Black Diamond Group's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Mar.13.14 | About: Black Diamond (BDIMF)

Black Diamond Group Ltd (OTC:BDIMF) Q4 2013 Earnings Conference Call March 12, 2014 7:00 PM ET

Executives

Tara Sukut – Communications Manager

Trevor Haynes – President and Chief Executive Officer

Marshall McRae – Interim Executive Vice President and Chief Financial Officer

Analysts

Greg McLeish – GMP Securities LP

Dana Benner – AltaCorp Capital, Inc.

Andrew G. Bradford – Raymond James Ltd

Brian D. Pow – Acumen Capital Partners

Dana Benner – AltaCorp Capital

Jeff Fetterly – Peters & Co.

Jon Morrison – CIBC World Markets, Inc.

Operator

Good afternoon ladies and gentleman. Welcome to the Black Diamond Fourth Quarter Results Conference Call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Ms. Tara Sukut. Please go ahead Ms. Sukut.

Tara Sukut

Thank you Michael. Good afternoon everyone before we begin I would like to remind everyone that any interest to providing listeners with information regarding Black Diamond Group Limited, including management’s assessments of future plan and operations of Black Diamond. Certain statements made on this call will constitute forward-looking statements. All such statements other than those of historical fact, which address future plans, activities, events, outcomes, results or development of Black Diamond anticipate or expect may occur in the future should be considered forward-looking statements.

Visitors are cautioned not to place undue reliance on any forward-looking statements and they are subject to numerous risks and uncertainties, certain in which are beyond Black Diamond’s control. As a consequence actual results may differ materially from those anticipated in the forward-looking statements. Information of risk factors that could affect Black Diamond’s operations and financial results are included in Black Diamonds annual information form and other reports are filed with the Canadian securities regulatory authorities.

Now Trevor Haynes President and Chief Executive Officer and Marshall McRae, Interim Executive Vice President and Chief Financial Officer, who lead the call. Please go ahead Mr. Haynes.

Trevor Haynes

Thank you Tara. Good afternoon everyone. Thank you for joining us today to review our business results for the fourth quarter and year ended December 31, 2013. We will conduct the call in our usual three segments.

I will begin by briefly reviewing highlights of the corporation and our operating divisions, following my remarks Marshall McRae will provide some additional commentary on the financial results for the period. We will then open the call to questions. Some of our senior executives and business leads that are also on hand today to take questions appropriate to their business units.

We are pleased to report another record year; the business has grown revenue by 31% year-over-year to $347 million, an EBITDA 26% to $141 million. Fleet count is grown significantly to over 10,000 pieces of rental equipment driving our core rental revenue to a record $153 million. Bed count has risen to just under 15,000, while rooms under management has risen 50% to about 4,200. Furthermore, the company delivered an impressive safety profile in line with top tier industry metrics.

Currently the business is performing well. Management outlook for the first quarter and the balance of 2014 remains positive due to the continued growth and strong performance of the rental platform, demand for Black Diamond’s non-rental products and services, a robust sales platform and significant contract awards that we announced in the second half of 2013. The company continues to increase revenue under contract with $203.2 million of future revenue contracted at the end of 2013. This is a 23.7% increase over 2012.

The project delays and related assets repositioning, which dampened our Q2 and Q3 results were substantially resolved within the quarter. Therefore, we entered the new fiscal year with a very strong rental and operating run rate.

Looking ahead, our sales pipeline in Western Canada is very active and robust. The Camps and BOXX divisions of our Structures Business Units are both experiencing high utilization and strong sales in operations revenue. The U.S. sales pipeline has been building, demonstrated by rising utilization and increased custom sales volumes.

The Energy Services business unit is running at a decent clip, although given over supply conditions in the market, expectations are similar to those of Q1 2013. The Logistics business unit is operating in an all time high manage bed count leading us to expect good key one performance from this business unit.

On Australian business are within our international business unit as seen sluggish market conditions through Q4, with much the same expected in Q1. The company announced an initial capital expenditure budget for 2014 of $100 million. Delays experienced in certain projects that were anticipated in the fourth quarter of 2013, led to lower spending against the announced $117 million 2013 CapEx program of approximately $21 million.

