Dexterra Group (TSX:DXT) Q3 2026 Earnings Call

0:00 Good morning. My name is Carrie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Dexterra Group Third Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speech remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star, then the number one on your telephone keypad. If you would like to withdraw your question, please press the star one again. As a courtesy, to all participants, we do ask that you limit yourself to one question and one follow-up. Thank you. I would now like to turn the call to Ms. Denise Achonu, Chief Financial Officer. You may begin.

0:43 Thank you, Carrie. Good morning, and thank you to everyone for joining the call. My name is Denise Achonu, Chief Financial Officer of Dexterra Group Inc. With me on the call today is Mark Becker, our CEO. After a brief presentation, we will take questions with the call ending by 9.15 Eastern Time. We will be commenting on our Q3 2026 results with the assumption you have read the Q3 2026 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.

1:28 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. 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 Mark for his introductory comments.

1:50 Good morning, and thank you, Denise, and thanks, everyone, for joining us on the call today. Q3 is traditionally Dextera's strongest quarter and this year was no exception. Record annual adjusted EBITDA and strong free cash flow reflected our current disciplined execution of the business plan with profitable growth, expanding margins and strengthening balance sheet and growing momentum across both our Canada and Canadian and US markets. During the quarter, Dextera This reflects the significant progress we've made over the recent years, including the growth of our facilities management and our workforce accommodations business, strategic acquisitions, disciplined capital allocation, and consistent financial performance.

2:45 We're encouraged to see investor recognition of our business and its longer-term growth potential supported by our expansion in the U.S. and the opportunities that are emerging from Canadian nation-building investments. Referring in more details to the slides on slide four, we continue our positive momentum in 2026 with another strong quarter of operational and financial performance. We delivered revenue of 291 million up from 281 million last year and adjusted EBITDA improvement of 9% over Q3 last year to 38 million. Our adjusted EBITDA margin increased and Asset Base Services. Adjusted net earnings per share also increased 12% to $0.28 per share.

3:40 We're pleased with the broad-based performance across the business. Revenue growth was supported by strong workforce accommodation, occupancy and rental activity, as well as positive organic growth and contributions from our Right Choice acquisition. This was delivered despite significantly with project timing compared to the same quarter last year. Our improved profitability in Q3 also benefited from a favorable shift towards higher margin rental revenue in workforce accommodations and access solutions, operational efficiency gains while maintaining strong customer loyalty and satisfaction, and contributions from our investment in PVC.

4:26 We achieved this margin improvement while continuing to invest in the long-term growth of our business including scaling our U.S. facilities management platform, adding key U.S. leadership and expanding our sales and business development teams, as well as advancing our strategic technology roadmap initiatives. Additionally, we are continuing to effectively manage inflationary pressures throughout the supply chain through supply chain initiatives, contract inflation terms, and price adjustments, with direct costs comprising a lower percentage of revenue for both our business segments when compared to the same period last year. Our partnership with PVC continues to progress well. PVC aligns very well with our growth objectives in the U.S., demonstrating the power of our combined brands. The joint Dexterum PVC systems and process development is also progressing, including the on-time and on-budget modernization of the proprietary PVC Connect facility management software.

5:25 Year-to-date, we generated $61 million of free cash flow and continue to strengthen show improving to 1.4 times as of September 30th compared to 1.6 at the end of 2025. Our capital light business model and strength of our balance sheet continues to provide us the financial flexibility to execute on our disciplined capital allocation strategy. Our trailing 12-month return on equity as of the end of Q3 was 15.4%, achieving our target of 15 and demonstrating our continued commitment to delivering strong shareholder value.

6:08 Thank you, Mark. I'll begin with a detailed look at our business segment, starting with support services on slide six. Support services revenue for the third quarter was $253 million, an increase of 8% over Q3 2025. Driven primarily by strong workforce accommodation occupancy, continued growth in U.S. facilities management, and the contribution from the Right Choice acquisition completed on August 31, 2025. partially offset by lower than normal wildfire support activity. Organic growth during the quarter was 4.5%. Adjusted EBITDA in support services was 29 million, an increase of 18% compared to the prior year period, and adjusted EBITDA margins expanded to 11.5% from 10.5%.

