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Good day, ladies and gentlemen, and welcome to the Badger Daylighting 2019 First Quarter Results Call. [Operator Instructions] And as a reminder, today's conference call is being recorded.I'd now like to turn the conference over to Paul Vanderberg, President and Chief Executive Officer. Please go ahead.
Thank you, Candace. Good morning, everyone, and thanks for joining our first quarter investor call. With us this morning on our call is Jerry Schiefelbein, our CFO; and Jay Bachman, our VP of Financial Operations. Our Q1 earnings release, along with the Q1 MD&A and financial statements, were released last night and are in the Investors section of our website and also on SEDAR.We're required to note that some of the statements made on this call 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 statements based on certain assumptions that we consider to be reasonable. However, forward-looking statements are always subject to certain risks and uncertainties, and undue reliance should not be placed upon them as actual results may differ materially from those expressed.For more information about material assumptions and risks and uncertainties that may be relevant to such forward-looking statements, please refer to Badger's Q1 MD&A and Badger's 2018 annual information form. Further, such statements speak only as today's date, and Badger does not undertake to update forward-looking statements.So let's jump right into the results. We are very pleased with the results in the quarter with revenue and adjusted EBITDA at record first quarter levels. For the quarter, we realized strong year-over-year revenue growth combined with continued improvements in margins. The improvement in margins is particularly encouraging.Consolidated Q1 revenue was $146.6 million, up 22% from the prior quarter. Q1 revenue was 24% higher in our U.S. operations, that in U.S. dollars, with revenue in Canada consistent with the prior year quarter. This growth was achieved in spite of difficult weather conditions in the quarter that impacted construction projects across a number of our regional markets.Badger continues to increase exposure to U.S. infrastructure markets. For Q1, our U.S. operations contributed 76% of consolidated revenue versus 71% last year. As we previously discussed, we are optimistic that there is significant runway to aggressively grow our business in the U.S. Q1 adjusted EBITDA was $33.3 million, up 36% from the prior year quarter on net revenue growth of 22%. We are very pleased also with the operational improvements reflected in gross profit and adjusted EBITDA margins. For the first quarter, gross margin was 29%, up 350 basis points from Q1 last year. We would like to note though that adoption of IFRS 16 regarding accounting for leases resulted in a $1.1 million increase in gross margin in the quarter versus last year. If one adjusts for the IFRS 16 impact, gross margin would have increased by 270 basis points versus Q1 last year.Adjusted EBITDA margin was 22.6%, 240 basis points higher than the prior year quarter. Improvements in the EBITDA margin were driven by direct cost management and strategic pricing initiatives. The continued focus on margin is a real testament to the discipline of John Kelly and our great operations team.General and administrative expenses rose versus the prior year quarter due to operating expenses, mostly related to our Common Business Platform initiative, which offset a portion of the operational improvements to address the EBITDA margin. G&A expense as a percentage of revenue was 6.3% in Q1 compared to 5.3% in the prior year.We continue to make investments in our internal infrastructure to ensure we have the capabilities to support continued growth within the business and also with a significant focus on information technology and human resources initiatives related to preparing for the new ERP system. We expect to see higher levels of G&A throughout this year as we operate dual systems but do anticipate that these expenses will begin to decline as a percentage of revenue as the implementation is completed. Our long-term objective remains at 4% of revenue for G&A expense.Net earnings for the first quarter were $6 million compared to $8 million in the prior year quarter. Net earnings were positively impacted by the same margin drivers I noted a minute ago but were offset by approximately $8 million in share-based compensation expense from increases in Badger's share price and also a smaller amount of impact from higher depreciation expense due to an increase in the fleet.The operations team continues to successfully manage growth and balance growth in fleet utilization. Our Q1 consolidated revenue per truck per month was approximately $30,800, up 8% from RPT of $28,600 last year. We added 20 net hydrovacs to the fleet in the quarter, building 37 units and retiring 17. I would like to highlight that the build rate of 37 units was slowed early in the quarter as we introduced and worked through the transition to a new chassis in the plant. Despite the slower build rate early in the quarter, we do not anticipate a change to our previously provided annual build rate, which I'll discuss with our guidance in a few minutes.Now that we've touched on the financial summary, we'd like to add some