Badger Infrastructure Solutions Ltd (OTCPK:BADFF) Q2 2022 Earnings Conference Call August 11, 2022 9:00 AM ET
Company Participants
Paul Vanderberg – CEO
Darren Yaworsky – CFO
Bob Blackadar – COO
Conference Call Participants
Yuri Lynk – Canaccord Genuity
Maggie MacDougall – Stifel
Daryl Young – TD Securities
Operator
Good day, and thank you for standing by. Welcome to the Badger Infrastructure Solutions Limited 2022 Second Quarter Results Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded.
I would now like to hand the conference over to your speaker today, Mr. Paul Vanderberg. Please go ahead.
Paul Vanderberg
Good morning, everyone, and welcome to Badger’s Second Quarter 2022 Earnings Call. On the call with me this morning are Rob Blackadar, Badger’s COO; and Darren Yaworsky, our CFO.
Badger’s second quarter earnings release and financial statements were released after the market closed yesterday and are available on the Investors section of our website and SEDAR. We’re required to note that some of the statements made today may contain forward-looking information. In fact, all statements made today, which are not statements of historical fact are considered to be forward-looking statements. We make these forward-looking statements based on certain assumptions we consider to be reasonable. However, forward-looking statements are always subject to certain risks and uncertainties, and undue reliance should not be placed on them as actual results may differ materially from those expressed or implied. For more information about material assumptions, risks and uncertainties that may be relevant to such forward-looking statements, please refer to Badger’s 2022 annual information form.
As always, we’d like to start today’s call with health and safety. Q2 was the first quarter in almost 2 years without a significant number of employee quarantine due to COVID. It was great to get back the business, and we’re optimistic that by and large, the pandemic-related issues we’ve been dealing with look to be largely behind us.
We continue to be very pleased with the Badger team’s focus on health and safety, our job number one and very proud of how the team has managed through COVID these past 2 years. Now on to the quarter, as you may recall, the first half of the 2022 first quarter started out with quite a few COVID quarantines and that really hurt us. But as we work through Q1, we put it behind us.
The positive trends we experienced in March very nicely continued into the second quarter, which we believe represents our performance going forward. We were pleased in the quarter by the 31% year-over-year revenue growth. Our investment in sales and marketing is allowing us to engage more with customers and provides more visibility into market trends and helps us with asset allocation decisions.
The execution on Badger’s commercial strategy, which Rob will talk about shortly, is a very exciting initiative. We’re also pleased with the adjusted EBITDA margins improving by 68% year-over-year on that same 31% revenue increase, demonstrating our focus on improving operating leverage. As previously discussed, in May, we took possession of an adjacent manufacturing property in Red Deer to expand our capabilities and improve our efficiencies and integration is now underway, and we expect that new configuration will be in place in Q4. The improved results in the quarter were driven by revenue expansion and our business initiatives. And to expand more on that further, I’ll now hand the call over to Rob to discuss our operations.
Bob Blackadar
Thanks, Paul. We are pleased with the continued improvement in market activity and customer demands that we experienced late in the first quarter as these trends continued in the second quarter, coupled with disciplined operational and cost management efforts. Badger experienced meaningful year-over-year improvements in its operating leverage and margins. Overall, the second quarter was in line with our expectations.
As Paul mentioned, year-over-year revenue grew by 31%, supported by balanced revenue growth across all of Badger’s operating regions. Similarly, all operating regions experienced positive operating performance as a result of increased pricing, improved fuel recovery and cost controls. This resulted in better operating leverage as adjusted EBITDA margin improved by 68% year-over-year.
We anticipate that improving market conditions and customer demand trends will continue for the remainder of the year. These trends are supported by improved macroeconomic conditions across the broader non-residential construction activity in the U.S. and in previously weak sectors such as oil and gas. Even though Badger has managed well in the recent inflationary environment through better realized pricing, cost management efforts and its fuel recovery plan program, we are still very focused on improving our operational performance.
Let’s dig a little deeper into the revenue trends. Revenue was up approximately 31% from last year to $144.2 million, which continues to reflect the market recovery that we have seen since October of 2021. Higher revenue and more consistent volume supported improvement supported improvements in our operating leverage.