6:56 Our 40% investment in PVC, which was acquired on July 31st, 2025, contributed $1.3 million to adjusted EBITDA in the quarter compared to $0.9 million in Q3 2025. Excluding PBC, adjusted EBITDA margins were 11%, up from 10% in Q3 2025 due to contributions from higher margin workforce accommodation contracts, partially offset by investments in sales and operations leadership as we continue to build out and scale our U.S. IFM business. As a reminder, PBC has accounted for using the equity method as we currently own 40% of the business. As a result, PBC's revenue is not included in Dexterra's reported revenue.

7:47 We continue to expect PBC to be largely cash flow neutral in the near term as we modernize PBC Connect and build the teams and structure to support the long-term growth of its distributed model across the U.S. We have the option to acquire the remaining 60% as early as October 1st, 2027 at a multiple similar to our original investment with a quarter of the purchase price payment deferred until two years after the closing date tied to retention of key leadership. Within support services, our focus remains on profitable organic growth and disciplined margin management. We continue to invest and expand our facilities management platform across Canada and the US while pursuing growth in workforce accommodation services, catering, and Facilities Management supporting remote operations.

8:38 We expect adjusted EBITDA margins to exceed 9% over the medium term. Moving on to asset-based services on slide seven. Third quarter revenue was $39 million. Higher margin rental revenue increased by 2.3%, supported by strong equipment utilization, solid access matting revenue and a contribution from Right Choice. offset by lower wildfire support camp rental activity as mentioned earlier. Installation and demobilization revenue was lower by 10 million year over year, primarily reflecting the timing of project activity. As we've noted before, this revenue stream is lower margin and varies based on project timing. However, it remains a critical enabler of our market leading competitive position as a turnkey workforce accommodations provider.

9:28 and is important to securing key contracts and maintaining long-term client relationships. Adjusted EBITDA of $16 million in the third quarter was consistent with the prior year, while adjusted EBITDA margins expanded to 41% from 34% in Q3 2025. The margin improvement primarily reflected a favorable shift in business mix towards high margin rental revenue which more than offset lower wildfire support activity and installation and demobilization revenue. Looking ahead, we expect utilization of our existing workforce accommodation fleet to build over time. We expect successful conversion of nation building and our broader workforce accommodation pipeline to drive additional rental demand as well as related installation activity.

10:17 with a greater proportion of revenue coming from higher margin rentals, we expect adjusted EBITDA margins to be overall at the higher end of our 30% to 40% range in 2026. Moving to slide eight, capital expenditures for the third quarter of 15 million and included 12 million in growth capital related to the acquisition of approximately 500 workforce accommodation beds, which are being refurbished for deployment into our growth pipelines. This represents a disciplined, cost-effective, and targeted investment in existing industry assets with attractive expected returns. We generated $38 million in free cash flow in the third quarter, driven by strong profitability and positive improvements in working capital.

11:04 We continue to expect to generate the majority of our free cash flow in the back half of 2026, similar to prior years. And we expect our annual adjusted EBITDA to free cash flow conversion to exceed 50%. Strong free cash flow conversion allowed us to fund the growth capital investments I mentioned earlier and pay dividends while reducing our net debt to $193 million at quarter end from $206 million at Q2. Net debt to adjusted EBITDA was 1.4 times at the end of Q3 2026. Our $425 million credit facility matures in 2029 and has significant available capacity. plus an uncommitted accordion of $150 million, providing considerable flexibility to support our capital allocation priorities and future growth.

11:56 We remain committed to maintaining a strong balance sheet with net debt to adjusted EBITDA of less than 2.5 times. Finally, delivering strong returns to shareholders remains a priority. In Q3, 2026, we purchased approximately 118,000 shares and continue to maintain are NCIB, which provides flexibility for opportunistic share repurchases and allows for the buyback of up to 3 million shares. We declared a dividend yesterday of $0.10 per share for payable January 15, 2027. I will now pass it back to Mark for his concluding remarks.