color on general activity and our outlook. Throughout the first quarter, we continue to see revenue growth across our broad range of geographies and our broad range of end-use market segments. As detailed in our 2019 financial outlook, we expect that these trends will continue throughout this year.We anticipate solid activity levels across the majority of our markets with continued volume growth as well as anticipating modestly higher average rates due to pricing initiatives and higher utilization. The Canadian oil and gas market has slowed, and we expect this to continue to be the case. We continue to see operations -- our opportunities though on the infrastructure side of Canadian oil and gas but expect to see the production side of the market to be slow for the foreseeable future. However, the significant U.S. market opportunity has enabled Badger to realize growth in the U.S. and reposition our geographic and end-use market mix. Because of this growth, the Western Canada oil and gas market is a much smaller part of our business mix than it was just a few years ago.With the significant growth opportunities Badger sees across the majority of our operations, we are continued to be very focused on recruiting and training operators. The strong opportunity in the U.S. is great for business and great for growth, but it also creates challenges related to labor. Although labor presents to these challenges, we still have the opportunity that's -- there based on the market growth. So as usual, it's all about execution for Badger for the rest of 2019.We continue to see positive momentum in the business for the rest of this year, and we're encouraged by our revenue run rate in Q1 despite weather during the quarter in a number of our markets. February was a real challenge across some of our geographies. We anticipate solid activity for the full year 2019 in the U.S., although we've seen in early Q2 quite wet weather conditions across a number of our markets, which has delayed work. As all of us know, delays in the spring construction season will often result in work being squeezed into the remainder of the year, and we've all seen this in the past. But for 2019, we see it, the opportunity is there, the work will ultimately get done, and Badger will be there to provide the level of service that our customers expect to get their projects done.Now a quick update on our Common Business Platform project. As previously discussed, Badger is executing on standardizing business processes and modernizing our legacy IT systems into a single ERP platform. We refer to this collectively as Badger's Common Business Platform project. The Common Business Platform project remains on schedule and on budget, with rollout scheduled for the second half of 2019. We're in a very intense rollout phase right now where we're going to go live starting in early July, and I can tell you the team is working very hard and dealing with a lot of intensity and pressure. It's a very exciting time for this project at Badger.Next, on our 2019 guidance. In our first quarter earnings release, we had previously provided our 2019 financial outlook for adjusted EBITDA of $170 million to $190 million, a truck build of 190 to 220 new units and expected retirements of 40 to 60 units, and we continue with that view. A couple of comments on capital allocation. The business trends and the growth we continue to see has provided Badger with the confidence to seek opportunities to drive long-term shareholder return. Last quarter, the Board approved a 6% increase to the dividend effective with payment of the March 2009 (sic) [ 2019 ] dividend. In addition to the dividend increase, Badger repurchased and canceled 633,000 shares during Q1 under our NCIB program. Cumulatively, the company repurchased and canceled just under 1.3 million shares or approximately 3.4% of the pre-NCIB share count. Badger's existing NCIB program expires today, and as a result, the Board yesterday approved an updated program for purchase and cancellation of up to 2 million additional shares. Implementation of the updated program is subject to normal course regulatory approvals by the TSX, which we anticipate to obtain in the normal course.Regarding the balance sheet, Badger's balance sheet continues to be strong, providing necessary financial flexibility to support our growth opportunities and strategically manage capital allocation. As of March 31, 2019, total debt less cash was $85 million or 0.6x trailing 12 months compliance EBITDA.Before we move on to the Q&A, I'd like to spend a minute to review the continuing progress we're making toward our strategic milestones that we set in late 2016. To review, our strategic milestones are as follows. Number one, to double the U.S. business from fiscal 2016 levels over the succeeding 3 to 5 years. Our 2019 Q1 revenue growth puts us off to a solid start for this year with our revenues up 22% compared to last year and U.S. revenues up 24% compared to last year. In addition, our 2018 year-to-date growth in U.S. revenues was 30%, that being on top of a 32% increase in our U.S. revenues for 2017. So we have had excellent progress in achieving our first milestone, being over 75% of the way to doubling our U.S. business from the starting point, and we're 9 quarters into this 3- to 5-year milestone.The second