Dexterra Group Q1 2024 Earnings Report

Dexterra Group EPS Results

• Actual EPS: C$0.07
• Consensus EPS: C$0.07
• Beat/Miss: Met Expectations
• One Year Ago EPS: N/A

Dexterra Group Revenue Results

• Actual Revenue: $231.64 million
• Expected Revenue: $279.35 million
• Beat/Miss: Missed by -$47.71 million
• YoY Revenue Growth: N/A

Dexterra Group Announcement Details

• Quarter: Q1 2024
• Date: 5/14/2024
• Time: N/A
• Conference Call Date: Wednesday, May 15, 2024
• Conference Call Time: 8:30AM ET

Dexterra Group (TSE:DXT) is a publicly listed corporation delivering a range of support services for the creation, management, and operation of infrastructure across Canada. Powered by people, we bring best-in-class regional expertise to every challenge and deliver innovative solutions, giving clients confidence in their day-to-day operations. Our activities include a comprehensive range of facilities management services, industry-leading workforce accommodation solutions, innovative modular building capabilities and other support services for diverse clients in the public and private sectors.

Dexterra Group Q1 2024 Earnings Call Transcript

Key Takeaways

• The company is proceeding with the sale of its Modular business (classified as discontinued operations in Q1) to focus on its two profitable support services divisions, repay debt and redeploy capital into higher-return areas.
• Continuing operations reported Q1 revenue of $231 million (up 7% YoY) and adjusted EBITDA of $19.6 million, with a modest quarter-over-quarter decline due to normal WAFS seasonality partially offset by access matting demand and the February acquisition of CMI.
• Integrated Facilities Management (IFM) delivered revenue of $101.6 million (up 17% YoY, 11% organic) with a 5.2% EBITDA margin in Q1, and the company expects margins to exceed 6% in H2 2024 as inflationary costs ease and contractual price adjustments take effect.
• WAFS generated $130.3 million in Q1 revenue (flat YoY) and $20 million of adjusted EBITDA, driven by high camp occupancy and matting utilization, while a robust project pipeline—including wildfire response camps in Western Canada—supports margin targets above 15%.
• After the modular sale, net debt is expected to fall below 1× adjusted EBITDA, free cash flow conversion is targeted at ~50% for 2024, and the company plans to balance share buybacks, disciplined IFM M&A and dividend payments while maintaining a strong balance sheet.

Presentation

[Operator]

Good morning, ladies and gentlemen. Welcome to the Dexterra Group's first quarter results conference call. I would now like to turn the meeting over to Denise Achonu, Chief Financial Officer. Please go ahead.

[Denise Achonu, CFO at Dexterra Group Inc]

Thank you, Giselle, and good morning. My name is Denise Achonu, and I'm pleased to join you as the 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. We will be commenting on our Q1 2024 results with the assumption that you have read the Q1 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 would like to make some comments about forward-looking information. In yesterday's news release and on slide two of the presentation that we have posted to our website, you will find cautionary notes in that regard.

[Denise Achonu, CFO at Dexterra Group Inc]

I won't 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.

[Bill McFarland, Chairman of the Board at Dexterra Group Inc]

Thank you, Denise, and good morning to everyone joining the call. We are off to a good start in 2024 in our continuing operations and are pleased with the progress and foundation we're building in both IFM and WAF. In 2024, we expect IFM EBITDA to be about double our EBITDA in 2022, and WAF should continue to deliver very strong profitability. As previously announced, we are also in the process of selling our modular business, and as a result, in Q1, the earnings from this business are classified as discontinued operations. The sale of the modular business allows the company to focus on our two profitable support services businesses, repay debt, and deploy capital in areas of the business with stronger returns. As noted before, we believe this decision will be positive for our shareholders, modular customers, and employees.

[Bill McFarland, Chairman of the Board at Dexterra Group Inc]

Our goal in 2024 is to continue to build on our successes in IFM and WAF and build a business for the long term that is competitive, delivers reliable results and strong shareholder returns while maintaining a strong balance sheet. We look forward to presenting the updated path forward and plan at our June annual general meeting. I will now pass it over to Mark Becker for his comments.