12:33 Great. Thanks, Denise. And before we open up the call for questions, I'll provide a few comments on outlook and priorities, which are highlighted on slide 9. As we approach the end of 2020, Thank you for joining us. Our sales pipeline is strong and diverse in Canada and the United States across the breadth of our business in support of this priority.

13:24 On the facilities management side, we're well positioned for FM, IFM growth across North America. We have invested in key U.S. sales and business resources to scale our platform and take advantage of the $300 billion in growing North American outsourced services market, of which 90% is in the U.S. We have new FM and IFM The scope of the Nation Building Opportunity Set will vary and be spread over time. Our significant depth of experience, market leadership, and capacity in turnkey workforce accommodations, hospitality catering, and facilities management, including government and defense in remote environments, combined with our more than 80 Indigenous community partnerships

14:55 and Canada-wide market presence, positions us very well to capture our share of this nation-building growth as upside as opportunities become available. In light of the potential opportunity in front of us, as Denise mentioned earlier on, we are prudently investing in additional workforce accommodations capacity, including our recent acquisition of 500 beds this year. We currently have approximately 2,500 beds, fleet beds available that we expect to deploy and our overall fleet capacity to 14,000 beds total.

15:41 Our in-house refurbishment capacity in our Grand Prairie facility provides us with the opportunity to add this capacity in a very cost effective and capital A manner. We expect to acquire these additional beds over the next 12 months and our balance sheet provides the flexibility to invest ahead of the anticipated demand and secure quality industry capacity before it becomes substantially deployed. In addition, the recently announced federal tax Thank you for joining us. and a source of the majority of our materials and supplies domestically, both in Canada and the U.S. While ongoing geopolitical tensions and energy prices may create broad inflationary pressures, we have a number of levers to manage these impacts.

16:55 These include contractual inflation pass-through mechanisms, pricing and contract management, supply chain initiatives and ongoing operational efficiency, all of which have proven effective supporting our target margins. Based on what we see today, we do not expect inflation to have a material impact on our business over the near term, although we'll continue to monitor the situation closely. As always, we remain committed to our disciplined approach to capital allocation. Our priorities continue to be supporting the dividend, making sustaining and high return capital investments, maintaining a strong balance sheet with debt to adjusted EBITDA of less than two and a half times, and looking for accretive acquisitions. We continue to make strategic investments in both enterprise and client-facing technology to drive innovation and improvement, improve operational efficiency, and further differentiate our service offering.

17:49 In closing, we're confident in our strategy and our ability to grow and win in the marketplace, and we're well positioned to continue delivering profitable growth and long-term shareholder value. This concludes our prepared remarks, and I'd like to thank you all for attending. Thank you. And at this time, I would like to remind everyone, if you would like to ask a question, please press the star, then the number one on your telephone keypad. We ask that you limit yourself to one question and one follow-up. We'll pause for just a moment to compile the Q&A roster. Your first question will come from Kyle McPhee with ATV Cormac. Cormac.

18:35 Hello, thank you for taking my questions. Good morning. So for the support services segment, I'm hoping you can help us understand some of the moving parts as it relates to organic revenue growth. Looks like you reported organic revenue growth to the segment at 4.5%. Can you ballpark what it would have been for remote services, remote workforce services side of the segment versus the urban facility management platform in the segment? You know, were they both in that are all in the mid-single digit organic growth range, or was there a big difference by platform? It's pretty hard for us to figure out, notably given, I think, wildfire noisier over here. It seems like that was drag.

19:15 Morning, Kyle. Yeah, so again, we look at our support services in aggregate, Overall, 4.5% organic growth. It would have been a little bit higher had we had more normal levels of wildfire support. That said, for both our FM business and our workforce accommodation remote services, the organic growth was within our expectations, which was that mid-single-digit organic growth level.

19:50 Okay, so kind of in and around where it was for the total segment. Okay, that's helpful.

