INVESTOR UPDATE June - 2019 www.badgerinc.com | TSX:BAD FORWARD - - PowerPoint PPT Presentation

www.badgerinc.com | TSX:BAD

INVESTOR UPDATE

June - 2019

FORWARD LOOKING STATEMENTS

This presentation contains forward-looking statements reflecting certain current forecasts of certain aspects of the company’s future. These statements are based

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current information that management has assessed, but which by its nature is dynamic and subject to rapid and even abrupt changes. Forward-looking statements in the presentation include but are not limited to statements regarding:

• Badger anticipates continued growth in its Canadian and U.S. markets and that the overall macro-

economic environment in both Canada and the U.S. is anticipated to be supportive of this growth;

• Badger continues to see customer demand as a result of increased usage of hydrovac for non-

destructive excavation;

• Badger expects to see improvements in revenue as a result of investments in developing its branch

network and business development function;

• The benefits, if any, that Badger’s operational scale creates related to financial and operating

performance;

• Badger anticipates that its Adjusted EBITDA for 2019 will be in the range of $170 to $190 million;
• Badger anticipates that the number of new hydrovac builds for 2019 will be approximately 190 to 220

units and that hydrovac retirements for 2019 will be in the range of 40 to 60 units;

• Badger anticipates that gross profit margin for 2019 will be similar to 2018 and that RPT will be modestly

lower in 2019 than 2018;

• The timing, benefits and costs associated with Badger’s Common Business Platform project; and
• The ability and benefits of Badger to purchase and subsequently cancel up to 2,000,000 of its common

shares under its NCIB. The forward-looking statements made in this presentation rely on certain expected economic conditions and

• verall demand for Badger’s services and are based on certain assumptions. The assumptions used to

generate these forward-looking statements are, among other things, that:

• There will be customer demand for hydrovac services from infrastructure, construction, and oil and gas

activity in North America;

• Badger will maintain relationships with current customers and develop successful relationships with new

customers;

• Badger will collect customer payments in a timely manner;
• Badger will be able to compete effectively for the demand for its services;
• There will not be significant changes in profit margins due to pricing changes driven by market conditions,

competition, regulatory factors or other unforeseen factors;

• The overall market for Badger’s services will not be adversely affected by weather, natural disasters,

global events, legislation changes, technological advances, economic disruption or other factors beyond Badger’s control;

• Badger will execute its growth strategy including attracting and retaining key personnel;
• Badger will obtain all labour, parts and supplies necessary to complete the planned hydrovac build at
• Badger will be able to complete and implement the Common Business Platform project within the

expected time frame and in accordance with the expected budget. With respect to dividends, investors are cautioned that monthly dividends are always subject to approval from the board of directors of Badger, and may be increased, decreased or suspended by the board at any time. Badger Daylighting Ltd.’s actual results could differ materially from those stated or implied by the forward- looking statements within this presentation. The forward-looking statement with this presentation should be considered in the context of forward-looking statements in the company’s most recent filings included with the Canadian Securities Administrators, which are available on the SEDAR disclosure system (www.sedar.com). Risk factors and other uncertainties that could cause actual results to differ materially from those anticipated in such forward-looking statements include, but are not limited to: price fluctuations for oil and natural gas and related products and services; political and economic conditions; industry competition; Badger’s ability to attract and retain key personnel; Badger’s ability to complete and implement the Common Business Platform project, the availability of future debt and equity financing; changes in laws or regulations, including taxation and environmental regulations; extreme or unsettled weather patterns; and fluctuations in foreign exchange or interest rates. Any future orientated financial information and financial outlook information (collectively, “FOFI”) contained in this press release, as such terms are defined by applicable securities laws, is provided for the purpose of providing information about management’s current expectations and plans relating to the future and is subject to the same assumptions, risk factors, limitations and qualifications as set forth in the above paragraphs. Management believes that the FOFI has been prepared on a reasonable basis, reflecting best estimates and judgments; however, actual results of the Company’s operations and financial outcomes may vary from the amounts set forth herein. FOFI contained in this press release was made as of the date of this press release and the Company does not undertake any obligation to publicly update or revise any FOFI contained in this press release, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws. Readers are cautioned that any FOFI contained herein should not be used for purposes other than those for which it has been disclosed herein. Readers are cautioned that the foregoing factors are not exhaustive. Additional information on these and

• ther factors that could affect the Company’s operations and financial results is included in reports on file with

securities regulatory authorities in Canada and may be accessed through the SEDAR website (www.sedar.com) or at the Company’s website. The forward-looking statements and information contained in this press release are expressly qualified by this cautionary statement. The Company does not undertake any

• bligation to publicly update or revise any forward-looking statements or information, whether as a result of

new information, future events or otherwise, except as may be required by applicable securities laws. 2

2019 FIRST QUARTER AND 2018 FINANCIAL HIGHLIGHTS

Badger generated record revenue and adjusted EBITDA for Q1- 2019 and fiscal 2018.