All operating regions experienced year-over-year and sequential revenue growth and improving margins from higher revenue, higher truck utilization, better pricing and cost controls. This resulted in a year-over-year improvement in adjusted EBITDA margin from 10.7% last year to 18% this year.
The 18% adjusted EBITDA margin for this quarter understates our true performance as we have pre-invested in operational and strategic priorities to support future revenue growth and operating leverage, which will help us achieve our 5-year long-term strategy results. These investments have largely been completed.
Darren will provide more details on this in a few moments. Regarding our pre-investments, we have hired, onboarded and trained our new sales and marketing teams who are building momentum daily in the field. Their primary focus and by extension, our initial measure of success will be to drive new customer opportunities in the fourth quarter to help lift the seasonal shoulders that drive more consistent volume over the course of the full year. This will have the added benefit of stabilizing margins and addressing some of our operator retention and turnover headwinds in the colder, more seasonal months.
COVID has resulted in delays in projects, customer spending and non-residential construction activity. We now see pent-up demand or customer demand, and Badger is well positioned to capitalize on the demand for the balance of 2022 and beyond.
We are also pleased with our continued asset utilization improvements. Q2 revenue per truck per month or RPT was of $40,000, which was up 35% versus last year and 28% sequentially from Q1. We ended the quarter with 1,353 non-destructive excavation units compared to 1,335 at the end of Q1, reflecting a net increase of 18 units. Our ability to manage our available fleet in real time is a significant competitive advantage for Badger.
As we position the fleet while constraining availability in some regions, we can drive utilization and higher pricing where we have good opportunities. Trucks are being added in markets that demonstrate strong revenue growth, high RPT and strong asset utilization. As we’ve said in the past, improving our utilization has a material impact on how we manage retirements, how we think about the number of units needed to achieve our growth targets and the appropriate level of invested capital. Our continued focus on fleet utilization also translates into improved labor utilization.
We have sufficient operators to support our current fleet size and continue to recruit new operators to support anticipated additions to our fleet over the remainder of the year. Now let’s speak about our fleet size. Badger manufactured 21 non-destructive excavation units in the second quarter and 37 units year-to-date for the first half of 2022 versus 5 and 13 units, respectively, for the same periods in ’21.
We are pulling forward a small number of retirements to balance our M&R or maintenance and repair spend against useful life improvements. We now expect to retire 65 to 85 units this year compared to the 40 to 60 units previously disclosed. As everyone knows, a retirement decision is individual to each unit and is typically driven by a large maintenance expense when a unit — or when a unit nears the end of its useful life or both.
We are now forecasting to build between 130 and 150 non-destructive excavation units down modestly from 150 to 180. The 2022 build forecast has been reduced due to second quarter production levels being lower than our initial forecast. Fazer experienced production challenges during the second quarter related to training new employees and full adoption of our new MRP system.
As Badger exited the quarter, production levels have increased and are reflected in the updated 2022 build forecast. Fazer easily comfortable which have been a key component availability and does not expect to be impacted materially by supply chain disruptions based on the company’s supplier relationships and inventory planning that we completed earlier in 2022.
Market indications suggest that non-destructive excavation equipment will be in high demand and more difficult to source over the next several years, which makes Badger’s market position and vertical integration that much more valuable. Unless there are additional geopolitical or macroeconomic disruptions, we see conditions to be favorable for continued progress in growing the business, improving our operating leverage and returning to historical margins as the recovery continues and we execute on our commercial strategy.
I’ll now turn the call over to Darren to discuss our financial results.
Darren Yaworsky
Thanks, Rob, and good morning, everyone. As Paul and Rob mentioned, our revenue in the quarter was $144.2 million, up approximately 31% from the same quarter of 2021. Gross margin was 24.8%, representing a 560 basis point improvement compared to the 19.2% achieved last year. And as Rob mentioned, we continue to invest in key sales and operations personnel in response to the market recovery and our long-term growth objectives.
G&A expenses was approximately $10 million for the quarter. These costs were largely in line with the levels last year, which also supported the stabilization of the cost this year also supported the stabilization of our legal entity reorganization, MRP system implementation and other related professional services.