19:56 I don't think there's anything too significant on either side that would drive one way low and one way high. I mean, I think we were kind of hitting what we expected to hit in terms of growth on both sides of the business within support services, is what I would say.

20:10 Okay, and then as my follow-up here before passing the line, so you're Your support services margin percentage was very strong in Q3, with and without the impact of PVC accounting. Was that strength, the lift for margins, was it mainly from the remote workforce side, probably benefiting from very strong occupancy and OPEX leverage, or was it also from urban facility management?

20:34 Yeah, I would agree. You're spot on, Kyle. It is that high occupancy in the workforce accommodation space that helped drive that higher margin. Again, if you look at our quarterly profile, you'll always see kind of Q3 years, our strongest quarter, as Mark mentioned. And that's also from a margin profile perspective. And so that's really what drove that higher margin. But just going into the medium term, we do expect support services margins to be in that 9% range that we've referred to.

21:07 Okay. Thank you. I'll pass it on. And once again, ladies and gentlemen, for any questions or comments, please press star then the number one on your telephone keypad. Your next question will come from Trevor Reynolds with Acumen Capital.

21:28 Hey, guys. I was wondering if you guys can talk about or touch on maybe the backlog or the bid pipeline that you guys are seeing today on the remote side of the business.

21:42 Yeah, happy to do that. And, you know, I think we don't really quote numbers around size of the backlog, but what I would say specifically on the remote side, you know, broadly, it's pretty substantial. And, you know, as we're all talking about, kind of the nation building opportunities are kind of built within that. So the one thing I would say about our opportunity set was in our case I think it's a very broad set of opportunities and with a lot of geographical coverage you know everything from west coast east coast and to north coast and we've kind of got everything across mining you know energy infrastructure government and defense within that space that both covers workforce accommodations as well as and many more. I think our confidence around ability to win to deliver what we expect for growth in both the It's really just going to depend on

23:49 We are very active as well on bidding and contracting on that front across all of those market segments that I mentioned. It's really just going to be a matter of when we start to see awards coming out through the system. And I think, you know, potentially and certainly on the workforce accommodation New Camp Occupancy and New Camp Opportunities. Really why we're adding, you know, prudently adding incremental capacity within our workforce accommodations fleet is to support these opportunities.

24:40 We can see them as kind of the early half of the back or the back half of 2027 when they start to come across and mobilize in 2027. But again, it's going to be variable based on what we see there.

24:55 Great, good insight. And then maybe just can you touch on the rates and kind of how you're bidding these projects in terms of how the market looks like it's going to be fully utilized over the next coming years and how you're balancing that with how you're pricing these initial bids that are going up?

25:18 Yeah, as I mentioned, it's quite a wide range of opportunities, I'd say, as it relates to pricing. I mean, we and David Lambert. and others. Obviously we're monitoring that pretty closely.

26:03 Things like the service side of the business, the catering, the operations for the camps, facilities management, even side of workforce accommodations. It's a little more inelastic in terms of pricing, but we've already seen some starts to get deployed, we'll start to see increasing pricing across those kind of elastic segments. Your next question will come from Prashant Kamath with National Bank.

26:56 Hi, good morning. Prashant here calling in for Zach. Just a quick question. You mentioned previously that you're hoping to win some data center work in Texas. Can you give us an update on how that's going and your thoughts on how midterm results could affect that vertical?

27:17 Yeah, morning, Prasad. Thanks for the question. We are, you know, we're active Workforce Accommodations that we have in Louisiana as well as West Texas. We're also bidding on new projects within the Canadian space, so within our pipeline, our nation building pipeline, we've got at least a couple of projects that are attracting a Workforce Accommodations requirement. and as well facilities management, it will be a little more staggered on the data center side of things. But I think in terms of how it'll change and grow over time, it kind of, I would say remains to be seen.

28:07 Again, we've got activity on workforce accommodations in those US locations that require kind of remote camp services. It'll remain to be seen how much additional is required. and all those sites. So we're still very active on that. And then I think new projects within Canada we'll see. We've also got an operating data center in the U.S. that we're very active on on a facilities management bid currently that we're quite excited about. So we'll kind of see how that plays out. I would say in general, Prasad is still another one of our market segments. Thank you for the color.

