Short sellers raise concerns over Badger’s practices as it reports earnings boost

Embattled Badger Daylighting Ltd. hiked its monthly dividend after reporting betterthan-expected earnings Monday, though short sellers continue to voice their concerns about the company's accounting and disclosure practices.

Calgary-based Badger, which runs North America's largest fleet of hydrovac trucks, reported $123 million in revenues in the second quarter, up roughly 34 per cent from about $92 million in the same quarter a year earlier. The company stated its net profit was roughly $15 million in the quarter, which is more than double the $6 million it reported a year earlier.

Shares of Badger rose 14.8 per cent to $30.25 each amid heavy trading volumes on Monday after the company announced it would increase its monthly dividend to 3.8 cents per share from 3.3 cents.

Still, Badger's skeptics continued to criticize the company, alleging its financials could not be relied upon because it reported almost $9 million in revenues for which the company had not yet invoiced or collected receipts.

“They're not only counting revenues they don't have invoices for, the invoices are jacked up in June,” said short seller Marc Cohodes, who has publicly criticized the company's accounting since revealing a short position in May.

He said Badger reported $60 million in non-cash revenue, labelled as trade receivables, in the month of June alone, which he said represents half the company's revenues for the quarter.

Badger chief executive Paul Vanderberg during Monday's earnings call said the company had a right to claim revenues for work that hadn't been invoiced yet.

“It's reasonable that we are going to receive it," he said. "It just hasn't been through the process of turning into an invoice."

Vanderberg also noted Badger has expensed all the video cameras installed on its fleet of trucks through the second quarter because the company has been accused of capitalizing operating expenses, though it denies the allegation. “The cost of safety cameras, just like repairs and maintenance to our Badgers once they leave the plant, is expensed rather than capitalized,” he said. The firm refers to its hydrovac trucks as “badgers.”

During the earnings call, Veritas Investment Research analyst Dimitry Khmelnitsky asked management why they had for the first time removed a statement certifying Badger's internal financial controls from its disclosure.

Badger chief financial officer Gerald Schiefelbein said management had already certified its internal controls in the previous quarter and would not need to do so again for a year. “Our lawyer looked at that and said you don't need to make this certification on the interim quarter, so we didn't make the certification,” he said.

Khmelnitsky added Badger to his list of companies with accountingand disclosure-related risk on May 15 alongside other companies targeted by short sellers — including Cohodes — such as Home Capital Group Inc. and Valeant Pharmaceuticals International Inc.

“Why on earth would they ever change their disclosure now?” Cohodes said of the change, noting the firm has been criticized for its disclosure for months.