milestone is to grow adjusted EBITDA by a minimum of 15% a year. Our growth in adjusted EBITDA for Q1 was 36%, following 29% growth for full year 2018 and 20% growth for full year 2017. We're very pleased and continue to make excellent progress in achieving this milestone.Our third milestone is to target adjusted EBITDA margins of 28% to 29%. We are very pleased with our start to this objective in Q1 2019. Our year-to-date margins reflect the positive impact of U.S. growth, operating cost leverage and management and our business improvement initiatives. Our Q1 2019 adjusted EBITDA margin was 270 basis points higher than Q1 last year, that after adjusting for the current quarter impact of the adoption of IFRS 16.And our fourth key milestone is to drive and maintain fleet utilization and revenue per truck above $30,000 per month. And we're also very pleased with the progress on this milestone with Q1 2019 RPT of approximately $30,800, up 8% from our Q1 RPT last year. Utilization is very important in a number of other operating aspects of the business, including driving our operating cost management, opportunities for pricing and supporting overall revenue growth, and we continue to see positive trends in all 3 of these operational focus areas.As a final note, before we turn the call over to Q&A, we'd like to recognize Jerry Schiefelbein, who, as previously announced, is set to retire during the second quarter. So this will be Jerry's last call at Badger. We wish Jerry all the best. And he's been with Badger 5 years. What a remarkable time frame at Badger. Certain events and activities that happened, you couldn't have written in a book, we couldn't have predicted. And the other part of Jerry's tenure at Badger, he's a Wisconsin guy, grew up -- born and raised in Wisconsin. And who would have thought a guy from Wisconsin would end up as CFO of a company called Badger? So Jerry, thank you very much for all your contributions.Now with that summary, we'd like to now turn the call over to Candace for questions.
[Operator Instructions] And our first question comes from Yuri Lynk of Canaccord.
Jerry, I want to congratulate you on your hard work. Enjoy your time off. Paul, regarding the U.S. growth, I mean, it certainly continues to roll along. Have you noticed any change in the cadence of hydrovac adoption south of the border?
We consider -- continue, Yuri, to see very good opportunities there. And as we broadened out our marketing programs and are more comprehensive in approaching customers, we continue to see good take-up. So we see that growth and that runway there for the foreseeable future. I don't know how long it can go, but it looks like it's going to have a really good long-term run.
And is the game plan still the same in terms of going after regions that are within reach of existing branches and starting with a couple of trucks and doing demonstrations? And is that still part of the plan? Or are you getting pulled more by your customers into different regions?
Yes. That's a great question. You're right, our strategic planning session in -- last month actually, but we have a very disciplined and organized approach. And the real important part of Badger's service is to always have a truck available when a customer calls. So it's really a challenge to start a new branch which is very far away from our existing network, which is very strong, and the scale allows us to always have equipment and operators when a customer needs a truck. So I think you'll see us continue to take that approach. And even with that approach, we have an extraordinary amount of growth opportunity and plenty for John and the ops team to chew on. So you'll see us continue to do what we've been doing.
Okay. Good. Last one for me. Just any detail on how you plan to catch up on the fleet additions? Because, as you mentioned, Q1 was quite a bit below what I was expecting due to the -- I guess the chassis changeover.
Yes. Well, we did have some challenges with chassis changeover. And with the new chassis, everything is computerized, so we needed to have 3 different computers talking to each other, which we very successfully had running by the end of January. But we were slow rolling units out to the fleet in January, but we're way past that. The new units are working great, excellent feedback from the field. And we're ramping up for the summer, and we're very confident that we're going to hit our guidance on our build rates for this year.
So you have the operators trained up and ready to go. It was just that the trucks weren't ready yet. Is that it?
Yes. It was about a month's delay in getting all the programming done. The guys at Red Deer did a wonderful job working with the technical folks and the chassis manufacturer. And it was a temporary slowdown, but we're hard at it now, and we're anticipating very busy activity and rolling trucks out as planned for the rest of the year.
And our next question comes from Maggie MacDougall from Cormark.
I wanted to follow up a bit on one of Yuri's questions and just talk a little more about the growth in the U.S. Really curious if a lot of what you're seeing in the quarter and recently is digging deeper in terms of penetration in your existing markets or if it's largely coming from growth into new areas via that bootstrapping technique that he was discussing?
