Mr. Paul Vanderberg reports

BADGER DAYLIGHTING LTD. ANNOUNCES 2017 THIRD QUARTER FINANCIAL AND OPERATING RESULTS

Badger Daylighting Ltd. has released its results for the three and nine months ended Sept. 30, 2017.

President's message

For the third quarter of 2017, Badger realized increases compared with the prior year comparative quarter in revenue of 24.8 per cent, adjusted earnings before interest, taxes, depreciation and amortization of 16.0 per cent, and revenue per truck per month (RPT) of 21.6 per cent, respectively. The improvement in these results was driven primarily by continuing demand growth for hydrovac services, particularly in Badger's U.S. operations.

"We are pleased with Badger's 2017 third quarter results. Badger continues to see growing demand for its hydrovac services, particularly in U.S. markets where our extensive branch network, high-quality service offering and focus on business development continues to drive improved results," stated Paul Vanderberg, president and chief executive officer. "We continue to see significant potential market growth in the U.S., driven by repeat business from existing customers, accessing new markets and new potential uses for hydrovac. Badger has expanded its hydrovac fleet by a net of 57 incremental units so far in 2017, successfully integrating these units into our business.

"Badger continues to successfully execute on its organic growth strategy. The framework for growth is built on: a proven business model and strong competitive position; a unique service offering to attractive end-use markets; and, executing on a focused hydrovac strategy. Badger will continue to focus on generating profitable long-term growth, supporting Badger's previously communicated strategic milestones which are to: 1) double the U.S. business from fiscal 2016 levels over the next three to five years; 2) grow adjusted EBITDA by a minimum of 15 per cent per year; 3) target adjusted EBITDA margins of 28 per cent to 29 per cent; and; 4) drive fleet utilization and revenue per truck per month above $30,000."

 
                                                  FINANCIAL HIGHLIGHTS
                                       (in thousands, except RPT and per share)
               
                                                   Three months ended Sept. 30       Nine months ended Sept. 30 
                                                          2017            2016             2017            2016
Revenue 
Hydrovac service revenue                              $129,409        $103,790         $335,354        $266,986
Other service revenue                                   11,641           9,375           30,456          26,095
Truck placement revenue                                    235               2              637             225
Total revenue                                          141,285         113,167          366,447         293,306
RPT -- quarterly average                                34,125          28,062                -               -
Adjusted EBITDA                                         38,881          33,517           90,842          76,330
Adjusted EBITDA margin                                   27.5%           29.6%            24.8%           26.0%
Profit before tax                                       24,745          18,022           51,927          32,927
Net profit                                              16,192          11,944           34,608          21,563
Profit per share                                          0.44            0.32             0.93            0.58
Cash flow from operating activities
before working capital adjustments                      37,951          33,327           89,319          75,944
Cash flow from operating activities before
working capital adjustments per share                     1.02            0.90             2.41            2.05
Dividends paid                                           4,044           3,673           11,390          10,574

