Randel Madell - IR Trevor Haynes - President, Chairman & CEO Toby Labrie - EVP & CFO Troy Cleland - EVP & COO, North America Steve Stein - President, Logistics

Jason Zhang - Cormark Securities Jon Morrison - CIBC World Markets Ian Gillies - FirstEnergy Capital Corp. Jeff Fetterly - Peters & Co. Ltd.

Good morning. My name is Randel Madell, Investor Relations Specialist for Black Diamond. At this time, I'd like to welcome participants to Black Diamond's Second Quarter 2016 Results Conference Call with President, Chairman and Chief Executive Officer, Trevor Haynes; and Executive Vice President and Chief Financial Officer, Toby Labrie. We are also joined today by Executive Vice President and Chief Operating Officer, Troy Cleland; and Black Diamond Logistics President, Steve Stein. After our formal remarks, there will be a question-and-answer session. At this time, all lines have been placed on mute to prevent any background noise. Please note that while talking about our results and answering questions, we may make forward-looking statements. These statements are subject to known and unknown risks, and future results may differ materially. We will also be discussing non-GAAP financial measures in today's call including adjusted EBITDA, net debt, funds available for dividends and payout ratio. For more information about these topics, please review the sections of Black Diamond's second quarter 2016 Management's Discussion & Analysis, entitled Forward-Looking Statements, Risks and Uncertainties and Non-GAAP Measures. This quarter's MD&A, news release and condensed and audited financial statements can be found on our website at www.blackdiamondgroup.com, as well as the SEDAR website. Dollar amounts discussed in today's call are expressed in Canadian dollars and are generally rounded. I will now turn the call over to Trevor Haynes to review the quarter. Trevor?

Thanks, Randel. As expected, Black Diamond's second quarter was soft. This we believe corresponds to the weakness in key commodity prices in the first half of the year and the resulting reduction in capital project spending by resource developers. We note that near-term commodity price trends have shown a modest recovery which we believe which we believe will lead to a recovery and peer level activity. Some positive indicators such as rig count and capital budget increases have begun to emerge, however some period of lag between capital allocation and field level activity is anticipated. What we can say for certain that we have seen the bottom in resource related activity, we do have a degree of confidence that activity levels are not currently, materially reducing. During this period of declining activity, Black Diamond has been focused on managing its balance sheet through debt reduction and on managing its cash through reduction in cost and cash. In total we've reduced our cost and cash by 81% year-over-year, and year-over-year this has resulted in a reduction of net debt by 24% and 39% pro forma taking into account our recent equity financing. With an expected stabilization of end-markets we are increasing our focus on commercial positioning to ensure that Black Diamond capitalizes on new and emerging opportunities over the next several quarters. We believe that ongoing cost discipline and available liquidity provide us with financial flexibility, optionality and sustainability to continue to execute on near-term business opportunities. I will now turn the call over to Toby for the consolidated financial review. Toby?

Thanks, Trevor. Total adjusted EBITDA for the quarter was $7.6 million, down 67% or $15.7 million from last year. Similar to last quarter, adjusted EBITDA declined year-over-year across all of our Western Canadian operations due to ongoing weakness in the resource sector. Camps & Lodging adjusted EBITDA decreased by $12.2 million, primarily due to a decrease in average beds utilized and a decrease in revenue per available room. Decrease in occupancy during the quarter was the main contributing factor to the decrease in RevPAR. The impact of the weak resource sector on BOXX Modular was mitigated to a certain extent by its exposure to other end-markets and geographies. BOXX Modular adjusted EBITDA decreased by $2.4 million due to a reduction in revenue from Western Canada, partially offset by revenue growth in Eastern Canada and United States. Energy Services adjusted EBITDA decreased by $2.2 million, due to a decrease in utilization and rates related to the continued downturn in drilling and completions activity in Western Canada, North Dakota and Colorado. International results were also lower due to continued headwinds in Australia's resource sector. Corporate and other adjusted EBITDA which excludes administrative costs in the business units improved by $1.5 million due to headcount reductions, efficiency improvements, and cost containment initiatives. I will now review a few key consolidated financial metrics on the next slide. We recorded a net loss for the quarter of $8.6 million, compared to a net loss of $0.8 million in Q2 2015 due to lower operating revenue combined with a $2.4 million write-down, of the note receivable from Northern Frontier. The payout ratio was 37% for the quarter, compared with 44% the year before due to reduction in dividend declared, partially offset by lower funds available for dividends. Net debt to EBITDA for Q2 was 2.33 or 1.89 on a pro forma basis after considering the $26 million net proceeds of the bought deal closed on July 26. I will now turn the call back over to Trevor. Trevor?