29:05 I guess the last one for me here. Should we expect any of the Q3 installation and demobilization revenue shortfall to return in Q4 or in the first half of 2027? Or is the recovery further out?

29:24 Yeah, I think there will be some in Q4 is kind of what we see in the plan. We do have projects that will have mobilization, workforce accommodations mobilization, potentially in Q4. I think we'll see it more in 2027 is what I would say for sure, and probably increasing through the year. Again, as part of this whole context that we've been talking about today around deploying workforce accommodations equipment, kind of the mobilization and installation et al. You will see mobilization and deployment costs and contract opportunities next year probably increasing through 2027.

30:19 Okay, great. Thanks for the color. We have a follow-up question from Kyle Mixey with ATB Coremark.

30:35 Hello again. So for the urban facility management platform, you've been investing in headcount and resources to support organic growth, notably in the U.S. Is the platform now where you want it, well-positioned to be capturing winds, maybe accelerate organic growth, or do you still have some heavy lifting to do to get the platform where you want it?

30:55 Yeah, good question. And as you pointed out, Kyle, I think it was really important to get our platform our whole U.S. leadership team in the States up and running and they are up and running so we've got kind of a full team. We've got an executive sales leader and a sales team that's really supporting everything in the U.S. from PBC, CMI as well as self-perform IFM and I would say for the near to mid-term I think we've got the resources we need and also in Canada we've added Thank you very much.

32:06 You've indicated your CapEx figure, the 12 million growth CapEx. You've bought some more fleet capacity. How much of the 12 million growth CapEx was for the 500 units you've purchased, if you're willing to share that? And looking for some comments on how meaningful the refurb spend will be.

32:27 Yeah, it's basically all of it, but it does include the refurb. The refurb costs are within that. and you know as we go forward I think you know similar kind of levels we would see including refurb costs. Refurb costs are we're still getting decent quality equipment out there and you know our standards are high quality for equipment so on the kinds of sort of per bed costs and So the 500 units you already bought, you've paid for them and refurbished them. That was all in the $12 million, just to clarify.

33:17 What I would add to that is it depends, right? Sometimes what we do buy, we're able to then utilize as is. It requires very little refurb. Sometimes it requires a little bit more. So what I would say is you can think about there being a couple million in addition, let's say, to get to fully refurb of the 500 we purchased. So a little bit in addition.

33:41 Okay. That helps. Thank you. That's it for me. And once again, ladies and gentlemen, for any questions or comments, please press star then the number one on your telephone keypad. Do you have a follow-up from Trevor Reynolds with Acumen Capital?

33:59 Hey, guys. Thanks for taking my question again. Just following on to Kyle's question, so the additional 1,500 beds that you're pursuing, that would Can we expect similar topics for those beds that have been spent on the 500 already?

34:19 Yeah, on a kind of a ratio basis, you can follow the same math. To Denise's point, that $12 million that's already spent was to actually acquire the 500 beds we got. There's a couple million bucks of refurb that we'll add to that.

34:40 Great, thanks. And then are you able to just quantify how much the wildfire support activity was off relative to kind of a normal year?

34:53 It's about half or even a little less is what I would say. It was probably a very, very low year. We had some activity, but not much. And, you know, we'll just see how that plays out into 2027.

35:08 Great, and I think you guys have said in the past that a typical year was about $25 million?

35:13 That's right, that's right.

35:16 Yeah, as we've kind of proven out, you can get quite a wide range because it does depend on how much fire activity there is. It can be low, it can be higher than that, but that's generally what we target or what would be a nominal amount for the year.

35:32 Perfect, thank you. There are no further questions at this time. I'd like to turn the call back over to Mr. Mark Becker, CEO, for any closing remarks.

35:45 Yeah, just thanks to everybody for attending our call today and look forward to connecting with everyone at our next quarterly update. Have a great day. Thank you for your participation. This does include today's conference. You may now disconnect.