Yes. Great question, Maggie. And I'll go back and make some comments on 2018 and then roll it into 2019. We've had really good success in both penetration in existing areas where we're established and also expanding in the new geographic areas. We had really good success last year in that. It was very gratifying to see. And we continue to anticipate additional penetration in our existing areas. And a lot of it is you can expand your radius from existing branches before you set up new branches. But a lot of it also is customers that are not using hydrovac, and we continue to see conversion of customers that were using alternative methods of nondestructive excavation who are more and more adopting hydrovac. And our sales and marketing efforts with the big municipalities and utilities and other operators of critical infrastructure continue to give us feedback that there's opportunity for penetration. So we see both legs as growth opportunities continuing into the future.
Okay. And then on that note, I noticed that you made some comments in your prepared remarks just on labor and tightness of labor in the U.S., which is, I'm sure, not surprising to anybody. But wondering if you could comment on whether you foresee access to labor being an issue at any point in your future-proof [ guidance ].
Yes. Well, we have seen it as issues in certain regions where it has limited our ability to expand as fast as the market opportunity is there. So it's one of our critical strategic initiatives. It's our #1 strategic initiative for the management team to focus on. So it's all about execution. We continue to add to our recruiting resources, and we are also just in the process of starting up a very exciting program for operator training. We're establishing a North American training center adjacent to our Brownsburg, Indiana U.S. corporate office. And actually, as this call is underway, we have our first group of trainees in that. So we're looking to actually improve our onboarding, improve the initial experience of operators by bringing them in, training them in the Badger way and putting the Badger stamp on them. And we're hoping that'll accelerate our rollout of new operators into the business and also make a better connection to improve our retention rates with operators. So this is a very exciting initiative. It's a new one, and it's one that I think is going to be bearing fruit in the coming months and years. So stay tuned on that, but we're pulling out all the stops on not only recruiting but also training and then retention.
Okay. And then one final question for me. Wondering if you could just speak to trade. A lot of headlines recently around what's going on between the U.S. and China, and I'm curious if there are any potential issues you've identified, either from a supply, procurement or cost standpoint or from customer sentiment.
Yes. From the supply side, with our chassis and other components, we have not seen a whole lot. Things have been quiet since the tariffs were introduced -- the cross-border tariffs last year. And even that has settled down, and our costs from that have settled down. There could be broad economic impact. You saw the way the financial markets have reacted. But unless it's a very broad-based economic decline that is somehow triggered by trade issues, we would not see a direct impact to our customers and to our customers' projects.
And our next question comes from Stephen Harris of GMP Securities.
Just a couple ones for me. Wondering if we can dig a little deeper into some of the areas of strength you're seeing in the markets, particularly in the U.S., either on a regional basis or an industry basis. What stands out as being particularly strong? And are there -- in what are obviously very good results, were -- are there any pockets of weakness in there as well?
Yes. No, great questions, Stephen. We have hesitated to disclose a lot of our regional results for competitive reasons historically, and I really hesitate to provide too much detail. But it's safe to say that we do have a range of markets and a range of attractiveness of different markets. Some of our newer markets are the ones where the best growth opportunities are. And some of our older, more mature markets in Western Canada would be a very challenging one now, especially with the downturn in oil and gas, would be less attractive from that perspective if you look internally. But we have identified and are executing on growth in markets which we think are going to be very attractive in a longer-term setting, and they're also very attractive from a margin perspective. So that's why we're driving so hard in the U.S., because the opportunity to grab the high ground is there.
Okay. And I wonder if I could also dig a little deeper into something you talked about in your MD&A, where you talked about how your labor, particularly your variable labor costs, as a percentage of revenue had declined. And that sort of stands in contrast with what we're seeing generally out there as being the relatively tight labor markets in the U.S. What are you doing specifically to achieve that? And how much of that is initiatives that would be, say, apart from hourly labor costs?
