracting into a new hospital in Northern Ontario for construction related to workforce patients.

So it's really that natural resource underpinning, but that diversification into infrastructure and broader context is helping us on that front in ABS. And it's really spread across everything, whether it's access matting.

Workforce combinations, obviously, is our biggest piece there in ABS and our smaller space rental business as well. Another question there, Betsy, from anyone?

Like, we may have lost Betsy here. Hello.

[Technical Difficulty] Well, I think we've lost our connection here. It seems like -- I apologize for that.

We'll dial back into our operator. We'll hang up and dial back in and see if we can…

Yes. Please.

Hey, guys. With Fairfax moving above 50% ownership, any implications there for the business as a whole?

Hey, guys. Can you hear me?

Betsy, can you hear me okay?

Excellent. So I apologize to everyone for the technical problems.

I'm just going to back up to Zach's question regarding the Fairfax ownership and I think really no changes related to the Fairfax engagement with Dexterra. We're continuing with our NCIB.

Obviously, like, Fairfax is not tabling shares related to that NCIB anymore for reasons related to our tax pools that are now exhausted. So really continuity that we do have are on Fairfax.

And I don't know, Bill, if you've got any other comments that you'd like to make around the Fairfax side.

No. I think the only comment I'll make is Fairfax are more than pleased to keep their shares because they believe the value of the of Dexterra well exceeds its current market price.

Fair enough. And then, with the new segmentation, are you considering any changes to compensation metrics, whether long-term incentive plans or short-term incentive plans?

Yeah. Good question, Zach.

I mean our incentive plans. We will have short term, meaning our annual bonus that's tied to business and operational metrics, including free cash flow generation and EBITDA generation and then our long-term metrics tied to our -- the equity side of things, really unchanged in terms of the design of those.

Obviously, those are realigned for the business units or the new business segment. So those of our organization that are lined up with the various business segments are aligned with their business segments.

So for example, Jeff Litchfield (ph), who leads the ABS side of things and part of Support Services is aligned to his parts of those businesses. And Sanjay, on the Support Services side is aligned to their parts of the business and all our metrics are geared towards that.

So really not a big change there other than a similar realignment of the business segments to ensure we've got good alignment of our executive compensation and our internal compensation with the business segments.

Hey. Good morning, guys.

Just a quick one from me. So some good commentary early speaking on the price renewal and success of improving pricing for the support side of the business.

Just wondering, is there any new tools that you guys would like to highlight that are helping with that or is it a market driven thing or just any additional color would be great?

Sean, I’m not sure I understood your question. Can you just repeat it for me one more time?

I can hear you okay. I just didn't really catch it.

So just earlier, you guys spoke about how pricing has been a focus for the contracts on the support side of the business. Wondering if there's any new kind of strategies or any sort of internal changes that you guys would highlight that have been helping with that or is it more of a market driven thing?

Yeah. I think pricing is always driven by the market side, and we've been very careful and certainly through our experience.

In our long history, we kind of know where the margins are and where the margins are going, things like, integrated facility management, we know is a higher margin business and part of our strategy to capture that. So I think, we would always look at the market opportunities, and it does change from different market segments and even different geographies in terms of what the margins and the pricing that the market supports.

So we're always looking at that. And then, of course, measuring that up against operational improvements, operational efficiencies, operational effectiveness to try to always maximize our margin and then be quite transparent with the market around what margins we are targeting within the different business segments and then how that will change over time as we grow the business.

Okay. Perfect.

That’s all for me. Thanks.