As a result, the company now expect 2014 CapEx to be in excess of $120 million as the incremental 2013 spend will be taken up in early 2014. The company anticipates funding these 2014 capital expenditures, and the existing level of dividends primarily out of operating cash flow and existing working capital.

In summary, the company’s operations continue to be extremely healthy and management fully anticipates robust results, as the company moves forward through the year.

I will now pass the call over to Marshall, who will walk you through some of the financial results and highlights.

Marshall McRae

Thank you Trevor. Year-over-year the business continues to perform well. As Trevor mentioned, that the outset of the call, consolidated revenue was up 31% to $347 million and revenue for the quarter was $107 million, up from $68 million in 2012. EBITDA for the year was a $141.2 million compared with $112.1 million in 2012.

The results of the company are reflective of the continued growth of the rental fleet platform, ongoing market penetration of the Logistics service offerings, as well as new contribution from the Australian acquisition made at the start of 2013. Within this Structures business unit, the Q4 results for the cash division were very strong, with revenue of $45.2 million and EBITDA $28 million. Utilization per counts for Q4 was 85% unchanged from Q3.

Q4 results for the BOXX Modular division were also strong, with revenue of $24 million and EBITDA of $8.9 million. Consolidated utilization for the BOXX Modular division with 81% Q4 up from 80% for Q3. For the year ended December 31st, BOXX Modular posted EBITDA of $32.3 million, up 46% increase from 2012.

Overall our Structures business unit continue to strong growth posting total EBITDA of $121.8 million for the year a 42% increase from 2012. Q4 results for the Logistics business unit were $25.1 million in revenue and EBITDA of $5.1 million. For the year, Logistics recorded EBITDA of $20.1 million and revenue of $83.5 million. The business unit exited the year with 4,263 beds under management, up from 3,035 at the end of Q3. $3.3 million Q4 EBITDA for our energy services business unit was a slight year-over-year improvement.

Rental revenue was down due to lower than anticipated utilization and pricing for surface rental assets. Utilization for energy services drilling in a combination and surface rentals were 69% and 32%, compared with 67% and 44% respectively in 2012. Our international fleet revenue – fleet rental revenue for Q4 was lower than prior quarters, reflecting lower average utilization. Q4 results for the international business unit was $4.3 million of revenue and $1.8 million of EBITDA.

Corporate administrative expenses, as a percentage of revenue after adjustments for non-recurring costs were 15%, compared to 14% in 2012. The increases primarily related to the costs of people to support our growth and costs related to the Australian acquisition.

Quickly reviewing several other business highlights, the company increased the dividend twice in 2013, effective March and December. The most recent dividend increase to $7.5 per share, per month was the sixth dividend increased by Black Diamond since its IPO. The payout ratio for 2013 was 27%, the same as in 2012.

Black Diamond continues to operate with a conservative amount of debt financing that offers considerable room for continued investment. During the third quarter, we completed the private placement of 40 million of senior secured notes and we closed the year with a net debt to EBITDA ratio of 1.1 to 1.

And finally, the CFO recruitment in transition process is well under way. we’re targeting completion by the end of first half of 2014. This will provide a healthy transition timeframe for the incumbents by the end of the year.

I’ll now open the call up to questions.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will take questions from the telephone lines. (Operator Instructions) And the first question is from Greg McLeish at GMP Securities. Please go ahead. your line is now open.

Greg McLeish – GMP Securities LP

Hi, guys. That’s a great way to end the year there. Just a couple of questions, I know it’s in the G&A there, there was severance payment, did those all occur in Q4 to approximately $1.7 million?

Marshall McRae

Yes, we did.

Greg McLeish – GMP Securities LP

Okay. so when you – if you normalize out and including the – you had that, I guess that loss for the other two with Australia. Would you normalize your earnings added about $0.38 a share then with the $1.7 related to rental?

Marshall McRae

Well, we would view both of those items as non-recurring. I haven’t crunched the numbers to see the impact of EPS. But yes, we’d normalize both those items though.

Greg McLeish – GMP Securities LP

Okay, I think because I did see your 33.5% tax rate in there and then normalized it.

Marshall McRae

Yes.

Greg McLeish – GMP Securities LP

Okay, okay. and how would you sort of – when I take a look and try to – I mean these results were far stronger. I think at the end of the last quarter, you sort of said that if you were able to match Q1 numbers, you would be very happy. The reason – is the reason for the beat primarily the fact that you had much higher non-rental revenue from the structured size this quarter?