Yes. No, good question. The labor efficiencies we've seen and we've been able to capture over the last several years have been very closely linked to our utilization improvements and RPT, and those 2 are pretty closely linked. And when the fleet is very busy, it's very efficient. When the fleet is not busy, you have to manage labor costs by sending guys home when you don't have work for them, calling them in when you do have work. It's a lot better if the machine is working and working consistently and working busy. So that's a hand-in-hand type of a leverage. And that's why we've also worked very hard to develop our sales and marketing organization. It not only helps us on the growth side, but good sales and marketing programs help us even out and stabilize our demand so we don't have the big ups and the big downs. We have a real focus on growing our customer -- number of customers to broaden out the customer base so you don't have the ups and downs, and it's really part of our sales and marketing program. So that would be the main one, sales and marketing, that we continue to drive as an internal improvement initiative to level out our volume, and that really helps managing labor expense. And it also helps on retaining operators. When the operators get steady hours, they get that 50, 55 hours a week, life is pretty good. When the hours are inconsistent, that's when we have challenges retaining operators. So all these things work hand in hand and not only the retention but also the evening out of customer demand are 2 very key business improvement initiatives we're very focused on. Great question.
So have you seen labor turnover -- or operator turnover go up or down this year versus last?
Yes. We've had some modest improvement in retention, which we're very pleased about. And we're -- like I was talking about earlier, with the new training center and the additional recruiting resources that we put in place in Q3 last year that are just getting up and operating, we're optimistic we're going to continue to push retention higher over the next year or 2. There's no magic wand you wave over this. I mean we all see the U.S. unemployment statistics, but there are things we're very confident we can do to continue to push retention rates higher over time. It's a game of nickels and dimes, it's not a magic wand.
And our next question comes from Jonathan Lamers from BMO Capital Markets.
The revenue per trend -- per truck trend in Q1 were very strong. Paul, can you comment on how the trends for U.S. and Canada were as Badger exited Q1 and how the -- your outlook for the spring and summer construction season may have changed since we last spoke in March?
Yes. I'm happy to comment on that. Q1 was a solid quarter with good year-over-year improvements, up 8% in RPT. I did comment a minute ago that early Q2, we've seen some wet weather, so it's been a bit of a mixed bag with the volumes and associated RPT. And we do see though, once it dries out, we're going to see a real explosion of business based on the activity levels that our folks in the regions see. So it's just a matter of when spring really happens and when the dry weather really happens. And we're ready for it. We have the operators. We're building the trucks, and we know where they're going when they came off the line at Red Deer for the year. And it's going to be, we anticipate, an extremely busy Q2 -- end of Q2 and end of Q3, but it was a slow start to Q2. So we'll see how the quarterly number goes, but this is pretty normal. When you're in the construction business working outside, it happens.
And just on the trucks that are coming out of Red Deer. With the delay in Q1, Red Deer might need to put out as many as [ 50 trucks ] a quarter over the coming quarters, which would be back to pre-oil and gas downturn build rates. Is the capacity there? Is the labor ready for building at that kind of a rate?
Yes. We see that as very achievable. And there are other things that we can also do at the plant if we need to go higher, but the guys at Red Deer are staffed up and staffed appropriately. And we have all the supply chain and the components lined up to meet our build targets for the year. So again, this was about a 1-month delay in programming these computers, in the transmissions and in the transfer cases and all the different components. So the team did a great job, but we had about a 1-month delay there. And the trucks were built, we just couldn't send them out. So it wasn't like they weren't built, there was just a programming issue. So we're very confident that we're going to be fine with our guidance for the rest of the year.
And just on truck costs, the average CapEx per truck was a bit high in Q1. I assume that was because of this disruption in January. And if you could just comment on that and also, maybe whether you're seeing an adjustment to chassis prices on your latest round of orders for next year, given that steel costs have declined so materially.
Yes. Well, we've seen the changes with steel costs, for sure, and that's been positive. But the U.S. economy is extremely strong, and the truck chassis manufacturers are very, very strong in their demand. So we've seen some modest increases in chassis pricing, which is to be expected. But we're very confident we're going to get the chassis we need from our suppliers. And -- but we don't see any major cost changes on the chassis side.
Okay. And on the 2019 guidance, I was a bit surprised that the company didn't raise its guidance, given that we now have the IFRS 16 benefit to EBITDA, Q1 results were strong, the Canadian dollar seems to have gone down to a lower level. Could you explain the thinking in not increasing the guidance at this stage?