[Mark Becker, CEO at Dexterra Group Inc]

Thanks, Bill, and good morning, everyone. As Bill said, it's been a good start to the year for our continuing operations in IFM and WAF. The business units generated a strong performance in Q1, with consolidated revenue of CAD 231 million, an increase of 7%, of over 7% from the same quarter last year. The year-over-year increase in revenue is driven by new long-term contract wins in both business units, as well as strong overall market activity in WAF. Adjusted EBITDA, which excludes the impact of discontinued operations, was CAD 19.6 million in Q1, compared to CAD 19.8 million and CAD 23.6 million for Q1 and Q4 of 2023, respectively.

[Mark Becker, CEO at Dexterra Group Inc]

The delta from the last quarter reflects a normal seasonality in the WAF business unit in Q1, partially offset by robust activity in access matting, IFM defense contracts, and a 1-month contribution of CMI, our previous- our previously announced acquisition, which closed on February 29. As we mentioned in our last call, CMI is an IFM capital-light business based in the Greater Washington, D.C., area, serving primarily federal government agencies across the United States, with annual revenue of approximately $50 million. CMI is an excellent strategic fit for Dexterra that expands our US IFM presence, and we are very glad to have Shasta Davari and the whole CMI team on board with us. In modular, we're finalizing the legal agreements for the sale of the business at approximately net book value, and we expect to be able to formally announce something soon.

[Mark Becker, CEO at Dexterra Group Inc]

The sale, the sale is expected to close in early Q3, subject to normal closing conditions. Finally, yesterday, the Dexterra board approved the extension of our normal course issuer bid program. We plan to carry on with our NCIB as we continue to believe our shares are undervalued in the market. Speaking in more detail about IFM on slide 6, IFM revenues were CAD 101.6 million in Q1, an increase of more than 17% from Q1 of 2023. Organic revenue growth made up approximately 11% of the increase and was derived across all IFM service areas, but particularly new contract wins, including several in the post-secondary education space. Adjusted EBITDA as a percentage of revenue was 5.2%, which was in line with our Q4 2023 margin.

[Mark Becker, CEO at Dexterra Group Inc]

Our margin in Q1 was influenced by startup and labor costs associated with onboarding of certain new post-secondary food service contracts in their first season of operation. The balance of the IFM business unit is doing well with Adjusted EBITDA margins of over 6%. Positive news is we are seeing inflation impacts beginning to abate. However, it's still with us in certain key cost areas, including food and labor. We are continuing to recover these costs through contractual inflation terms and price adjustments with some time delay. As these price increases become effective and as we streamline operations in our new food service contracts. The Adjusted EBITDA margin for the entire IFM segment is expected to increase to over 6% in the back half of 2024, with fiscal 2024 revenues exceeding CAD 420 million.

[Mark Becker, CEO at Dexterra Group Inc]

Our sales pipeline is strong, including single service contracts, as well as higher margin, broad service, fully integrated IFM opportunities. We anticipate the paced organic growth in this business to continue, with new integrated IFM opportunities helping to build capability and scale, as well as positively contributing to our margins. Lastly, we remain active in sourcing IFM acquisitions with several targets under review. We will remain disciplined and pursue acquisitions where there's a good strategic fit and is accretive to shareholders. Moving to WAF on slide 7. Revenue from the WAF business unit for Q1 was CAD 130.3 million, consistent with Q1 of 2023, and a decrease compared to Q4 of 2023, due to the normal seasonality of the business.

[Mark Becker, CEO at Dexterra Group Inc]

As we see activity on large key projects such as LNG Canada and Coastal GasLink winding down, several large, long-term new contracts started mobilizing in Q1 and will be fully operational by the end of Q2. Adjusted EBITDA for Q1 2024 was higher at CAD 20 million compared to CAD 18.5 million in Q1 of 2023, primarily due to high-margin camp occupancy as well as strong access matting utilization and sales. Overall, all indicators point to continued strong activity levels in all segments of WAF in 2024. Our current year sales and sales pipeline remain strong, with expected margins staying above 15%, driven by our business mix and our strong delivery model. We expect growth of the business unit at similar rates in to recent years based on organic growth opportunities across our market segments nationwide.