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(1) Presented in millions of Canadian dollars.

Note 1: Refer to Badger’s 2019 First Quarter and 2018 Annual MD&A for additional details regarding Adjusted EBITDA, Revenue, Adjusted EBITDA margin, Gross profit margin and RPT. Note 2: See slide “Non-IFRS Measures and Key Financial Metrics” for definition and additional details on Adjusted EBITDA, Adjusted EBITDA margin and RPT.

Q1 - 2019 Q1 - 2018 Fiscal 2018 Fiscal 2017

Revenue(1) $146.6 $120.6 $615.4 $496.8 Gross Margin 29.0% 25.5% 31.1% 29.5% Adjusted EBITDA(1) $33.3 $24.4 $161.7 $125.4 Adjusted EBITDA margin 22.7% 20.3% 26.3% 25.2% Revenue per truck per month (“RPT”) $30,832 $28,608 $34,347 $30,266

Highlights

Record 2018 revenue and Adjusted EBITDA; RPT of $34,300 Gross profit margin of 29.0% in Q1 2019 vs. 25.5% in Q1 2018 $22.5 million in emergency response revenue in 2018 Adjusted EBITDA margin of 22.7% in Q1 2019 vs. 20.3% in Q1 2018 6% dividend increase and 1.3 million shares cumulatively repurchased under NCIB; updated NCIB approved (2.0 million additional shares) 2018 Outlook 2018 Actuals Adjusted EBITDA $150 to $160 million $161.7 million Hydrovac builds 160 to 200 units 191 new unit builds Hydrovac retirements 60 to 80 units 79 unit retirements

2019 FINANCIAL OUTLOOK AND KEY THEMES

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(1) For further details on the 2019 Financial Outlook refer to Badger’s 2019 First Quarter MD&A.

Key Themes(1) Increased usage of non-destructive excavation Continued growth in infrastructure markets – significant runway to expand U.S. operations Badger anticipates increased year-over-year activity levels realized in 2018 to continue into 2019 Continued focus on operational improvements to drive growth: margins and RPT

2019 Outlook:

Hydrovac new builds: 190 to 220 units Adjusted EBITDA: $170 to $190 million Hydrovac retirements: 40 to 60 units

UNPARALLELED OPERATING SCALE

• Badger’s large operating scale differentiates it from its competitors.
• Scale facilitates customer service, organic growth, fleet utilization rates, and operating cost management.
• Opportunity to further develop operating scale with increased growth.

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Operational Scale

Broad operating network Diversification: geographic and end use market Organic growth opportunities Hydrovac design and build Strategic business initiatives

SIGNIFICANT OPPORTUNITY TO DRIVE U.S. GROWTH

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U.S. REVENUE GROWTH(1)

The U.S. is a significant untapped market. There are approximately 270 U.S. Metropolitan Statistical Areas (MSA) out of 350 total MSA’s in the lower 48 states where Badger does not currently provide service.

Current Badger service area(2)(3) MSAs per 2010 Census data; lower 48 states(3)(4)

(1) Source: Badger historical MD&A and /or Financial Statements. (2) Service Areas are locations where Badger provides services to local customers. A service area may not have a physical location where hydrovacs and staff are located. Service Areas as at September 30, 2018. (3) Location of Badger’s service areas and MSA’s is for illustrative purposes only. (4) U.S. Census Bureau, 2010 Census – an MSA is a geographic region with a population of over 100,000 people. Management estimates used for purposes of comparing Badger service areas to MSA’s.

$110,200 $150,400 $187,000 $196,100 $202,400 $275,000 $358,600 – $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 2012 2013 2014 2015 2016 2017 2018

USD (000's)

END USE MARKET DIVERSIFICATION

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Badger’s end use market diversification has been instrumental in successfully repositioning its business, driving growth and generating sustainable financial performance.

Oil and Gas vs. Non-Oil and Gas(1)

(3)

(1) Percentages source: Badger’s 2018 and historical Annual Information Form. Consolidated revenue source: Badger’s historical Financial Statements. Consolidated revenue in Canadian dollars.

Revenue By Type(1)

Utilities 39% Oil and Gas 27% Contruction 21% Industrial 5% Transportation 4% Telecom 2% Engineering 2% 51% 27% 49% 73% 2014 2018

% of consolidated revenue

Oil and Gas Non-Oil and Gas

($207 million) ($215 million) ($449 million) ($166 million)

STRATEGIC INITIATIVES

(1)

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Continued evolution of Badger’s business is being driven by the following strategic initiatives:

Human Resources Sales & Marketing Common Business Platform Fleet & Technology

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(1) For additional details on Badger’s strategic initiatives, refer to the 2018 Investor Day presentation available at www.badgerinc.com

STRATEGIC MILESTONES

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Profitable Growth

Proven Business Model Attractive Markets Focused Strategy

Badger has made substantial strides in achieving its strategic milestones.