These expenses are substantially complete, and we expect a lower G&A run rate for the balance of the year. We continue to anticipate our normalized G&A run rate to be approximately CAD 40 million annually as we previously shared. Adjusted EBITDA was $25.9 million for the quarter compared to $11.8 million last year.
Adjusted EBITDA margins increased to 18.0% from 10.7%, representing a 730 basis point improvement year-over-year. These margin levels continue to be modestly impacted by the costs associated with the legal entity reorganization and MRP implementation and stabilization as well as investments in key sales and operations personnel. We do not anticipate the costs associated with the legal entity reorganization and the MRP implementation to be repeated in the second year.
As a result, we remain comfortable with analyst consensus for margins for the balance of the year. Now on to the balance sheet. Badger maintains a focus on ensuring the strength of its balance sheet and financial flexibility. We have continued to make meaningful progress in accounts receivable management, particularly in the collection of low aged receivables.
At the end of Q2, nearly 80% of our receivable portfolio is aged less than 30 days, suggesting a stronger portfolio position in the DSO was of approximately 87 days reported in this quarter. We believe there’s still room for improvement, and we continue to work towards those improvements. We continue to maintain our CAD 400 million credit facility and which provides us over $165 million in liquidity at quarter end and sufficient financial flexibility to fund both near-term and long-term growth and complementary capital allocation decisions.
Finally, the Board has approved the quarterly cash dividend of $0.165 per share for the third quarter of fiscal 2022, with payments to be made on or about October 15 to shareholders of record at the close of business of September 30, 2022. I’ll now turn the call back to Paul for final comments.
Paul Vanderberg
Thanks, Darren. So before we open it up for questions, the quarter continued our recovery from code, higher activity levels helped us drive better operating leverage. We anticipate continued year-over-year revenue growth as the rest of the year progresses. And as Rob said, we’re focused on our sales, pricing, fuel recovery and operating cost initiatives along with our fleet management focus to drive margin and capital utilization. This focus positions us very well for the remainder of the year.
Our view of a significant U.S. and Canadian long-term opportunity for non-destructive excavation services and our long-term growth prospects is strong and unchanged. We believe that the focus on infrastructure, especially in the U.S. supports demand for our services, and we stand ready to strengthen and maintain that infrastructure and to adapt that infrastructure to new and sustainable technologies.
As Rob described, with our strengthened operations, our sales and marketing organization and the fact we’re executing on our commercial strategy, the company is making the business moves to take advantage of this opportunity, as always, the anger manages for the long term. Our proven business model, operating scale and flexibility, diversification of end-use and geographic markets, combined with our operating track record across all stages of the economic cycle, support achieving our long-term growth aspirations, as Rob mentioned.
Another benefit of moving past COVID is that this year, we’re going to be able to hold again an in-person Investor Day. We’re very excited about this and we’re hosting at our facilities, our U.S. admin facilities in Brownsburg, Indiana on Tuesday, September 20. We’re happy to be back again in person with this intent. — and we’ll also, of course, provide virtual options for those unable to join us vocally. Participants have the opportunity to meet with and hear from the senior team about our strategic update, our strategic priorities and longer-term financial goals.
Those of you who come to Brownsburg will also have a unique opportunity to see our Badger equipment there in person and to be able to operate at Panzanirpolts around Handsounder the supervision of some of Badger’s top operators from across the country. For further details, visit our Investor Relations website and complete the registration form or calls.
Question-and-Answer Session
Operator
[Operator Instructions] And our first question comes from Yuri Lynk of Canaccord Genuity. Your line is open.
Yuri Lynk
Paul, obviously, utilization very high in the quarter, at least measured by RPT. I thought your gross margin would have therefore been a bit higher than it was. Can you just explain what’s still weighing on profitability?
Paul Vanderberg
Yes. Well, as you mentioned, we did have much higher utilization in the month. We’re very pleased about that. And as Rob has mentioned last quarter and Darren has described very well in previous quarters. We’re really looking differently at how we manage the fleet. Rob and his team have been very proactive with moving equipment around and it’s not just adding, but it’s actually relocating equipment, much more proactively than we have in the past. So that’s the background behind driving utilization.
