Black Diamond Group, the Canadian modular space and workforce accommodation specialist, delivered another impressive year of growth in 2023. While the headline numbers are undeniably strong, a deeper dive into the Q4 2023 earnings call transcript reveals a potentially overlooked factor driving the success of their Workforce Solutions (WFS) division: Australia.

On the surface, WFS faced headwinds in Q4. The completion of several large-scale oil and gas pipeline projects in Canada led to a 9 percentage point decline in utilization, landing at 60%. Yet, remarkably, WFS not only weathered this storm but actually achieved 5% rental revenue growth and 6% EBITDA improvement year-over-year.

Black Diamond attributes this resilience to their multi-year diversification strategy, which has broadened their customer base and geographical reach. But nestled within CEO Trevor Haynes' remarks and COO Mike Ridley's detailed response to an analyst's question lies a clue that Australia might be playing a larger role than many realize.

Haynes mentions "intentional" additions of new rental units to the Australian WFS fleet, driven by strong demand and an effort to manage utilization within optimal ranges. He anticipates "healthy rental revenue growth to continue in this region given ongoing demand tailwinds."

Ridley elaborates further, highlighting not only the strength of space rentals and education in Australia, but also the positive traction gained by the WFS business itself. He points to the ability to deploy capital to "really good customers and really good term contracts" in the Australian market.

While specific numbers for the Australian WFS segment aren't broken out in the transcript, the implication is clear: Australia's contribution to WFS's bottom line is significant and growing.

Why Australia Matters

As major Canadian pipeline projects wind down, a robust Australian operation provides a much-needed counterbalance, ensuring ongoing revenue and EBITDA stability for WFS. While Canadian deployments often focus on large-scale, lower-margin projects, Australia presents opportunities for smaller-scale, higher-margin contracts, potentially driving a richer overall revenue mix for WFS. Black Diamond's recent opening of a new Melbourne branch underscores their commitment to the Australian market. This expansion into a major metropolitan area with a diverse economy signifies a strategic long-term play.

The Hypothesis

If Australia is indeed the driving force behind WFS's ability to achieve growth despite a significant dip in Canadian utilization, we should see this trend reflected in future quarters. As Canadian pipeline projects fade further in the rearview mirror, the Australian contribution should become even more pronounced.

Testing the Hypothesis: What to Watch For

Black Diamond's "intentional" Australian fleet growth suggests a willingness to allocate capital aggressively to this region. Continued strong investment in Australian WFS assets will signal continued confidence in the region's potential. As these new Australian assets are deployed and come online, WFS utilization should begin to climb back towards the optimal range, showcasing the impact of the Australian growth strategy. If higher-margin Australian contracts are truly driving WFS performance, we should see an improvement in overall revenue quality, reflected in stronger net revenue margins for the division.

WFS Contracted Future Rental Revenue

This chart shows the growth in WFS contracted future rental revenue, indicating a strong pipeline of future business.

While Black Diamond acknowledges their diversification strategy, the Australian WFS segment deserves closer scrutiny. This seemingly quiet corner of their business might be the key to unlocking even more robust and sustainable growth for Workforce Solutions in the years to come.

"Fun Fact: Australia is home to the world's longest fence, the Dingo Fence, stretching over 5,600 kilometers (3,488 miles)! It's even longer than the Great Wall of China!"