Trevor Haynes

Well, that's part of it. if you recall in Q2 and Q3, we were dealing with some of our camp facilities coming off of previous projects. Fortunately, we have been successful in securing a number of contracts. and so we were dealing with typical issues of being able to gain access to the new project sites and other contractors completing their work.

They just suggest, whether but sometimes that’s really difficult to work on these sites, so it really worked et cetera. And I think we were fairly transparent in our explanation through those quarters, but that we had visibility on the take-up of those assets. so as it ended up, we ended, we – within the quarter, we’re under quite a bit of pressure to get a good deal of work done on a number of project sites and field-level, which drove up the construction related operations revenue within the Structures Business Unit.

and then we also saw a rising rental revenue and utilization on the assets that were being taken up on those projects. So as the quarter progressed, we also saw an increase in rental run rate. Most of the larger projects that came on in the quarter and we will mix a part of the rental revenue within the quarter.

And then those projects that also had our Logistics group taking on the management of those sites. We recognize some of that operating related revenue coming on. so we’re characterizing right now, as the – essentially, all of those projects are now on stream and where you’ve seen part of the recurring operating revenue in Q4, and a great deal of the one-time revenue of construction work in the transportation. this quarter should demonstrate at the full run rate of those contracts.

Greg McLeish – GMP Securities LP

So in Structures, in the first quarter, we should anticipate an EBITDA margin increase. overall, if you don’t have a lot of the balance then on rental revenue going through.

Trevor Haynes

There will be some variability on the construction and operation side, but as far as the core driver being the rental revenue and utilization of assets driving that rental revenue, anticipating an up-tick absolutely.

Greg McLeish – GMP Securities LP

As your general outlook improved, it sounds like the U.S. is coming back a little bit better than, not necessarily previously thought, but it does seem to have a little bit more talk that you started viewing this you’re going in is a little bit more positive than you may have viewed last year?

Marshall McRae

I think that would be a fair characterization. I could point out though that the first of the last year was extremely robust for Black Diamond, and we had set a high water mark for EBITDA for example. We’ve got a broader platform and we have more assets at work. And we have more pull-through on integrated revenue like logistics. and so we’re anticipating although, we’re comparing against a very strong quarter last year that this quarter will be strong.

When we look out through the year, the pipeline’s activity here in Western Canada are very encouraging. The contracted revenue in place with the existing fleet is strong. so I would suggest we’ve got a positive outlook for sure for 2014, as far as the U.S., maybe, Troy, you can quickly touch on, what we’re experiencing in that market, as Troy is Senior Vice President of our Structures Business Unit.

Troy Cleland

I think you can attribute the part of outlook probably on two major factors, one is a slight improvement and the overall outlook of the market down in the U.S. and I think another component is, we’re making changes to both our sales and our management teams over the last couple of years and we’re starting to the see the benefit of that improved sales efforts from our team down in U.S.

Marshall McRae

Great. And just if you take a look at 2014, a lot of the guys that we cover are sort of saying that the first half of 2014 with Oilsands is going to be slow. and I know that asset won’t necessarily impact you. but they’re seeing a huge amount of demand in the second half, and also financially, the move for LNG, going forward. you think 2015 could be strong – like much stronger than 2014, I mean how do you sort of view the bit pipeline going into next year. I know it’s early, but there’s a lot of positive data points out there.

Greg McLeish – GMP Securities LP

Great. So you’re going to challenge just an outlook for Q1 here, 2015?

Marshall McRae

I’ll let someone else do that.

Trevor Haynes

There’s certainly developments underway that would suggest if you get to FID [ph] on one or two LNG related projects that would be quite dynamic for our market, lots of pipe related projects, several Oilsands related projects moving along, you touched on. so certainly, there are opportunities out there, and the sales pipeline especially in the early feasibility stages on all kinds of large projects in our marketplace is encouraging what we need to see that we’ll be able to touch phase with you as the year goes on, it’s whether those continue to progress towards full execution or not. but yes, 2015, whether that’s early 2015 or later, perhaps into 2016, certainly are of the view that there is potential – significant potential for our markets.