2017 third quarter overview

2017 third quarter financial and operational highlights

• Badger generated third quarter adjusted EBITDA of $38.9-million compared with $33.5-million in the prior year. Improvements in adjusted EBITDA were driven by revenue growth, higher hydrovac utilization and expense management.
• Revenue in the third quarter of 2017 of $141.3-million was $28.1-million or 24.8 per cent higher compared with $113.2-million in the prior year comparative quarter.
• In Canada, revenue was $42.6-million in the third quarter of 2017, 11.4 per cent higher than the prior year comparative quarter with revenue of $38.3-million. In the United States, revenue for the third quarter of 2017 was $77.9-million (U.S.), 36.2 per cent higher than the prior year comparative quarter with revenue of $57.2-million (U.S.).
• Revenue growth compared with the prior year comparative quarter for both the Canadian and U.S. markets was due to higher activity across Badger's broad range of geographic and end-use markets. Specifically, Badger saw improvements in infrastructure and construction related markets due to increased overall activity levels, continued growth in the adoption of hydrovac, and modest improvements in oil and gas markets. Higher revenues in the third quarter of 2017 compared with the prior year comparative quarter can also be attributed to seasonal construction activity. Badger's investment in its business development function, a key differentiator for Badger compared with its competitors, continues to generate positive benefits, with Badger realizing continuing revenue growth as a result of increased market penetration, and usage of hydrovac as a method of non-destructive excavation in both new and existing markets.
• Average rates for hydrovac and related services for the third quarter of 2017 compared with the prior year comparative quarter were consistent to modestly higher across both the Canadian and U.S. markets.
• RPT was $34,125 in the third quarter of 2017 compared with $28,062 in the prior year quarter. The year-over-year quarterly improvement in RPT was driven by a combination of revenue growth and improved fleet utilization. Optimization of the fleet is driven through Badger's broad network of local branches that allow the company to transfer units to locations with stronger activity levels.
• Badger's third quarter 2017 results were not materially impacted by hurricane Harvey or Irma as incremental revenue associated with hurricane activity was largely offset by operational downtime in hurricane impacted areas. Badger was able to quickly respond to customer emergency response requirements, due in part, to Badger's extensive branch network, providing Badger with the ability to temporarily reallocate hydrovacs into the hurricane impacted areas to assist customers with their cleanup and reconstruction efforts. Badger does not anticipate a material impact to future period results as a result of the hurricanes. Adjusted EBITDA margin for the third quarter of 2017 was 27.5 per cent compared with 29.6 per cent in the prior year quarter.
• Adjusted EBITDA margins continue to benefit from revenue growth, expense management initiatives and higher hydrovac utilization.
• Adjusted EBITDA margin in the third quarter of 2017 was impacted by higher general and administrative expenses as direct costs as a percentage of revenue were consistent with the prior year quarter.
• In the third quarter of 2017, Badger had 1,081 hydrovacs in operation compared with 1,056 during the second quarter of 2017.
• Net profit for the third quarter of 2017 was $16.2-million or 44 cents per share compared with $11.9-million or 32 cents per share in the prior year quarter. Net profit was primarily impacted by the same items which affected adjusted EBITDA as discussed above.
• Badger's total debt less cash and cash equivalents was $61.2-million at Sept. 30, 2017, with a corresponding debt-less-cash-and-cash-equivalents-to-trailing-12-month-adjusted-EBITDA ratio of 0.5 times. Badger continues to maintain a strong balance sheet, providing the flexibility to facilitate continuing growth in the business.

Outlook

Badger anticipates that increased year-over-year activity realized in the second and third quarters will continue into the fourth quarter of 2017. The overall macroeconomic environment in both Canada and the U.S. is anticipated to be supportive of continuing infrastructure, construction, and oil and gas activity levels for the remainder of 2017. In addition to increased levels of activity, Badger continues to see growth from 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 its business development function. Due to the nature of construction operations, Badger does anticipate a seasonal slowdown in its northern markets due to winter weather; the exact nature and timing of this impact are variable and dependent on regional specific weather.

Continued growth in Badger's end-use markets and geographies throughout the second and third quarters has resulted in improved fleet utilization as evidenced by higher realized RPT. Based on existing and anticipated activity levels, Badger anticipates that its total hydrovac build for fiscal 2017 will be approximately 155 units. The retirement of hydrovacs for fiscal 2017 is anticipated to be in the range of 70 to 75 units, higher than the range provided in the second quarter of 2017 of 50 to 55 units. The increase in the number of anticipated retired hydrovacs is a result of management's continuing assessment of the cost of repairing and maintaining a hydrovac versus retiring and replacing a unit.

2017 investor day

Badger is holding an investor day on Thursday, Nov. 16, 2017, at the King Edward Hotel in Toronto. An update on Badger's operations, short- and long-term growth opportunities, and financial position will be presented. Badger's executive and operational leadership teams will be in attendance. The formal presentation will commence at 9 a.m. ET, a light breakfast and lunch will be served. Attendance in person for this event is by invitation as space is limited. The presentation will be webcast and available on Badger's website. To request an invitation, please e-mail your contact information to rsvpinvestorday@badgerinc.com.

Conference call for third quarter results

A conference call and webcast for investors, analysts, brokers and media representatives to discuss the 2017 third quarter results is scheduled for 9 a.m. MT on Monday, Nov. 13, 2017. Internet users can listen to the call live, or as an archived call, on Badger's website under the upcoming events and investor presentation section. To participate in the call, dial 1-844-740-2014 and enter passcode 2253558. A replay of the call will be available for 14 days following the call and can be accessed by dialling 1-855-859-2056 and entering passcode 2253558.

Badger's management's discussion and analysis, unaudited interim consolidated financial statements for the period ended Sept. 30, 2017, along with all previous public filings of Badger Daylighting may be found on SEDAR.

About Badger Daylighting Ltd.

Badger is North America's largest provider of non-destructive excavating services. Badger traditionally works for contractors and facility owners in a broad range of infrastructure industries. The company's key technology is the Badger Hydrovac, which is used primarily for safe digging in congested grounds and challenging conditions. The Badger Hydrovac uses a pressurized water stream to liquefy the soil cover, which is then removed with a powerful vacuum system and deposited into a storage tank. Badger manufactures its truck-mounted hydrovac units.

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