Thanks, Toby. We have continued to adjust our calls on cash to adapt to the current business environment to continue to generate positive cash flow due to the low maintenance capital requirements of our rental fleets, and the availability of existing assets that we can deploy for new business, we have been able to significantly reduce capital expenditures. This graph shows the impact of our reductions in CapEx and dividends on cash flow for the past four quarters. Our continued discipline in the second quarter allowed us to post positive cash flow, despite declining EBITDA. This slide does not take into account, changes in working which when added to cash inflows from operations allowed us to pay down $12.4 million of debt in the quarter. We exited the quarter with $4.7 million in capital expenditures in the first six months of the year and $4.8 million in capital commitments against our $10 million 2016 capital program. We continue to focus on growth of our BOXX platform outside of energy markets. We have successfully expanded our BOXX Modular platform into healthy markets, most recently Vancouver and Saskatoon. And our focus for the remainder of 2016 will be scaling our operations outside of the resourced markets. This gives us exposure to new markets and major project opportunities. The further growth of this platform will provide balance to our business against the more volatile commodity focused platform. While rental revenues from BOXX are relatively stable, non-rental revenue can be variable. These non-rental revenues were relatively low in the first half of 2016. We expect current bid loads and contracts in hand will result in strengthening non-rental revenues in the second half of the year. Black Diamond remains well positioned to accelerate into a recovering market. We have a high degree of optionality and long-lived assets that provide significant operating leverage to our current business. Operator, we are ready for questions. Operator?

Thank you. [Operator Instructions] And the first question is from a participant, private investor caller, please state your name and proceed with your question.

Hi, am I online?

Yes.

Okay, sorry. I'm Watson, just a private investor. So I do have two questions; one is that -- your main competition actually improved its revenue and operating profit between Q1 to Q2 but you also scrapped off significantly -- do you know why? And the second question is that if Black Diamond seems to be generating healthy free cash flow, what is the rational for results bought deal? Thank you.

Thanks Watson. On the first question, this is Toby Labrie. The main reason for the decrease in our revenues from Q1 to Q2 was due to declining lodging revenues, and I was primarily attributable to lower occupancy in our open camps from over that comparison period. And -- sorry, could you repeat the second part of the question?

Right. The second part of the question is that, it seems to be a lot -- is there a reason, is your camp positioning a bit different from your competitors that -- that means that you get a bigger hit sometimes?

While the camp positioning will be different for the various competitors in the market. And so you will expect to see different results. I think when you look at various players in the markets, in Q2 especially, the results of the forest fire in Fort McMurray, would have different impacts on the various players in that contributor.

Okay. And thank you so much for that. And my second question was just to ask if you're generating healthy free cash flow, what was the rational to raise capital in the bought deal?

The bought deal was primarily to give us additional financial flexibility and improve our balance sheet strength. So we can continue to take advantage of opportunities as they arrive. So we're actively positioning to continue expanding our BOXX Modular branches and scaling those branches. And that was the other rational for bought deal.

Cool, okay. Because you do have good free cash flow, so keep it up.

Thank you. Your next question is from Jason Zhang from Cormark Securities. Please go ahead.

Thanks. Just wanted to ask a little bit about the outlook here, heading into Q3 and maybe Q4 to the extent that you can sort of see that fall into future. Q2 consist sort of via seasonal low point for you guys, does it look like occupancy and utilization levels are going to pick up here -- sort of heading into Q3?