[Mark Becker, CEO at Dexterra Group Inc]

The tree planting season is underway with expected volumes similar to 2023 at about 31 million trees. We also remain well-positioned and prepared to support the wildfire season and any impacts to communities this year. We continue our key contracts with the fire base support camps in Western Canada and continue to be contracted as a first responder in many areas. So far this month, we've mobilized fire support camps to the Fort McMurray region, as wildfires are already active in this area. Moving to Modular on slide 8. The Modular business net loss for Q1 was CAD 8 million, driven by increased costs associated with remediation and rework on certain lump sum turnkey social affordable housing projects, in Ontario. While we are obviously disappointed by these results and extra costs, these projects are now 75%-90% complete.

[Mark Becker, CEO at Dexterra Group Inc]

This reduces the risk of further cost overruns, with the scope and cost to complete narrowing. Most of these projects are expected to be substantially complete in Q2, with one or two potentially carrying over into early Q3. Additionally, lower overhead cost absorption contributed to the Q1 results due to the temporary softness in manufacturing activity levels in the plants. However, our sales pipeline is active with new opportunities that we expect to bridge the temporary softness in the backlog, improving business to a more normal manufacturing activity level. The recurring education portables and commercial industrial modular business continues to grow and deliver strong profitability. With that, I'll now turn it back over to Denise.

[Denise Achonu, CFO at Dexterra Group Inc]

Thank you, Mark. I'll speak about our financial position and capital markets on slide 10. Our financial position and liquidity remain strong. Our debt level was CAD 132 million at March 31, compared to CAD 89 million at Q4 2023, due primarily to the funding of the CMI acquisition, as well as CAD 5.7 million of capital expenditures, which include the sustaining access matting acquisitions for the year. Sustaining capital expenditures are expected in 2024 to continue to approximate 1%-1.5% of revenue. Proceeds from the anticipated modular sale will reduce the debt level significantly and provide further financial flexibility. We expect our debt level to be below 1x Adjusted EBITDA from continuing operations following the modular sale, which will provide flexibility for growth as accretive opportunities arise.

[Denise Achonu, CFO at Dexterra Group Inc]

Q1 2024 Adjusted EBITDA conversion to free cash flow from continuing operations was 54%. Free cash flow from continuing operations conversion of Adjusted EBITDA is expected to approximate 50% for 2024, with Q3 and Q4 experiencing the highest conversion to free cash flow as a result of the seasonality of the WAF and the IFM business units. Dexterra repurchased 279,300 common shares in Q1 2024, at a weighted average price of CAD 5.91 per share, for a total consideration of CAD 1.7 million under the terms of the NCIB. As Mark mentioned earlier, the board has approved the extension of our NCIB program. Under the renewed NCIB, there are 165,600 shares remaining to be purchased.

[Denise Achonu, CFO at Dexterra Group Inc]

We are also reassessing our broader capital deployment plans in a post-modular world as we balance share buybacks, acquisitions, target leverage ratios, and dividends, with the goal of maintaining our strong financial position and delivering value to our shareholders. Finally, Dexterra declared a dividend for Q2, 2024 of CAD 0.0875 per share for shareholders on record at June 28, 2024, to be paid July 15, 2024. I will now turn it back to Mark for closing comments.

[Mark Becker, CEO at Dexterra Group Inc]

Thanks, Denise. The points on slide 11 summarizes our key priorities and focus areas for the balance of 2024. My focus and the focus of the Dexterra team is to complete the sale of modular business and continue to drive strong execution of our business plan, improving margins and profitability through the effective management of our 2 continuing business units. Our strategic focus on our capital light support is on our capital light support services model, with continued emphasis on growth in the IFM space. In the medium term, we'll continue to leverage our strong sales momentum to deliver profitable organic growth in our target markets. We'll also continue to invest smartly in a disciplined manner in people, technology, and accretive M&A opportunities while maintaining a strong balance sheet.

[Mark Becker, CEO at Dexterra Group Inc]

We believe that the company's continuing operations are well positioned to deliver CAD 1 billion in revenue and close to CAD 100 million in EBITDA in fiscal 2024, with some potential upside, depending on fire support activity this year. The Dexterra team is energized and has the platform and building blocks in place for strong growth and improved profitability in IFM and continued loss success. This concludes our prepared remarks. I'll turn the call back to our operator, Giselle, for the Q&A portion.

[Operator]

Thank you. We will now take questions from the telephone lines. Please limit yourself to one question and one follow-up question. After which, you may rejoin the queue. If you have a question, please press star one on your device's keypad. You may cancel your question at any time by pressing star two. Please press star one at this time, if you have a question. There will be a brief pause while the participants register for questions. Thank you for your patience. The first question from Aaron MacNeil, TD Cowen. Please go ahead.