Greg McLeish – GMP Securities LP

And just one final question, and then I’ll get back in the queue. Are you – I understand that on site C that there are two big packages out for accommodation. have you seen or are you bidding on that one?

Trevor Haynes

We won’t comment specifically. we see most of what’s in our marketplace and site C has been a known and on our radar for sometime.

Greg McLeish – GMP Securities LP

Great. I’ll get back in the queue. thanks, guys.

Operator

Thank you. the next question is from Dana Benner at AltaCorp Capital. Please go ahead. Your line is now open.

Dana Benner – AltaCorp Capital, Inc.

Good afternoon, guys. Okay. I wanted to start with CapEx, you’ve got carryover from 2013 and given your sense of when monies are to be spent in 2014 with the likelihood that this 120 get spent within calendar 2014 proper?

Trevor Haynes

Just within the calendar year, it is a very likelihood that the 120 will be taken out, just based on what we’re seeing in the level of commitments we have in place, if possible to some amount, as we get into the typical fall rush that some amount falls over into the following year, as you’ve seen from 2013 to 2014 that certainly does happen that’s presuming that 120 is the full CapEx for the year. Stewart?

Operator

Yes sir. The next question is from Andrew Bradford at Raymond James. Please go ahead. Your line is now open.

Andrew G. Bradford – Raymond James Ltd

Thanks. I think I’ll pick up where Dana seems to have dropped off there. The $21 million that's carried over – just the $21 million part does that – I’m assuming that’s going to get spent largely in the first half year. Is that a fair assumption?

Trevor Haynes

Yes.

Andrew G. Bradford – Raymond James Ltd

And then does that mean then the profile spending over the course of the year will be waited toward the front-end, as far as you can see right now, or as far as the budget allows right now?

Trevor Haynes

We’re somewhat reluctant to suggest that in that our typical profile has had more waiting to the back-end of the year. We are going to have, I think a reasonable amount of spend in the first half, but I would still wait 60% of it to the second half, 60% to 65%.

Andrew G. Bradford – Raymond James Ltd

Okay, that’s helpful. And leaving LNG aside for a while here, can you just sort of tell us a little bit about the pipeline of work, or pipeline of projects that you see particularly in the Oilsands for the balance of this year, and maybe, even leading into next year, just to get a sense of how that is working as a growth driver.

Trevor Haynes

And we would characterize activity in and around the Oilsands has continued, we think fairly consistent in terms of the size of the pipeline and the value of the bit in the pipeline. It’s been this way for; I would suggest maybe a year and a half. So I’ll let Steve, if you like or, and so our view is that we continue to see a reasonably stable pipeline. There are numerous projects looking at additional phases or even some new startup. We’ve got projects we’re working on that are adding equipment for certainly, renewing or extending contracts already in place, which we find encouraging and that there is a quite a bit of infrastructure working in and around that's driving demand for additional caps.

Steve Stein

Yes, I think that the additional, there’s more add-ons to existing projects and new projects going on right now, and a larger driver as well in the Oilsands total pipeline activity, we’re seeing lots of activity though with.

Andrew G. Bradford – Raymond James Ltd

Do you address some of that – you can’t address some of that pipeline demand within the – within your existing projects, those have been new projects. Is that right?

Trevor Haynes

Yes.

Andrew G. Bradford – Raymond James Ltd

Just moving quickly down to Australia here in the – in MD&A, you talked about upstream gas projects should drive demand for workforce accommodations. do you have business in that servicing that segment yet?

Trevor Haynes

We do have assets working in the Surat Basin and we’re seeing activity in that area that we think is perspective for additional assets being moved over there.

Andrew G. Bradford – Raymond James Ltd

Okay. Was that work have been reflected on the fourth quarter numbers?

Trevor Haynes

There is a little bit in terms of equipment rental in the market. That equipment will get a full quarter out of here. A quick point out though that the Australian market is generally challenging, what we’re seeing is an oversupply of our larger format camp, assets, both in Western Australia and Queensland. and that’s driven by a slowdown of new construction, new project development in iron ore and coal.

And so in some segments of the market, there is certainly an oversupply. However, when you look at more high mobility assets that require around drilling for instance, there is a market opportunity there. So, what we’re finding in the traditional asset is as much as our team is having success in getting equipment to work. We seem to have equipment coming back often some of those mining related projects. and so we’ve been struggling with that.