And we think that the manager paradigms we’ve had historically on when we add equipment are going to change. And we’re looking to sweat this iron a lot harder than we have traditionally. It’s a very different approach to fleet management, driven by the market opportunities and best stewardship from the operations team.
So that’s the background. To answer your question specifically, as both Rob and Darren mentioned, we’re paying ahead on several key initiatives with the strengthening of our ROPS team and especially the rollout of our commercial strategy and strengthening our sales and marketing organization. And these amounts are the main delta in our mind between where we were in the quarter and where we would expect to be based on past margin performance.
And then as Darren also mentioned, we had some projects early in the year. The legal entity reorganization and the MRP rollout at the manufacturing plant that were expenses for the first half of the year that will not be continuing in the second half of the year. So those are the significant factors that, to your question, weighed on margins, but we see that behind us.
Yuri Lynk
So it’s more a case of having to drive higher revenue to absorb these expenses? Like most of these don’t sound like they’re going anywhere, right?
Paul Vanderberg
That’s correct. We put the base in place. And as you say, as the revenue continues to increase these expenses, we do not expect to increase. So we’ll overcome that and get the operating leverage back in balance where we want it. But we’re really paying ahead on these initiatives, and that’s really what’s driving the short term.
Yuri Lynk
Okay. I just want to follow up on your comments on RPT and how we think about it because I find it strange that you’re increasing your retirements at a time when utilization is as good as we’ve seen in years and you actually are not able to build as many trucks as you wanted to.
I know you have some leeway in when you can take these trucks out. So why take these out now? Why not sweat them a little bit as you just said a few minutes ago and a follow-on to that is what is the RPT sweet spot now? It used to be kind of 30,000 and above 30%. So where are we now, especially with the inflation we’ve seen in the market?
Paul Vanderberg
Yes. Okay. Two great questions, Yuri regarding retirements, I mean, these are always, as Rob said, an individual decision. Each patient has its own medical chart and toward the end of life when things get older, it’s typically triggered by a significant maintenance expense. And each one is looked at very carefully.
And Rob brought in a very talented fleet manager from the rental equipment business, Lanbrown. He’s done a very good comprehensive scrubber the fleet — so this represents a little bit of true-up from Rob’s strategy and line strategy perspective. And you just make the right decisions and get on with it. It’s always a balance between maintenance and repair expense, which is our second largest operating expense after direct labor on the trucks and how much capital they put into the fleet and the team, is making some really good decisions there, number one. number two, on where we think RPT may go.
We’ve launched that journey with what Rob has put in place with the way he’s looking at operations differently. And we’re — as I said, going to sweat the fleet a lot harder. How far this journey will take us, remains to be seen.
But we’re really pleased with what we’ve seen so far with the joint operating leverage that comes from higher fleet utilization that goes hand in hand with better labor utilization and that we’re on that journey and we were very pleased with the performance, not only last quarter but also this quarter. And we’re going to see where this goes, but as I said earlier, the historical manager paradigms are on utilization and adding equipment; that type of thing are going to be pushed.
Yuri Lynk
Okay. If you could give us some indication of what a good assumption for RPT over the long run is it would be helpful given the changes you’re talking about?
Paul Vanderberg
Yes. No, we’ll actually look to target that in the upcoming Investor Day, along with our strategic update, and we’ll be updating all of that then. It’s still a work in progress, but it’s actually, it’s a very positive work in progress compared to what we see in the last couple of years for sure.
Operator
Our next question comes from Maggie MacDougall of Stifel. Your line is open.
Maggie MacDougall
My question is a follow-on to our line of questioning, which is trying to understand how getting better utilization out of your fleet or the changes in how you manage your fleet all the way through the manufacturing impact some of the, I guess, variable cost items. So it seems like you’ve built in a few pieces like a sales organization, et cetera, that you’re paying for upfront and will generate returns down the road that will help you get better utilization of your assets.
On the flip side, if you have better utilization of your assets and better visibility on maintenance and essentially having more efficient use of human capital and maintenance capital. What’s the longer-term benefit of that? Because it would seem like you may be able to do more with less, not just from a unit standpoint, but perhaps also from a labor contribution standpoint and parts and maintenance standpoint as well?