[Aaron MacNeil, Director of Institutional Equity Research at TD Cowen]

Hey, morning. Thanks for taking questions. Mark, on the last quarter's conference call, you highlighted the IFM revenue mix, 30% was full integrated IFM. That's an 8%-10% margin. And, you know, you also mentioned you're pursuing organic growth to bring that number higher. And I know that gets you to the six to six and a half target you said last quarter, now 6%. But as we think about the reduction from that to the lower end of that range, like, is that a 2024 phenomenon, or do you still think you can get that margin up to the six and a half or potentially higher over time?

[Mark Becker, CEO at Dexterra Group Inc]

Yeah. Morning, Aaron. Good, good questions. Yeah, still confident in kind of what we're projecting and saying around our margins. You know, we've seen, as I mentioned in the comments, around some of the new contracts in post-secondary education that we brought on for the first season. But, we're seeing the back half of, you know, broadly around IFM, the back half of the year at over 6% margins, and bringing us up to that level. So I would say, you know, on the inflation factors that we've seen around food costs and labor that we're covering off through, you know, pricing adjustments and contractual increases, kind of brings us back to those numbers, and we're still positive on that front.

[Mark Becker, CEO at Dexterra Group Inc]

Those ranges that you discussed, that back half of this year will be, you know, over 6%, for IFM broadly. We're still very confident in that.

[Aaron MacNeil, Director of Institutional Equity Research at TD Cowen]

Gotcha. And just a point of clarification on the modular side, is the rework largely done, or will you still sort of incur losses in the segment until the sale? And is there any risk that the sale could fall through, or is it as good as done at this point?

[Mark Becker, CEO at Dexterra Group Inc]

Yeah. You know, as I talked about, you know, those projects that we've had issues on, you know, they're 75%-90% on all of them. Completion, you know, targeted by the end of Q2, we may see a couple of carryovers into Q3. Get to those points in execution on the projects, you know, your scope of your spend and the scope of the costs, you're starting to close down towards the end of the project. So really lowers the risk that we would say largely those cost impacts are behind us in on those projects into Q4. You know, we might see maybe a small loss in Q4, you know, also Q2, sorry.

[Mark Becker, CEO at Dexterra Group Inc]

But, you know, some of that is just related to, you know, some of the manufacturing activity and, you know, overhead absorptions. But we expect it to be quite a bit less, if anything, in terms of, in terms of those losses. In terms of the modular deal, I think I've kind of shared about as much as we can on it. You know, we are into the final phases of finalizing the agreement with our proponent buyer. So, probably can't share a whole lot more related to that.

[Operator]

Thank you. The next question is from Chris Murray, ATB Capital Markets. Please go ahead.

[Kyle Brock, Equity Research Analyst at ATB Capital Markets]

Good morning. This is Kyle on for Chris. Hoping you can touch on the wildfire activity currently underway. Do you expect any of your operations in Western Canada to be impacted in any way? And does the situation change your outlook for fire support in 2024?

[Mark Becker, CEO at Dexterra Group Inc]

Yeah. I would say, you know, it's always a risk for us related to, you know, impacting operations, both, you know, our clients as well as our operations. Haven't seen really anything yet on that front. But you know, whether or not, you know, it's been an early fire season. We've been involved now with already with the Fort McMurray fire, with a couple of response camps that we've mobilized up to to Fort Mac. Just depends how it plays out, because, you know, if you get wet weather in June or July, suddenly the whole thing shifts. But all we can really say is kind of an early start already to the season.

[Mark Becker, CEO at Dexterra Group Inc]

We'll have to see how that plays out in terms of the activity level and really, you know, nothing significant yet in terms of risk to our operations or what we would expect for the balance of the year within WAF, you know, related to fire activity. In terms of negative impact, we'd be still looking at the current levels we've been talking about.

[Kyle Brock, Equity Research Analyst at ATB Capital Markets]

Okay. Then shifting to modular, you previously mentioned a potential sale price around net asset value or in that, you know, CAD 40 million range. Is that still the way we should be thinking about this? Color would be appreciated.

[Mark Becker, CEO at Dexterra Group Inc]

Yeah. Yep, that I would continue to think that way, and it's kind of why we flagged it. You know, we're confident in the sales agreement, in closing the agreement, so I would continue to think of it that way.