They’ve done well for all the utilizations that are reasonably steady with some erosion in Q4. the December-January period is the summer in Australia, which tends to be wider in terms of activity. So, it’s hard to use that as a gauge, but we’re seeing, we’re watching very closely the February and March numbers.

We do think we’ll get some asset growth into the market place and there is enough niche type of projects that are suitable to us that we will be able to make some headway as we move through especially in the second half of this year.

Andrew G. Bradford – Raymond James Ltd

Okay. The assets, I think will be complementing your existing assets. is that right?

Trevor Haynes

That’s right.

Andrew G. Bradford – Raymond James Ltd

Okay. That’s it from me. Thank you very much. I’ll get back in the queue.

Trevor Haynes

Thanks, Andrew.

Operator

Thank you. The next question is from Brian Pow at Acumen Capital. Please go ahead. Your line is now open.

Brian D. Pow – Acumen Capital Partners

Good afternoon, guys. Just have three questions actually. Just wanted to first of all, sort of talk about the trend in the utilization rates for the workforce accommodation sort of dropped down in 2013 to that 88% low, I’m just sort of curious where you would be there going forward, whether that’s sort of a number you will be running at or can you get back up to those hard numbers?

Troy Cleland

Yes, it’s Troy here. The utilization at the end of or during Q4 at 85%, a contributor to that was we have the assets purchased for these projects that started, but because of some of those delays, not happening toward the end of the quarter, it kind of brought down the utilization somewhat for Q4. But I’d say comfort in a fact that we have seen some increases early in Q1 2014 so far.

Brian D. Pow – Acumen Capital Partners

And then looking at the margin on the Structures business side, the EBITDA margin, you had a pretty exceptional year compared to last year. is it sort of running somewhere in between that on a go-forward basis or what’s your sort of thought?

Marshall McRae

The Structures business unit, the marginal move a little bit depending on the amount of on a quarterly basis, depending on the amount our non-rental work that we do, and happen to fair a bit of it in work order. But I think on a going forward basis, we would see the margins in that business unit being reasonably reflective of what this year was. Troy, your sense there?

Troy Cleland

Yes, I think it’s somewhat consistent they can vary from quarter-to-quarter depending on what kind of activity might be. Obviously it was brought down somewhat in Q4 because of operations revenue. But and of course there is always especially in the BOXX Modular platform sales of opportunities that was with that EBITDA margin, but for the most part it is fairly consistent when you look at our peer rental revenue.

Brian D. Pow – Acumen Capital Partners

Okay. So, sort of mid to middle high 50s is a realistic target. And then looking at the Logistics business again, comparatively on a year-over-year basis you saw a pretty big drop in the EBITDA margin percentage. So, maybe you can just talk towards that as well. You do reference of change in the mix of camps, so maybe you can just sort of reference, or give us a sense of how that mix is changing, things now on a go forward basis?

Marshall McRae

The mix is associated to full man-day camps versus a straight management fee on certain camps. So, that’s our general mix. We have different revenue and margin type business, are turnkey camps, tend to have higher margin. So, some of these temporary winter only camps have less margin on them.

Trevor Haynes

Arguably, lower risk as well right?

Marshall McRae

It’s guaranteed low risk margins though.

Trevor Haynes

So that would be the direction you are taking on going forward then?

Marshall McRae

No, actually, we prefer to get more turnkey gas it just usually in this timeframe of Q4 and Q1. You see Logistics manage that count a lot, but it’s on a short-term basis and usually those are below margin charges.

Trevor Haynes

Fee related?

Marshall McRae

Fee related yes.

Brian D. Pow – Acumen Capital Partners

Okay great. Thanks guys.

Operator

Thank you. The next question is from Dana Benner at Alta Corp. Please go ahead. Your line is now open.

Dana Benner – AltaCorp Capital, Inc.

Thanks. You guys talked you might have shaken me, but nowhere.

Trevor Haynes

He is back.

Dana Benner – AltaCorp Capital, Inc.

Sorry, I don't know what happened. Many cases and apology if that was asked in the interim, but I guess my next question related to growth rates and looking at the growth rate in here you pick it whether it’s the workforce accommodation bed count in Canada, whether you want to think about the consolidated global number. So, thinking about that versus the growth rate in beds under management, that moved up sharply this year and partially [indiscernible] for quite some time. So, just be curious to get your sense of growth rates between those two major business segments based on your sense of the CapEx spend right now?