Yes. I'm happy to provide some color, Jonathan. IFRS 16 was something that went into our initial guidance for 2019, so that was baked into our thought process. We knew that was coming. And I did comment on the wet weather in Q2, and it's still early in the year. If you look back at our seasonality, Q2 and Q3 are the big quarters volume-wise, and then business usually tails off in Q4. So once we see how spring kicks in, we'll certainly be looking to update our guidance, but it's still pretty early in the year, too. So those would be the 2 major factors behind the thought process.
Okay. And if I could just ask about the margin improvement that we did see in Q1. I was interested in this commentary about the operating leverage. Within the direct cost bucket, is the shoe too big for the foot there the way that -- similar to the comments you've made in the past about G&A?
Well, we had a pretty good experiment on how much operating leverage can fit into that shoe back in Q4 with all the emergency relief, and we saw what happened with margins there. So when you look at the run rate we had in our fleet utilization and any associated operating leverage with that in Q1, we're not even close to the -- how far we pushed it last Q4. So we'd love to test it again, but we had a pretty good stress test on that, which turned out to be very positive margin-wise in Q4 with that $22 million in emergency relief work that we very successfully managed across our branch network and across our fleet with RPT over $40,000. Now you can't continue that forever, but it gives us a little bit of a view and an indication that Badger's network and the scale of operations provides a lot of flexibility and provides a lot of advantages to manage swings in volume. So we'd love to test it again, and maybe we'll get a chance later in the year.
Within the Canadian business, there's quite a notable margin percentage improvement in Q1 '19 versus Q1 '18. Has there been a shift in the mix of Canadian business since the prior year?
Yes. Well, a couple of things. We continue to drive all the same business improvement initiatives across the whole organization, including Canada. Our intelligent pricing initiatives have benefited our Canadian margins, and we managed the fleet utilization very closely and move trucks around. But the other aspect, and it's an accounting item regarding IFRS 16, we have in Canada more bigger leases on real estate as a percentage of the business than we do in the U.S. So the impact from IFRS 16 was a little bit bigger in Canada just based on the structural mix of our historical leases, some bigger ones and longer-term ones than we have in our U.S. business. So there was a little bit of impact there, too. But we continue to have good success with pricing initiatives and other internal improvement opportunities we're going after across all of our operations, including Canada.
[Operator Instructions] And our next question comes from Matthew Weekes from Industrial Alliance.
It's Elias for Matthew. First of all, I just wanted to again congratulate you, Jerry. I know it's been an interesting 5 years there. Moving on to one question because most of my questions have been asked. It's a bit of a capital allocation question and a bit of a guidance question, but I'm going to try to pinch the issuer bid. Given that you haven't changed your guidance, would it be safe to assume that the pricing that you stepped into the market in Q1 would be about the same pricing that you would look at going forward? Or are there some other factors that might change that, that we can't see yet in the guidance?
Elias, are you asking a question regarding the pricing at which we may execute under the NCIB?
Yes, yes. Just asking in general terms. Would it be similar to the first quarter amount or -- given that you haven't changed guidance? Or is there something else that we might be thinking of?
Yes. Well, the Board updates the strategic plan every year, and as part of that, we look at what we think the intrinsic value of the company is. That's just good discipline as part of the strategic planning process. And all of that would be reflected into our thoughts on the potential pricing to repurchase or -- and cancel shares under an NCIB. So if there's activity out there, that will be disclosed as per the disclosure regulations, and it will be made public under those regulations.
And our next question comes from Jeff Fetterly from Peters & Co.
Just to follow up on the Canadian margin side. So I'm just trying to understand and reconcile. So year-over-year, Canadian revenue was flat. Your margins were up meaningfully, implying that you took about $2.5 million of costs out of the business or the revenue mix was there. I understand your comment about the IFRS benefit and the weighting towards Canada. But is there any items in Q1 '19 that were particularly profitable that wouldn't necessarily recur? Or has there been any material structural change in the cost structure for the Canadian business because revenue's been stagnant no matter which quarter we look at, and the margins are obviously quite strong in Q1?