[Operator]

Thank you. Next question is from Zachary Evershed, National Bank Financial. Please go ahead.

[Zachary Evershed, Equity Research Analyst at National Bank Financial Inc]

Good morning. Thanks for taking my questions.

[Mark Becker, CEO at Dexterra Group Inc]

Morning, Zach.

[Zachary Evershed, Equity Research Analyst at National Bank Financial Inc]

On a new IFM contract, how long is the ramp-up between starting margin and mature margin, typically? And what is ramping up over that duration?

[Mark Becker, CEO at Dexterra Group Inc]

Yeah, good, good question, and, you know, I'll answer it, I guess, by saying it depends. You know, some, some contracts, depending the nature of it, it can ramp up very quickly in terms of our returns, others, not. You know, we found, we found with some of these post-secondary contracts that we've brought on board, we brought about four of them on board, and it's really boiling down to just a couple that we're seeing kind of the, kind of the ramp-up related to those contracts. I would say probably the thing that we're, that we're, that we're flagging, related to, to, you know, Q4, Q1, just kind of first season with a couple of the contracts, they're quite large, that we've seen, you know, some less than target margins, but we do expect to get those back.

[Mark Becker, CEO at Dexterra Group Inc]

And of course, Zach, you know, you go through the summer season now, which is a lower activity level, but still profitable, but then it picks back up again in the fall with the next season. Our expectations are all these contracts are gonna be on plan for a margin return next season. The other thing I'll mention to you about this is it really depends on the food service business around fee contracts versus P&L contracts or profit and loss contracts. A lot of our contracts, the ones we target, are kind of fixed fee-based contracts. We like those. They tend to be higher margin, although we do see, you know, P&L contracts that are larger in scale is also attractive, but they can be challenging in that initial ramp-up.

[Zachary Evershed, Equity Research Analyst at National Bank Financial Inc]

Thank you for that color. And then still on the same topic, with inflation abating in categories outside food and labor, how long does it usually take for price adjustments to roll through and hit maturity?

[Mark Becker, CEO at Dexterra Group Inc]

It depends, again, you know, the client, the contract, but, all I can tell you, Zach, is we're getting good at it. I mean, we've been at it now, you know, from the pandemic all the way through to where we are now. We are very active on this front, across all our business lines, particularly WAF and IFM, which have the long cycle contracts, making sure we're getting access to, you know, CPI increases and, and just contract pricing increases in general. Generally, good response from our clients. I mean, they all get it. We all know where, where inflation's been, and abatement is only just starting now.

[Mark Becker, CEO at Dexterra Group Inc]

So, you know, we do see a bit of a lag, and it depends which contract and some of the size, but usually, you know, with the abatement, we're gonna start catching up. That'll be our anticipation to start catching up on it. Labor, you know, I would expect over the next couple of years to still see pressure in that. The hourly labor has largely been left behind, I would say, in terms of inflation, so we're gonna see kind of hourly labor continuing to increase. So we're gonna be very focused on making sure we're managing those costs and pricing.

[Operator]

Thank you. Next question is from Gabrielle Moreau, Scotiabank. Please go ahead.

[Gabrielle Moreau, VP and Equity Research Associate at Scotiabank]

Hi, I'm calling for Michael Doumet. On the last call, you indicated that 2023 EBITDA margin and WAF would be tough to replicate in 2024, but if the matting and the wildfire business are active this year, is there not a reason why margin would be lower this year versus last?

[Mark Becker, CEO at Dexterra Group Inc]

Yeah, I wouldn't, I wouldn't expect margins to be lower this year. You know, if anything, I would say probably similar is kind of what we'd be, what we'd be flagging. A lot of that is driven by, a lot of that's driven by product mix or business mix that we're seeing. WAF, in general, very active in terms of asset utilization, whether that's camp equipment, you know, matting utilization, even relocatable rentals. Our utilization rates are very high, which tends to drive high margin. We're also getting into higher, higher margin contracts, just because of the nature of the business. You know, wildfire can pull that margin up, potentially, depending, but, but I would say it's more driven by our activity level.

[Mark Becker, CEO at Dexterra Group Inc]

You know, our long-term target in WAF is to maintain a 15% EBITDA margin rate at the segment level. With WAF, I think we'll be positive on that or north of that this year, similar to 2023.