Trevor Haynes

Sure, so our objective is to look at each business segment and try to drive growth, primarily growth from an earnings perspective. The core driver in our business it is primarily the asset and so as we grow the assets in the camps business it does increase the opportunity for us to offer managed services. And then if we tie the controlling our sites and offering a full turnkey that drives an even higher amount of integrated revenue including multiple of our business units.

So, what we are looking at right now is, increasing the bed count in terms of total number we grow as we grow the fleets and that's a question of how much opportunity there is in the marketplace. We feel that there is reasonable opportunity to grow our bed count in terms of our camps business in Western Canada. And then separately when we look at the Logistics business, we think there is an opportunity to expand their, to increase the percentage of beds of owned beds within the Black Diamond system that we manage or offer whether it’s turnkey or managed services. And so there is an opportunity there to grow even faster as we catch up to the owned bed count already existing and then we add additional beds over time.

Dana Benner – AltaCorp Capital, Inc.

And it’s the current trend line in all our sequels.

Trevor Haynes

Correct and we are seeing opportunity and we are optimistic that we’ll be able to achieve both of those objectives, increasing bed count and increasing the number of managed beds within the system.

Dana Benner – AltaCorp Capital, Inc.

Right just one final question and it’s a fairly level on and so I guess I would ask it this way and it’s broad, the notion of mix customer mix, oil sands versus other types of resource development. When 2014 is set and done based on the Bid log that you have in front of you right now, when you talk about mix at the end of this year what do you think will have changed in your business and again that's very broadly defined so that you get a sense of trend lines of course before we do.

Trevor Haynes

Well, it’s a difficult question within on a short-time line. We think if you allow more than 18 months timeline and based on what we are seeing in the marketplace for opportunity that we will see more of the mix coming from Northern BC LNG related other projects including power projects, transmission projects, pipelines et cetera.

Marshall McRae

It generally seems to be an uptick on infrastructure spend. Big infrastructure projects in the planning stages right now. I could see that as a shift from bed count towards that more than the short-term drilling completions of gas.

Trevor Haynes

So even though we are seeing growth in oil sands, we think the mix of customers and type of project will broaden out based on what we are seeing today and as Steve touching on coming through to the executions base. And then across the platform, we are hoping to see a broader mix, again it’s tough to get the exactly right in a matter of two of three quarters, but if we look at our Australian strategy and strengthening in the U.S. and that was uncertain markets within the U.S. and then taking the very broad application of our space rentals platform and what we hope to achieve it is an increased mix in terms of customers projects, project types, infrastructure as well with primary development, different types of commodities in behind and different geography. And if we could achieve that, we think we are a much stronger platform, and resilient in terms of any impact or significant change in one part of those markets. That’s very much the way we look at our business.

Dana Benner – AltaCorp Capital, Inc.

That’s a great answer. Okay, that’s it guys. Thank you.

Operator

Thank you. The next question is from Jeff Fetterly at Peters & Company. Please go ahead. Your line is now open.

Jeff Fetterly – Peters & Co.

Good evening all. On the Australian site you mentioned in the MD&A four months average, weighted average term remaining, is that of the current contracts in place, or was that historical.

Trevor Haynes

That would be current contracts as of December 31.

Jeff Fetterly – Peters & Co.

Okay. So, as of today, what is your visibility in line with site on the existing install base Australia?

Trevor Haynes

About four months.

Jeff Fetterly – Peters & Co.

Okay.

Trevor Haynes

There is a couple of characteristics about the market in Australia, one is typical length of contract term is shorter than Canada, that something we knew probably going into the market. So, our expectation to be able to sign 36 month contracts on first after use coming into our system is currently not that common within the Australian market. You would expect more than 24 months. So, to begin with we are starting with a shorter tenure of contract.

And then based on the amount of disturbance in the Australian market as they go through, significant cost restructuring through their resource sector and general economy as a whole. We are seeing lots of volatility in the market and again that makes a difficult to get customers to commit to longer-term contracts. So, I don’t anticipate that the length of weighted outstanding contract terms, currently running at four months as you point out, is going to change significantly over the next six months. And so we are left with somewhat short line of site for recurring revenue.