Paul Vanderberg
Yes. That’s exactly what we’re seeing. And we had a pretty good look into that in the quarter. Obviously, we’re not done with pushing the joint utilization benefits. But as you know, we’ve been through a challenging period in operator retention. And the thing that we’re finding is that as the utilization goes up, our operators are getting higher hours and they’re getting steadier hours.
So they get called in more consistently and this one thing that we’ve learned over 30 years of age as our operators want to work, and they want to make a good living and that higher utilization and better balancing of our overall scheduling in the business that includes both trucks and operators really is synergistic from the operator retention to that business. And when you get up into the higher hours per week work ranges. You do get into more of a sweet spot for the entire ecosystem.
Maggie MacDougall
If we were to consider historical revenue levels, ignoring revenue per truck and think about the level of staffing and equipment that you have on hand, what type of business do you think you could support from a sales level?
Paul Vanderberg
Yes. Darren, you’ve done a lot of analysis on sales is on this, and he’s dying to jump in on this one. You want to take this one?
Darren Yaworsky
Maggie, that’s a fantastic question. We’ll talk a lot more about this at Investor Day. But from a ballpark number perspective, you’re probably looking at with the current fleet size, current staffing size, an extra 10% to 15% revenue growth based upon above consensus revenue that is currently the analyst consensus. We’re still working through some of the art of the possible on balancing asset utilization. We’re working through some of the art of the possible on balancing asset utilization and labor utilization. But we think that an extra 10% to 15% on current fleet and labor size is dual.
Maggie MacDougall
Okay. Okay. And then my follow-on question to that is you’ve implemented a sales strategy, field sales strategy, national account strategy, training and staffing for that has already occurred and you’ve also aligned your operating strategy with that sales strategy, which obviously makes a lot of sense but I’m wondering where you’re at in terms of the maturation of the actual feet on the ground. You’ve got all the pieces in place. Where are the people at with regards to executing on targets that you set out for them?
Bob Blackadar
Maggie, it’s Rob. Super easy to answer that question. So in Q1, we announced the commercial strategy. I think I shared some of that with you last time we were Toronto. And then we started our hiring process late Q1, all throughout Q2 and really ramped up getting all of our team both new employees and some of our existing folks in the right seats on the bus. And at the very end of Q2, we actually held a midyear training meeting for all of our sales and managers and really to get everyone on the exact same page of our new program.
We did training about Badger specifically, our customer base, but even more importantly, the opportunities in the market. We’ve since cut them loose in the month of July and August with some new information skill set, and they’re underway. As far as just the basics of the business and the basis of the business might potholing and just very basic daylighting. A new salesperson, we believe that Page can get up to speed in about 90 days.
It is not a long, long ramp-up period. But once you get into the nuances of the business where you start doing some more complicated bids and all that, that’s a bit of a longer journey, and we think that’s probably 6 to 9 months, maybe even the full year. That doesn’t mean we need a full year to ramp up all of our sales team, but rather just the deeper dive. That’s the time frame you were asking about, how long does it take to get them up to speed.
The good news is, and Darren, myself, Paul, were sharing this yesterday and some meetings that we believe we will get the benefit of the sales investment and start to see it in a much bigger way in that Q4 and Q1 upcoming Q4 and Q1 periods, that normally we have a pretty strong seasonal downturn. And this year, we think it’s going to be a bit of a game changer. And we’re very, very excited about that because the time I just gave you on the development and people being up to speed really coincide with that Q4, Q1 period.
And again, on Investor Day, our Head of Sales and our Head of Natural accounts will be there live. And Maggie whether you’re there in person or on a video, they are very approachable and they will give you a lot more color on exactly what they’re doing for you to understand that.
Operator
And our next question will come from Daryl Young of TD Securities. Your line is open.
Daryl Young
Just following up on the increased focus on fleet mobility and managing that side of the business more acutely. Is that going to create more of a fixed or semi-fixed cost base of expenses going forward? And I know you just mentioned that the back half of the slower period you expect to do better. But is that something we should be aware of that’s going to impact margin volatility going forward? No, I don’t think so.