[Gabrielle Moreau, VP and Equity Research Associate at Scotiabank]

Thank you. And is there any way you can provide specific on the matting business as the mix between, rental and sales shift in the recent quarter? And is and will there be an eventual need to ramp up CapEx if the momentum continues into 2025?

[Mark Becker, CEO at Dexterra Group Inc]

Yeah, good, good question. You know, matting, I don't think that mix necessarily changes, but we do see a range of demands from clients. You know, we look to maintain our, our matting, you know, our rental matting inventory, our capitalized inventory around 36,000 mats, which is what we, we currently have. We still do see demands from clients, you know, the Montney-Duvernay area, you know, liquid rich gas, supplying LNG Canada, et cetera, very, very active and continuing active. So we do see clients that are, you know, wanting as we have high utilization on our rental fleet, but they're also wanting new mats as well. A lot of cases, we would provide new mattings to clients that don't end up being capitalized.

[Mark Becker, CEO at Dexterra Group Inc]

We're effectively either manufacturing them or buying them and then selling them to the clients, so they don't end up being capitalized. It'd be kind of... If you look back in the last year or two, it'd be kind of, you know, very specific situations where we would ramp up capital related to matting, and it would be very, very high return, very, very short cycle return on anything that we might do around capitalizing. Beyond that, you know, we kind of spend about CAD 4 million out of our sustaining capital, just maintaining that fleet that I mentioned to you.

[Operator]

Thank you. The next question is from Sean Jack, Raymond James Ltd. Please go ahead.

[Sean Jack, Equity Research Analyst at Raymond James Ltd]

Hey, morning, guys. Just thinking about M&A, do you think it's realistic that we see another purchase before the end of 2024? On top of that, could you also talk about what your comfort leverage range is going forward?

[Mark Becker, CEO at Dexterra Group Inc]

Yeah, I'll talk a little bit about that first, and I'll turn it over to Denise to talk about leverage ratio. You know, I think we talked before, Sean, and talked to the market. You know, we want to stay strategic on acquisitions, you know, focused on integrated, you know, fully integrated FM acquisitions like CMI, you know, both Canada and the US. We remain very active on that front. It is vitally important, though, we find the right fits, you know, that are strategic for us from a capability and a, you know, a platform perspective and a scale perspective for us, and also that we get the right valuations as well. That's very important to us, and we maintain our balance sheet.

[Mark Becker, CEO at Dexterra Group Inc]

So whether or not, you know, we can, we can really, you know, predict timing on any of these, you really can't predict timing. It's gonna be very, very focused on what we can find in the nature of the deals. Denise, do you want to talk about leverage ratio?

[Denise Achonu, CFO at Dexterra Group Inc]

Sure. You know, just given where interest rates are now, obviously, we're going to use the proceeds of the modular sale, and first thing we'll do is pay down debt. And then again, just to Mark's comment, it's, you know, what are the opportunities out there for acquisitions, for growth that meet our, our, you know, our criteria? But just even more broadly than that, what we're looking at is really a larger kind of capital allocation model, just in terms of how are we thinking about share buybacks, acquisitions, and even looking at our target, what's the right target leverage ratio in that context?

[Denise Achonu, CFO at Dexterra Group Inc]

Anyway, you know, really right now, directionally, we're going to be paying down debt, and then we'll be taking a look at where we want to end up for the future, and we'll talk a little bit more about that at our AGM.

[Sean Jack, Equity Research Analyst at Raymond James Ltd]

Okay, perfect. Thanks, guys.

[Operator]

Thank you. Next question is from Trevor Reynolds, from Acumen Capital. Please go ahead.

[Trevor Reynolds, Equity Research Analyst at Acumen Capital]

Hey, guys. I was wondering if you guys can touch on the recontracting of assets that's coming off of the pipeline and maybe where that sits?

[Mark Becker, CEO at Dexterra Group Inc]

Yep. Morning, morning, Trevor. And I think we've mentioned this a few times, but assets that are coming off, you know, Coastal GasLink as well as LNG Canada, we've been very active getting those contracted, and we've got some large projects. They're actually large, long-term contracts, both in Western Canada and Eastern Canada, where we are reallocating those assets, which has been great for us because we all know Coastal GasLink and LNG Canada were big projects, and they're ramping down. But as we're ramping up the new projects, we're able to kind of redeploy those assets and reutilize those assets. So we're very happy about that, we're very happy about that situation.