Jeff Fetterly – Peters & Co.

What is the profitability of the utilization will deteriorate further from where it was in Q4 in Australia?

Trevor Haynes

In the short-term there is certainly is the risk that way, and as a sensitivity into all of the assets the number of incoming versus outbound has been weighted towards incoming. To be quite honest over the last two or three months, we’ve made some progress just very recently, what is going to take, a number of contract wins in the near-term so of which we think the opportunities exist, but we will have to see how things progress over the next couple of months before we report to you again.

Jeff Fetterly – Peters & Co.

On the Structures side, specifically the large camp business, when do you expect that count except 2014 based on the current capital program including the carryover?

Troy Cleland

Its Troy here, I think just based on what we are seeing and it’s hard to come up with the exact number and when it will take place, but I don’t think it’s unrealistic to think that we can get exit towards the 14,000 beds in Western Canada.

Jeff Fetterly – Peters & Co.

Okay. And that the $100 million capital program today, you’ve touched on it earlier. But what percentage of that would you have commitments for today?

Trevor Haynes

We’re sitting about 60% committed, some of that 60% is commitments, the certain types of assets that have a longer lead time, some of them more complicated thesis, like large kitchens. And so we do have commitments today that won’t see the assets showing up until the second half out of that roughly 60%.

Jeff Fetterly – Peters & Co.

Did I hear correctly really that you said 60% to 65% of the current capital program will likely be expanded in the second half of 2014?

Trevor Haynes

That’s based on our historical, what we would suggest would be the best way to model it, would be 60% to 65% of the CapEx for this year, being taken after in the second half.

Jeff Fetterly – Peters & Co.

Operationally, what is your capacity to take on incremental CapEx beyond the 120 as planned now?

Trevor Haynes

Exceptionally good.

Jeff Fetterly – Peters & Co.

Okay.

Trevor Haynes

We certainly have availability through our supply network and as Marshall touched on in his comments; we’ve got lots of financial capacity here. So, really, the missing ingredient is the projects moving to execution phase and are being successful in securing them.

Jeff Fetterly – Peters & Co.

Last question Marshall, excluding the severance costs in Q4, what you expect SG&A run rate to look like in 2014?

Marshall McRae

As a percentage of revenue we were modeling it down a little bit from this year. We finished this year kind of the 15-ish, I think historically, it’s been up, couple of years, it’s up a bit. But we think that will settle off this year and we model it may be somewhere in the area of point less movements in this year.

Jeff Fetterly – Peters & Co.

Okay, thank you. I appreciate you guys.

Operator

Thank you. (Operator Instructions) And the next question is from Jon Morrison at CIBC World Markets. Please go ahead. Your line is now open.

Jon Morrison – CIBC World Markets, Inc.

Good evening guys.

Trevor Haynes

Hi, John.

Jon Morrison – CIBC World Markets, Inc.

Can you speak to bidding activity over the last three months and just how it shakes out segments in among, call it conventional oil and gas, oil sands pipeline and mining and other?

Trevor Haynes

All of the above.

Jon Morrison – CIBC World Markets, Inc.

Can you give us sense for how much is weighted towards one?

Trevor Haynes

Yes, maybe a little bit later on mining.

Jon Morrison – CIBC World Markets, Inc.

Anticipated.

Trevor Haynes

Yes, we’re seeing as Steve mentioned earlier, a lot of activity around infrastructure predominately quite. We continue to see activity up in that what may gave up Fox Creek area, is relatively healthy our energy services business. It’s also seeing uptake there with great support and we’re seeing some base counts for a demand for base camps counts going into that area, and then also associated with some of the infrastructure in and around that area.

In the area of the Oilsands, we’ve been primarily focused on the last few years is say, the area [indiscernible] and we continue to see a mix of infrastructure and project base expansion on numerous projects in that area. And so that continues to be a component of our bit pipeline.

And then if you broaden that out, we’re seeing good demand through our space rentals business, which is getting to some reasonably, significant scale and for both rental and customer sale, we’re seeing good activity in infrastructure plays that are both urban and industrial related in addition to the – that business segment being engaged on Oilsands and pipelining et cetera.