Strategic Milestone Summary(1)(2)(3) Goal Progress

Double the U.S. business again within 3 to 5 years 75% of goal achieved (2017 + 2018 cumulatively) Grow Adjusted EBITDA by a minimum of 15% per year 29% Adjusted EBITDA growth in 2018 and 20% growth in 2017 Target Adjusted EBITDA margins of 28% to 29% 2018 Adjusted EBITDA margin up 110 bps Drive fleet utilization and RPT above $30,000/month 2018 RPT of $34,300

(1) See Badger’s 2019 First Quarter and 2018 Annual MD&A for additional details regarding Adjusted EBITDA, revenue, Adjusted EBITDA margin and RPT. (2) See slide “Non-IFRS Measures and Key Financial Metrics” for definition and additional details on Adjusted EBITDA, Adjusted EBITDA margin and RPT. (3) Starting point is Badger’s financial results for the year ended December 31, 2016.

APPENDICES – SUPPLEMENTAL INFORMATION

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HYDRO EXCAVATION OVERVIEW

The Badger Daylighting hydrovac utilizes pressurized water and vacuum to safely excavate underground infrastructure.

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Safe and efficient Call out service: first call and emergency response Non-destructive Excavated soil/water remains on site or Badger arranges for disposition based on customer requirements - customer maintains ownership of materials

BENEFITS OF HYDRO EXCAVATION

Hydrovac: non-destructive excavation in sensitive or confined spaces.

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SAFETY

REGULATORY ENVIRONMENT

• Badger is a safety first organization
• Mentor training processes
• Compensation tied to safety
• Infrastructure spending driving increased hydrovac

usage

• Increased regulation related to safety and excavation

is a positive for hydro excavation PRODUCTIVITY PARTNER

• Hydro excavation complements traditional excavation

methods

• 24 hour on call and emergency service

“In the United States, on average, a ‘critical strike’ of utility infrastructure occurs every 6 minutes from conventional excavation tools” - Pipeline Emergency Response and Damage Prevention training materials.

Complementary excavation

THE BADGER BUSINESS MODEL

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Badger’s model: local customer focus underpinned with a national support network.

Area Manager – Key Roles

• Hire, train, safety
• Primary customer contact: pricing,

billing and collections

• Operating cost management
• Fleet: repairs and maintenance
• Regulatory: operator hours of service,

Department of Transportation regulations Local Branches Run By Area Managers Entrepreneurial model supported by:

• National operating scale
• Systems; and
• Business tools

BADGER’S BRANCH-BASED MODEL

Area Managers Have Full P&L Responsibility Monthly income statement Compensation drivers:

• Safety
• Customer growth and operator retention
• Bonus on pre-tax earnings after capital

charge

A HYDROVAC FOCUSED BUSINESS MODEL

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Badger’s focus is to be best-in-class in hydro excavation. Our extensive operating network has created a business model with unparalleled operational scale, delivering value to our customers across a wide range of end use and geographic markets, driving fleet utilization and

• perating cost efficiencies.

Extensive Branch Network

Fleet Utilization Operating Cost Leverage

Diversification

End Use Market Geographic

Sales and Marketing

Local, Regional and National End Use Market Focused

Fleet: Design & Build

Safety Operating Efficiency Life Cycle Costs

OPERATING SCALE

FOCUSED ORGANIC GROWTH

Enter New Markets First mover advantage New geographies - adjacent geographies End use market exposure

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Penetrate Existing Markets Consistent and profitable growth in existing geographies Sales and marketing programs Ongoing oil and gas market improvements

FUTURE GROWTH DRIVEN FROM: Badger has successfully grown its business utilizing an organic growth model.

A PROVEN TRACK RECORD

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Badger’s hydrovac focused model has generated strong financial performance across a variety of business cycles.

(1) Source: Badger historical MD&A and /or Financial Statements. (2) Return on invested capital calculated as follows: Net operating profit after taxes divided by invested capital. Net operating profit after taxes calculated as net profit adjusted for the after tax impact of interest, share-based

compensation and other one-time items. One-time items applicable to 2014 as disclosed in Badger’s 2014 MD&A. Invested capital is calculated as total assets less cash and cash equivalent less non-interest bearing current liabilities.

(3) Return on invested capital in 2017 was positively impacted by a $17.2 million one-time deferred income tax recovery recognized in 2017 due to changes in U.S. income tax legislation enacted in 2017. See Badger historical MD&A

for additional details Note 1: Throughout this presentation Adjusted EBITDA as defined by Badger for the years 2013 through 2018, prior to 2013 was defined as EBITDA. See Badger historical MD&A for additional details.