It's difficult at this point in time to say that there is a great deal of strengthening. We are looking, as I mentioned earlier, at indicators when we look at the chart for natural gas, WTI and base metals and overlay the performance of Black Diamond's revenue generation and even our stock price, there is a fairly close correlation. What we're aware of is that there is always a lag between changes in commodity price and economics for resource development and field level activity. It's difficult to assess as how long that lag will be. We think that we're seeing some modest strengthening in those economics as you look at the price of commodities and then to draw from some of the recent announcements by our customers on the infrastructure side, as well as the upstream resource development side. So we're anticipating is that we're moving through the bottom of the cycle and we are seeing some modest increase in conversations with customers and prequalification for the projects and project-related discussions. We may see more a flat bottom here over the near-term but we are modestly optimistic, both for the seasonal cycle in terms of expectations on fourth quarters, you're right; Q2 is traditionally the weakest quarter of the year relating to primarily drilling activity, etcetera. So we're cautious but we're not overly concerned that there is a great deal of debt side at this point-in-time from current operating levels.

Great. And then may be on the quarter itself, were there any sort of material impact from the Fort McMurray forest fires that may have impacted occupancy levels?

I think there are OpEx on both ends, by the way one of our projects, there were some sort of super cost due to the evacuation. And then there was a pickup in occupancy for a short period of time of our capital gains. The overall effect is not only material but on the positive side.

Okay, great. And then maybe shifting grew here to BOXX Modular and some of the more -- I guess, non-resource related type work. How should we be thinking about the growth trajectory and in that business -- is it sort of going to be directly tied to the amount of capital that you put into it.

Well, the business slight different than the camp business, in that it is more of a volume gain and so scale makes the difference. The increase in fleet size is one of the key components, the other two being utilization and then average rental rate. What we're fighting a little bit in terms of headwinds for BOXX is the reduction in activity related to assets that have been working on research projects in Western Canada, and some compression in rental rate here. That being said, we are seeing growth in markets outside of Alberta in terms of number of units and some modest strengthening in utilization and we hope some modest strengthening in rental rates as we see general construction in the U.S. market strengthening and activity in Eastern Canada growth remaining fairly steady for us. So what you need to see from us is, continued steady rental performance instead of -- in terms of utilization but also fleet growth for us to show meaningful upside. The other component of that business is the major projects and that's where we provide turnkey services related to modular buildings for various purposes and we do a reasonable amount of that work and intend to be more volatile than the recurring rental stream, and so based on the volumes of those major projects in one quarter to the next, that's where you're seeing the variability which is what we touched on as being light in Q2 comparative to prior quarters. But we're indicating we're going to see some strength based on our current backlog and contracts in hand in the second half of the year related to those turnkey major projects.

Got it, thanks. And then just last one for me, it looks like there were a couple of used fleet sales here throughout the quarter. What do economics look like on both sides of sales, is it somewhat in line the historical levels of slightly premium to a network value?

Yes, we do see some variability in the returns that we get on our used fleet sales but we have seen good returns over book value in the quarter. And that includes sales of our workforce combinations and our camp lodging business, as well as sale diversity rentals in our BOXX Modular business.

Alright, great, that's it for me. Thanks guys.

Thank you. The next question is from the line of Jon Morrison from CIBC World Markets. Please go ahead.

Morning all. How much of the reduction in lodging RevPAR was the function of Sunday Creek impact compared to Q1?

That would have been a fairly sizeable part of the impact of the lodging decrease from Q1. We did have fairly strong occupancy in Q1 from Sunday Creek for most of the quarter. And we saw late start into Q2.

Can you help us understand any other one-time impact that would have been in the quarter on a RevPAR basis that might not be indicative of what we should be expecting on a go-forward basis? I'm just trying to figure out whether the results that came through in Q2 are indicative of what we should expect or their seasonal noise Fort McMurry, fire noise and other things that we should be taking into account when we think about forward expectations.

Yes, the forest does not have an impact, obviously that's one time but the biggest impact on RevPAR was the occupancy. So as our occupancy recovers in our open camps, we should see increases in the RevPAR.