I think when you start looking at asset utilization that we’re trying to balance off level off the load of the business level that Rob’s sales team is generating, the assets and labor utilization balanced against that and then balancing our manufacturing. One of the corollaries by products that come out of that is a better visibility into your build program and into your M&R program. So we can have a more comfort in being able to retire units like Rob is doing, knowing that we can flex the capabilities of our national fleet a lot better.
It shouldn’t change your fixed cost structure at all, and it shouldn’t change your variable cost structure at all. In fact, you probably get better variable cost management related to asset use as opposed to having to go through M&R expenses to bring an idle unit back online again — and Rob, sorry, I set out of your toes. Do you want to add anything to that?
Bob Blackadar
You’ve covered it well. The only thing there, I’d probably add to give you color so you don’t think we’re just constantly driving they’re mobile trucks and they all have wheels, but we’re not constantly driving them everywhere is Darren and I had a really good strategic discussion with Paul early in the year right around the turn of the year. And we said we really have an interest, Paul, in really driving utilization in the fleet because they’re and I have similar backgrounds, having done some time, good times in the rental business.
And as most people know, it’s really tied to utilization and pricing in that industry. One thing we decided to do a little different barrel that, again, it’s just now started to show some results. It’s not fully matured. It’s just underway. But instead of moving both new assets and existing assets to where we have high demand or just high potential utilization.
We’re actually looking at several different factors, including high demand, high utilization, high existing profitable branches and high pricing and basically trying to put our assets where they can get the best returns in the markets in which we operate. And again, these are more, let’s move them into the market, grow the market, put the sales resources.
And historically, Badger’s always been able to go into new markets and do very, very well. But now with our competitors, we had — we believe we have probably one of the most focused strategies in our industry to capitalize on that. And we believe long term, the results are going to show. So that’s what we’re doing. But you’re not going to keep moving the trucks just moving them moving them, we’re moving them strategically into the right markets or to chase a project that is extremely profitable for us is what we’re doing.
Daryl Young
Got it. And then those regional sales and marketing managers would be a relatively smaller component of the cost structure in comparison to the benefits of the utilization.
Bob Blackadar
Yes. Yes. yes. Absolutely.
Daryl Young
All right. And then just one last question. With respect to the Airvac, and this is probably more a medium or long-term question, but prioritizing Hydrovac versus an Airvac truck getting deployed in any given day and the ability of operators to I guess, interchange between those 2 vehicles. Is that relatively seamless? Or how is the strategy going to work in terms of which truck to which site when and complexities there?
Paul Vanderberg
Yes. No, I’ll comment on that, Daryl. I mean we’re early days with air excavation, very exciting, and we look on what we were doing in the last quarter. And we think this one has a lot of legs in the marketplace. It’s non-destructive expiration, which Badger’s been the leader in for 30 years.
And as we have for 30 years, we’ve always said best operator, best truck when it comes to Hydrovacs, and that’s really what provides the service on the job site. So training and development mentorship has always been huge, and it’s going to be just as important on Airbase as with Hydrovac. But there are some differences in how they are operated. So I would expect that there’ll be people that specialize in the air excavation. We’ve already seen that with the prototypes we’ve had out and it’s all about on-site productivity.
And that’s what the customers really love us for. And so we’ll probably see more specialization. It’s not ideal from switching operators from one truck to the other. There’ll be a small number who can make that switch. But from the productivity and customer service side of it, we’ll probably do more specialization. The good news is that given what we’re seeing today and into the future with higher customer demand and utilization, there’s going to be less need to move operators from unit to unit in the near to midterm. So — but this is a very exciting initiative for us.
Operator
And our next question comes from Yuri Lynk of Canaccord Genuity. Your line is open.
Yuri Lynk
Paul, can you talk a little bit more about the MRP program implementation in Red Deer. You did call it out in the MD&A as a hindrance to the truck builds. Just wondering if you can provide more color on where we sit today with that program.
Paul Vanderberg
Yes. No, very good question. And as we had previously disclosed, we actually went live and turned the system on very successfully back in January. And we actually went live with that to match up with the timing of the legal entity reorganization. Those 2 initiatives went hand in hand and they’ve both been very successful. We’ve built trucks in Q1 based on supply chain that was in our previous legacy MRP system.