Organically Funded Growth

10 year revenue CAGR of 18% 10 year average return on invested capital of 16% Flexible capital expenditures

Badger 10 Year Annual Consolidated Revenue(1)

CAGR: 18%

• 100

200 300 400 500 600 700 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

$CAD mm’s

Return on Invested Capital(2)

0% 5% 10% 15% 20% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

(3)

SELECT HISTORICAL FINANCIAL INFORMATION

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(1) Source: Badger historical MD&A and /or Financial Statements.

HISTORICAL REVENUE(1)

HISTORICAL ADJUSTED EBITDA(1)

• 100,000

200,000 300,000 400,000 500,000 600,000 700,000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Revenue (CAD $000’s)

• 20,000

40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

• Adj. EBITDA (CAD $000’s)

SELECT HYDROVAC USES

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Badger serves a broad customer base across a diverse range of infrastructure end use markets.

Utilities Oil and Gas Telecommunications Transportation

• Utility pole holes – new and replacement
• Utility verification – daylighting, test holes,

pot holes, sight holes

• Maintenance
• Cable installation – trenching and pits
• Submersible transformer vault cleanouts
• Gas distribution construction
• Valve case cleaning and verification
• Locating lost pipe
• Gas feeder station maintenance and upgrading
• Various cleaning applications
• Transmission and distribution system maintenance
• Integrity work
• Pipeline crossings
• Directional drilling
• Site abandonment
• Spill clean up
• Frac tank clean out
• Frac sand trap clean out
• Well automation – trenching and potholing
• Rig cleaning
• Thawing frozen lines
• Trenching for pipeline installation
• Fibre optic systems
• Telephone and data lines
• Data center and cloud computing facilities
• Rail car cleaning
• Locating bottom of foundations
• Pilot holes for soil sampling
• Sign and post holes
• Switch heaters – pits for heater and trenching

for power and drainage lines

• Derailment cleanup

Industrial Engineering Construction Other Applications

• Thawing frozen lines and conduits
• Line repairs – service pits
• Cable installation – trenching and pits
• Utility verification
• Fly ash removal
• Vessel removal
• Tower cleaning
• Materials handling, maintenance and cleanup
• Sub-surface utility engineering / prospecting

(potholing)

• Conflict location – renovation
• Horizontal drilling
• Concrete form cleanup
• Disaster response
• Tunneling
• Drain and weeping tile installation and cleanout
• Texas gate cleanouts
• Lowering basements
• Grain elevator cleanouts

Note 1: Selected uses provided, list not exhaustive of all potential hydrovac uses.

NON-IFRS FINANCIAL MEASURES AND KEY FINANCIAL METRICS

(1)

This presentation contains references to certain financial measures, including some that do not have any standardized meaning prescribed by IFRS and that may not be comparable to similar measures presented by other corporations or entities. These financial measures are identified and defined below: “Adjusted EBITDA” is earnings before interest, taxes, depreciation and amortization, share-based compensation, gains and losses on sale

• f property, plant and equipment, and gains and losses on foreign
• exchange. Adjusted EBITDA is a measure of the Company’s operating

profitability and is therefore useful to management and investors as it provides improved continuity with respect to the comparison

• f
• perating results over time. Adjusted EBITDA provides an indication of

the results generated by the Company’s principal business activities prior to how these activities are financed, the results are taxed in various jurisdictions, and assets are amortized. In addition, Adjusted EBITDA excludes gains and losses on sale of property, plant and equipment as these gains and losses are considered incidental and secondary to the principal business activities, it excludes gains and losses on foreign exchange, as such gains and losses can vary significantly based on factors beyond the Company’s control, and it excludes share-based compensation as these expenses can vary significantly with changes in the price of the Company’s common shares. “Adjusted EBITDA Margin” is Adjusted EBITDA margin as defined earlier, expressed as a percentage of revenues. Key Financial Metrics “Revenue per truck per month” (RPT) is a measure of hydrovac fleet

• utilization. It is calculated using hydrovac and hydrovac related revenue
• nly. RPT is calculated on both a consolidated basis and for each

geographic segment by dividing hydrovac and hydrovac related revenue for each segment, in the respective local currency, by the average number of hydrovacs in the segment during the period.

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(1) For further details and related reconciliations refer to Badger’s 2018 Annual MD&A.

CONTACT

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ATCO Centre Ⅱ Suite 400, 919 – 11th Avenue SW Calgary, Alberta T2R 1P3 Telephone (403) 264-8500 www.badgerinc.com Jay Bachman, Vice President, Financial Operations and Investor Relations