As utilization missed any step change in Q3 relatively to Q2 so far?

No, not a significant change. At most, maybe a percentage point.

Okay. Just read up on the clarification, was there -- do we have contract renewal that you guys announced in June became a efficiently, and including with the end of Q2. I'm just trying to -- given the current oversupply in the broader camp market, in Western Canada right now, do have any desire to materially divest any of those assets and perhaps redeployed into BOXX given that's a long-term diversification strategy ahead of you or ultimately you don't think that market price warrants and you'll just wait for a recovery in the markets.

We're going to continue to transact in the market based on supply and demand, it is weak based on corporate capacity to current demand but we are seeing opportunities, we will sell existing fleet and there are some opportunities for that on specific projects basis over the near-term as far as bulk sale of assets at this part in the market, we just don't -- we don't think that's a prudent way to manage our capital assets at this time. When you ask -- are you directing capital into your BOXX Modular platform, the answer is yes, if we accelerate, if we add visibility for absorption of that capital in terms of utilization of additional assets in the BOXX platform, the answer there is yes as well.

In terms of that comments here on both, in organic and M&A basis, in terms of the BOXX opportunities?

Yes, absolutely. Where there is opportunities for M&A, especially purchase of asset packages, existing asset, we are very interested and we are deploying organic CapEx into BOXX right now as well.

Can you give any idea of what your U.S. business looks like? And is that an area whether it be U.S. BOXX or Colorado that could incrementally require additional assets as activity starts to upturn?

We'll bifurcate our U.S. business, we've got out BOXX Modular platform as almost no energy connectivity, we're mostly working for general construction, commercial education. If you talk about Bakken and Colorado, Wyoming, that's where we do have well side accommodation units in the marketplace, and with an increase in activity around rig counts, we're of the opinion that we'll see increased activity in the U.S. more quickly than in Canada. And so we would see potentially meaningful upside if rig counts were derived in North Dakota and Colorado in our opinion.

Yes, I mean the short-term we believe that again, when you're referring to North Dakota, Colorado, Wyoming; we believe that we have enough supply for when it picks up, additional capital will not be required for some time.

Okay. Last one just for me, if we were to look at asset utilization within the camp segment under more traditional industry definition of number of units, in the field versus number of units owned versus book value and I understand why you do on that basis, I'm just trying to get a sense of it. Is it fair to assume that utilization on the former basis of being closer to call it low 40s compared to 50% utilization realized in Q2?

On a number of unit basis versus the waiting that we put on -- against the capital cost of the units in our camps and lodging business there isn't a significant difference. However, one point to understand is, on our open camps where we do have assets deployed that our availability for use has an open camp, those will show as utilized where we'll have variability in the occupancy which as I mentioned earlier, will affect our RevPAR. So units will -- that will affect our utilization and if you were to factor that in of the lower utilization of those open camp units if you were to do that on a unified unit basis then, yes, you get down closer to the low 40s mark.

So on that basis, it's fair to assume that if open camp utilized or if the number of people utilizing the open camp increases, your revenue can go up even though it might not be reflected in the utilization number?

Correct.

Got it, perfect. That's all of my questions. I appreciate the color, I'll turn it back.

Thank you. The next question is from Ian Gillies from FirstEnergy. Please go ahead.

Hello, everyone. I'm just curious whether you may have any additional contracts that currently have pricing well above the lodging revenue per day reported in 2Q '16 and when -- if so, when they may roll off?

I can't think of a project would be of that rate.

Okay. With respect to the oil sands, are you seeing any increased interest rate fill up your assets there and as you think about that area in particular, and the potential for bolt-on projects in go-forward years. Is that -- I mean is that enough to help you materially move your utilization higher or do you need new large capital projects to occur?