[Trevor Reynolds, Equity Research Analyst at Acumen Capital]

Okay, great. And then I just had a question around the write-downs that you've taken on the modular. Is that- did that have any impact on the NAV? I know you said you're still expecting around that CAD 40 million level. And just maybe following on that, like, what is the actual cash paydown of that CAD 40 million that will be available to you guys?

[Denise Achonu, CFO at Dexterra Group Inc]

In terms of... We didn't really take a write-down. What we're based on what we're saying, we're expecting to get net book value for the modular business. So that's right in line with what we're carrying it at. You know, and it's going to be a cash deal. It's, you know, what we've said is we'll take the cash, we'll pay down debt. I mean, does that help?

[Trevor Reynolds, Equity Research Analyst at Acumen Capital]

Yeah, I think so. Yeah, I thought there was some working capital that maybe had to be paid down as well. So I was just wondering what the kind of net pay down in actual debt will be?

[Mark Becker, CEO at Dexterra Group Inc]

I think I would focus for now just on the CAD 40 million, I think would be, would probably be a good number to use for now, I would say.

[Trevor Reynolds, Equity Research Analyst at Acumen Capital]

Okay. Thanks, guys.

[Operator]

Thank you. Next question is from Zachary Evershed, National Bank Financial. Please go ahead.

[Zachary Evershed, Equity Research Analyst at National Bank Financial Inc]

Hey, guys. Two quick follow-ups. In IFM, has there been more of a focus on post-secondary organic growth versus fully integrated FM? Do you have the capacity on the integrated front for growth?

[Mark Becker, CEO at Dexterra Group Inc]

Yep, good, good question, Zach. And, we, we do. And, we've actually brought on resources. We have a focus team that's looking at integrated FM opportunities or IFM opportunities, organic IFM opportunities. We've got a really, pretty strong pipeline there. We've got quite a number of opportunities that are right in front of us, and we are active on. So we've kind of set ourselves up, related to resourcing, both around pursuit, of those contracts, as well as, as a ramp-up and execution. So when, when we win those contracts, you know, and it's, it's, it's not like we don't have, you know, kind of a pretty substantial inertia around IFM already. You know, we can leverage that inertia to, to ramp those contracts up, as the, as they come on board.

[Zachary Evershed, Equity Research Analyst at National Bank Financial Inc]

Gotcha. Thanks. And then just on the mention that you're reassessing your capital deployment plans post-modular. Any real changes that you're considering versus prior messaging on the M&A front?

[Mark Becker, CEO at Dexterra Group Inc]

I would say really, really the same. You know, we've mentioned the NCIB, so we've got that in play. You know, proceeds from the modular sale, you know, is gonna go against debt. You know, we'll continue to kind of look at acquisitions as kind of our next tranche of capital allocation. Target leverage, you know, we're still gonna determine that. I think, you know, generally, we wanna keep a strong balance sheet. You know, with how things are transpiring in 2024, you know, we're gonna see our leverage drop quite low. We're gonna wanna make good use of that as well. I think, you know, keeping target leverage, you know, we'll communicate something like that in the future.

[Mark Becker, CEO at Dexterra Group Inc]

But I think, you know, we're not gonna be looking to to overleverage our our balance sheet. And certainly, at this particular stage, we're we're nowhere near that you know those kinds of tipping points. So we'd wanna... We'll communicate more around our our target leverage as kind of our part of our capital allocation discussion as part of the AGM, is what I would say.

[Operator]

Thank you. There are no further questions registered at this time. This concludes the Dexterra Group's first quarter results conference call. Please disconnect your lines at this time, and we thank you for your participation.

Participants

Executives

• Bill McFarland, Chairman of the Board
• Denise Achonu, CFO
• Mark Becker, CEO

Analysts

• Aaron MacNeil, Director of Institutional Equity Research at TD Cowen
• Gabrielle Moreau, VP and Equity Research Associate at Scotiabank
• Kyle Brock, Equity Research Analyst at ATB Capital Markets
• Sean Jack, Equity Research Analyst at Raymond James Ltd
• Trevor Reynolds, Equity Research Analyst at Acumen Capital
• Zachary Evershed, Equity Research Analyst at National Bank Financial Inc