Jon Morrison – CIBC World Markets, Inc.

On the infrastructure side, specifically pipeline is, do the assets closely mimic what you would call a conventional large camp, are they more along the lines of a drill camp i.e., is that smaller square footage per person or is it similar to what you’d see in the oil sands?

Trevor Haynes

Yes, it’s very similar to the Oilsands. In fact, the increased pipeline activity, the linear standards have gotten to a fewer pitch level, as far as severance as quite the Oilsands done.

Jon Morrison – CIBC World Markets, Inc.

As the assets are coming up to the end of their term, and looking to be renewed, has there been any change in customer preference to try to renew for shorter duration contracts than you’ve seen in the last – call it last three years?

Marshall McRae

I don’t think it’s changed that much. We often find where a customer looks based on what’s having in their project to extend the use, it will be often for less than the original term and their project is not coming to conclusion in the first timeline, which does happen from time-to-time, where our customers going into – once go the asset over into a new project base. We will often have the opportunity to re-contract for longer-term, but not seen a significant change in how those conversations go that would lead us to believe there’s something fundamentally different in the marketplace.

Jon Morrison – CIBC World Markets, Inc.

Is there any meaningful portion of your fleet right now that’s revenue generating given that it’s under contract, but not occupied at this point or is that for all intensive purpose is a fairly insignificant number if at all?

Trevor Haynes

Under contract, but not being used.

Jon Morrison – CIBC World Markets, Inc.

Yes. so it’s a revenue generating asset, but for all intensive purposes, it’s being unoccupied at this point.

Trevor Haynes

There is nothing out significant, from time-to-time, that does occur where the contract and the assets goes on to rental before the site is ready or if the customer have some delay on permitting or whatever the issue maybe. So, that does happen in the industry, that’s what you’re touching on. From time-to-time, we do have assets performing that way. But in terms of anything material at this point, we don’t.

Jon Morrison – CIBC World Markets, Inc.

Last one from me. Is there any additional color you can provide on the comment in the MD&A about expectations for the turnkey starting to gain additional traction in 2014?

Trevor Haynes

Well, we think it does in that our offering turnkey with any scale to it other than our operated Lodge Sunday Creek and a couple of specialty projects is relatively new for Black Diamond. And we have experienced fairly strong acceptance from our customer and we believe we offer a value proposition that they see being official to them.

Marshall McRae

Our goal is to continuously increase our percentage of beds that we own under managed beds. So, obviously it hurts our profitability of our assets, so we are actively on a percentage basis bidding more turnkey jobs, so hopefully that translates into our percentage of managed beds.

Jon Morrison – CIBC World Markets, Inc.

So, likelihood something that comes through in the 2014 capital program possibly?

Trevor Haynes

There’s is not a great deal of capital employed unless of course we were to secure beside in terms of real estate all right a new the site development, where we secure these contracts, it’s typically over top of us providing the rental asset. And that’s where as we mentioned it’s added into the return on investment, because we’re picking up an incremental revenue stream and margin in addition to our incremental to the rental return.

Jon Morrison – CIBC World Markets, Inc.

Yes, sorry all that I was getting at there was, is it more likely to be something that's a contract one as compared to an existing installed asset getting additional services packed on?

Trevor Haynes

Yes, if I understand what you are saying it is typical, more typical when a project is risk going in whether that’s existing fleet assets and building fleet assets for a project that we would begin a project contracted in this way. Less common where the project is running and we change the format of the arrangement, where we take on the facility management or camp management. So you are correct.

Jon Morrison – CIBC World Markets, Inc.

As always, I’m sorry.

Trevor Haynes

I said you are correct on that assumption although as asset cycle from one project to the next. It doesn’t necessarily have to be new CapEx assets. It would be assets first going on to a project indifferent whether they are new or existing assets, where we’re most likely of altering few contracts.

Jon Morrison – CIBC World Markets, Inc.

I appreciate the color. Thanks.

Operator

Thank you. There are no further questions. I would like to turn the conference back over to Sukut.

Tara Sukut

Well, thank you Michael and thanks everyone for participating in the call this afternoon. We will now formally conclude the call.

Operator

Thank you. Ladies and gentlemen your conference is now ended. All callers are asked to hang up their lines at this time. And thank you for joining today’s call.

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