The answer is both. We are predominantly focused on side of the area for oil sands, and so in return to phasing of SAGD projects which we think is a reasonable expectation -- some level of oil price which could be achievable in the next several quarters that we will see some modest increase in activity around constructing subsequent phases on SAGD projects and would have the potential to incrementally increase the occupancy at our lodges in the area or cost of renewal of existing pure rental. And also with that may pose more infrastructure construction or requirement into the areas as far as other processing facilities. Along with that, the maintenance cycle which we're seeing is starting smartest turnaround etcetera, there was a period of time where the positions were deferring all expenditure, all these simple expenditure. So we think that modest amount of increase, labor required generally in the oil sands area for regular turnaround cycle. What we think is ways down the road or required higher benchmark in terms of commodity price is any new major capital project as far as new mine development or a new SAGD. So what we have our planning focus around is more of the return to construction of additional phases to existing projects and the turnaround cycle. And certainly the infrastructure, as far as some additional pipe and storage in the areas.

Okay. And last one for me, does consolidation of remote accommodation business in Western Canada makes sense to Black Diamond from the view of helping reduce costs in the system and just having less players to help improve overall profitability or is Black Diamond viewed as; we have enough assets, we perhaps don't need to go buy anything at this point in time.

Consolidation would have to have a compelling long-term business case as far as adding value for shareholders. The biggest problem we have right now is the reduced activity in capital projects and so it's an oversupply problem. Our consolidate with -- in order to resolve that, we need to take capacity off the market by setting it aside to try to balance the market in terms of supply and demand and try to get price recovery. I think that's a fairly difficult task and isn't immediately obvious that it's achievable when you look at consolidation. I think acquiring quality assets that would fit well with our platform and we can see on our return basis for the cash flow they will generate that it is a good accretive use of our capital and our long-term disappoint capital allocation program, we would look acquisition for sure but we'll be more due to those reasons than to try and remove capacity out of the market to sell, supply and demand.

Okay, thanks. That's helpful. I'll turn the call back over.

Thank you. The next question is from Jeff Fetterly from Peters & Company. Please go ahead.

Good morning, everyone. On the BOXX side, in the past couple of quarters you guys have talked about pursuing consolidation opportunities either within recently expanded areas or into new areas. Where -- what's your appetite today and what's your perspective on that right now?

We continue to have an appetite to increase our scale and specific markets, specifically around our BOXX Modular platform. So we're continuing to look at opportunities and to engage counterparties for the assets that we're interested in.

Strategically what are the top priorities when you're engaging and those discussions are value winning targets?

In terms of which markets we're interested, we expanded into a couple of new markets. Our view now is that we want scale in the markets we're in. And so we've got a geographical perspectives. And then we also have a strike zone for quality and type of asset that we think does suit our view of where market demand is and sustainability of revenue stream against assets. And then the most difficult part of the discussion is always valuation to be able to acquire quality assets that fit into our second quarter. And what we believe is an accretive price to our shareholders.

Okay. Second question, your comments earlier about increasing focus on commercial positioning. Is there regions where you're trying to improve commercial positioning as you real estate types of assets or businesses that are particular focused in this strategy?

That comment is more applied to our resources markets. We think that there will be projects, there will be more activity over the next several quarters but it's going to be extremely competitive due to the supply and demand situation. So what we need to do is be very focused in terms of how to compete, how to come up with value propositions that may differentiate to reinforce relationship of original partnerships, other types of partnerships that will cause our solution to be provide option for the customers in a very competitive marketplace. So while we are of the view that there is going to be more opportunities, we resign to the fact that it's going to be highly competitive. So we have business to conduct but we need to be very smart and come up with compelling propositions for our customers, for us to be more successful than the rest.

Realistically, is the principally using price as a mechanism and is that trying to target incremental opportunities or displacement opportunities?

We think it's going to be more incremental versus displacement. Price is always a component but there is other aspects that drive value and like to compete on value more or so than price but we need to be realistic in the current marketplace.

Great, thank you. I appreciate the color.

Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to you, Mr. Haynes.

Thank you and thank you for participating in our second quarter conference call and webcast today. We look forward to speaking with you on our call next quarter. Thank you.

Thank you. The conference has now ended. Please disconnect your lines at this time. And thank you for your participation.