So with long lead times on procuring inventory in our supply chain, we had to empty out the old ERP system pipeline and begin filling up the new ERP — or MRP sorry, MRP system pipeline. And that’s what we did as we went through Q1. When we got into early Q2, that’s when we went entirely on the new MRP system supply chain pipeline. So that’s where we really had the rubber hit the road when it came to all the learning and the training and all the folks in the plants.
And people right down the Department supervisory levels are actually engaged with this MRP system. So lots of learning, lots of training. And I’m not going to say it was pretty early in Q2. But the team got through it very successfully. And it’s one of those scenarios where you can build a Badger and actually physically, but it doesn’t count until it’s built equally successfully in the MRP system.
You have to build it both physically and in the system. And we work through those bumps in Q2. And as we got to June, our build rate was up dramatically, and that’s reflected in the remaining forecast for the year. So we lost some production because of that. But when you look at an MRP system implementation, similar to the overall enterprise ERP system implementation, we did in the back half of ’19 and into early 2020. This is a big, big project, a big commitment, but it really puts the foundation under the manufacturing business to significantly scale it.
And the timing couldn’t be better coming out of COVID. And in my opinion, the timing could not be better to make those investments given what we’re doing to drive the market penetration and execute on our commercial strategy. Rob’s first question when we met, I think, the first time, Rob’s laughing, but we asked me if we were going to be able to build enough trucks to support the growth ambitions he saw for the company. So we’re continuing to make these investments and do the right thing for this foundation.
Yuri Lynk
And how would you describe the availability of components for the trucks? I think you’re well covered on chassis, but what about the blowers and everything else?
Paul Vanderberg
Yes. We’re pretty comfortable with our position. We worked very hard for a long time on our manufacturer, supplier relationships and the manufacturing and supply chain team, along with the fleet team has really worked hand in hand to make sure our sourcing pipeline is solid. So knock on wood, we’re pretty comfortable with where we are right now.
Yuri Lynk
Okay. Then I guess, maybe more of a philosophical question that I’m sure comes up around the board, and maybe you could give us some insight into that conversation. But you’ve added a lot of fixed costs over the last number of years, and it sounds like you continue to add some in the quarter. I mean at what point do you just say, let’s pause here. Let’s see what happens, see what kind of returns we can generate with what we’ve put in before you continue to add more costs to the platform? Or is the growth opportunity that obvious to you that you’re confident going ahead with these continued investments?
Darren Yaworsky
Yuri, I think that’s a fantastic question. I think the simple answer is we hit that point of ending spend. I think we’ve made all of the necessary investments into the key infrastructure to support our growth. The last piece was manufacturing. And I think that’s being balanced off really nicely with how we’re looking at our fleet strategy and utilization. So essentially, what we’re trying to do is load balance from front-end, Rob identifying the market — Rob’s team identifying the market opportunity and us loading — load balancing across the entire organization, leveraging our vertical integration.
So that gives us some comfort to be able to move down the manufacturing or move up the retirements as we increase utilization. And as we have better visibility into retirement and some of those retirement towers that we have in 2023 and 2024. The systems are there. The MRP system is working.
I would argue that 1-month transition from a human capital perspective adjusting from manual to system-driven manufacturing is outstanding. The ERP system is working really well. And then that augmented by what Rob’s team is doing on the commercial strategy and the sales and marketing penetration piece is all kind of in place. So the company is set to be able to push volumes and scale the business without having to scale costs.
And at Analyst Day, we’ll break down a little bit more of how that fixed cost structure is broken out — so we’ve been pretty clear on G&A. There are some fixed cost structures in direct costs that we’ll provide some more light on that may help you with your model. But I think the spend is over other than variable cost to be able to support volume growth. The fixed cost spends are largely done. And Paul and Rob, if there’s anything you guys want to add jump in? No, there’s time to run more volume to the Badger machine.
Operator
I would now like to turn the conference back to Paul Vanderberg for closing remarks. Your line is open.
Paul Vanderberg
Okay. Thanks, Tonya. We’ll close now. But on behalf of all of us at Badger, we want to thank our customers, our employees, suppliers and especially our shareholders for all of your ongoing support that really drives our success. So Tonya, you may end the call. Thanks.
Operator
Certainly, this concludes today’s conference. Thank you for your participation. You may now disconnect.
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