Yes. Good question, Jeff. I mean we've been looking at the Canadian business for cost reduction opportunities for several years, and that process continues. So you always have different opportunities, and we're very focused on that. As everyone on this call knows, the Canadian market is our most mature, and we do have a fairly high level of competitive intensity, both east and west, in Canada. So we continue to focus on that. And this is something you grind away at. Small items here and there, and it's picking up pennies and nickels to drive margin higher. I did mention earlier we've had some good success on our strategic pricing initiatives. We've had strategies that have been driven centrally there with some very good success. And these are things we're just going to continue to grind away at. There's not a major factor. I did call out IFRS 16 because it was a onetime lump with the change in accounting to move it down -- move the expense down into the depreciation line as opposed to lease expense. But those are the factors, and you'll see us continue to drive internal improvement initiatives across the business and managing labor costs. All those things are just part of Badger's day-to-day operations. And we're very pleased with the process we've had, and we'll continue to stay focused on them.
Is it reasonable to assume that Q1 '19 compared to Q1 '18 net pricing would have been higher, but volume would have been lower?
Yes. I would agree with that for Canada specifically, yes.
Yes, sorry, on the Canadian side. Okay. Just to follow up in terms of the chassis and manufacturing side. With the implementation or change that you mentioned, did you guys change chassis providers? Or is it just a model update?
No, we did not change providers. It's a new model, and we're going to all-automatic transmissions as opposed to manual transmissions. The new units have some really great technology. And the other aspect of going to automatic transmissions is it really opens up a much broader funnel of driver candidates. Because a lot of commercial drivers come out of training schools not trained for manuals, but they are on automatics. And pretty much all the over-the-road trucks that are being built and have been built for a long time are automatics. So it's not only a technology improvement, but it's also an opportunity to dramatically open up the candidate funnel for drivers -- for commercial drivers in North America. So we're very pleased with how that's -- how it's transitioned. It was a little bit of sweat in January when we're working on the programming, but the guys have done a great job, and we're off to the races for the rest of this year. So there's a really neat labor component to the change, too.
What's your lead time for ordering chassis or the new chassis right now?
Lead times are about the same. They're pretty much close to a year right now. That's a pretty good KPI on how strong the U.S. economy is.
And so when you think about setting up for 2020, is, at this point, your ordering cycle and thought process to maintain the same cadence?
We're ordering for next year based on what we expect in our 2020 financial plan.
Would that be materially different than the build rate that you're currently working on for 2019?
I can't comment on that. We only give guidance for 2019.
And our next question comes from Saurabh Suryavanshi from Dixon Mitchell.
Most of my questions have been answered. Paul, just on the NCIB. I just want to understand the thought process from the Board of intrinsic value because based on your guidance and your plan for trucks, you still are in a free cash flow mode. So is that -- the idea is to delever more? Or you actually use that for -- either for -- I don't know if there's anything on the acquisition front or the buybacks are actually in play?
Yes. No, appreciate that question, Saurabh. We -- as I mentioned a minute ago, the Board does consider intrinsic value and capital allocation decisions, and that would include not only NCIB but also dividends. And I'm pretty confident that this Board will continue to evaluate all aspects of capital allocation going forward, balanced against the needs to continue to support growth in the fleet and growth in working capital to support higher revenue levels. So those are the factors we look at across the piece. And what you'll see us do is -- any purchases we do make will be certainly considering of and reflecting the Board's view of intrinsic value. So you'll see that as it comes out. I'm not really able to comment much more on that. But we do consider having an NCIB in place as an important part of our capital allocation. And as everyone knows, this was a new tool that went into Badger's toolkit of capital allocation for 2018. We're very pleased with the progress we made in 2018 and early 2019 with canceling -- buying and canceling 1.3 million shares. And we consider this to be an important part of our capital allocation and also in driving long-term shareholder returns and returning money to shareholders over time. We do see the opportunity to return money to shareholders with an NCIB based on Badger's very strong cash flow generation. And we are also very focused on being able to support the capital needs for future growth for Badger. So we think all those can be done, and we'll see what happens on the leverage side. But we do also agree that Badger could stand a little higher degree of leverage over time, and that's something that we'll migrate into over time.
And I'm showing no further questions at this time. I'd like to turn the conference back over to Paul Vanderberg for closing remarks.
Okay. Thank you, and thank you for everyone's participation. On behalf of us all, we really want to thank our shareholders, our customers, our employees for continuing to support Badger. This is a great business, and it's our objective to get all of you a lot more Badger. So thank you for your participation in the call.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.