Badger Infrastructure Solutions Ltd., better known by its catchy moniker "Badger Daylighting," had a stellar 2023. Boasting record revenues, gross profits, and adjusted EBITDA, the non-destructive excavation company seemed unstoppable. But beneath the surface of their seemingly bright Q1 2024 earnings call, a troubling trend is emerging. A closer look reveals a potential weakness that hasn't garnered much attention – a concerning decline in Badger's Canadian operations.

While the U.S. continues to bask in the sunshine of infrastructure spending, Canadian operations experienced a jarring 18% decline compared to the same period last year. This stark contrast wasn't just a minor blip. Badger CEO, Rob Blackadar, pointed to a perfect storm of factors contributing to this decline: dwindling overall construction activity, the completion of major projects like the Trans Mountain pipeline, and a ripple effect of delayed project starts in Central Canada.

Here's where the plot thickens. These delays, affecting anticipated work on significant infrastructure projects, haven't just slowed down revenue; they've forced Badger to make a potentially risky move. Faced with a glut of idle hydrovacs, the company chose to accelerate retirements of older units rather than redeploy them to busier markets. This decision raises several important questions.

Does this signal a lack of confidence in the near-term recovery of the Canadian market? While Blackadar expressed optimism about their core business and regular construction activities, the accelerated retirements suggest a more cautious outlook than his pronouncements might initially imply. Could these delays be indicative of deeper, more systemic issues within the Canadian infrastructure landscape? Project approvals, regulatory hurdles, and funding uncertainties are all factors that can significantly impact the timeline of major infrastructure initiatives. If these delays persist, Badger's Canadian operations could face a prolonged period of depressed activity. Is Badger missing an opportunity by not redeploying these idle hydrovacs to the robust U.S. market? Blackadar cited tax and duty implications as barriers to cross-border fleet movement. However, given the significant demand south of the border, a cost-benefit analysis of absorbing these costs versus potentially higher utilization and revenues in the U.S. seems warranted.

Here's a potential hypothesis based on the available data. Let's assume the average annual revenue per truck in Canada is $400,000 (a conservative estimate considering their 2023 average RPT). With 66 units retired early, that's a potential revenue loss of $26.4 million for the year. Even factoring in transportation and duty costs for a cross-border move, the U.S. market, with its higher utilization and pricing, could potentially offset these losses and generate additional profit.

Revenue Comparison: U.S. vs. Canada

The following chart illustrates the contrasting performance of Badger's U.S. and Canadian operations in Q1 2024.

The Canadian situation presents a compelling case study in microeconomic dynamics. While Badger Daylighting continues to thrive overall, the Canadian slowdown highlights the vulnerabilities of regional dependencies. The company's strategic response, particularly the accelerated retirements, will have lasting consequences. Whether these decisions ultimately prove to be shrewd or short-sighted will unfold in the coming quarters. For now, the Canadian market remains a critical question mark for Badger Daylighting.

"Fun Fact: Badger Daylighting's name comes from the fact that their hydrovac trucks are often used for daylighting, which means safely exposing underground utilities without damaging them, much like a badger digging its burrow!"