Badger Infrastructure Solutions Ltd. — Annual Report 2022

Mar 24, 2023

Badger Infrastructure Solutions Ltd. Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

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Deloitte LLP 700, 850 2 Street SW Calgary, AB T2P 0R8 Canada

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Tel: 403-267-1700 Fax: 587-774-5379 www.deloitte.ca

Independent Auditor’s Report

To the Shareholders and the Board of Directors of Badger Infrastructure Solutions Ltd.:

Opinion

We have audited the consolidated financial statements of Badger Infrastructure Solutions Ltd. (the “Company”), which comprise the consolidated statements of financial position as at December 31, 2022 and 2021 and January 1, 2021, and the consolidated statements of comprehensive income (loss), changes in equity and cash flows for the years ended December 31, 2022 and 2021, and notes to the consolidated financial statements, including a summary of significant accounting policies (collectively referred to as the "financial statements").

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the company as at December 31, 2022 and 2021 and January 1, 2021, and its financial performance and its cash flows for the years ended December 31, 2022 and 2021 in accordance with International Financial Reporting Standards ("IFRS").

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards (“Canadian GAAS”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matter

A key audit matter is a matter that, in our professional judgment, was of most significance in our audit of the consolidated financial statements for the year ended December 31, 2022. This matter was addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on this matter.

Change in Presentation Currency — Refer to Note 5 to the financial statements

Key Audit Matter Description

Given foreign exchange rate fluctuations, effective January 1, 2022, the Company began reporting results in U.S. dollars to improve year over year comparability as the majority of its business activities are denominated in U.S. dollars. The change in presentation currency represents a voluntary change in accounting policy and it was retrospectively applied.

The determination of the accounting impact of the change in presentation currency required management to compile historical information of several periods to calculate and apply the retrospective change. This resulted in an increased extent of audit effort.

How the Key Audit Matter Was Addressed in the Audit

Our audit procedures related to the accounting impact of the change in presentation currency included the following, among others:

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• Assessed the accuracy of historical conversion rates used by management by agreeing them to thirdparty rates.

• Recalculated the translated amounts of comparative periods, derived from audited prior year financial statements, using appropriate historical conversion rates.

• Evaluated the Company’s disclosures against relevant accounting guidance.

Other Information

Management is responsible for the other information. The other information comprises Management’s Discussion and Analysis.

Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor’s report. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

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• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is Brian Ralofsky.

/s/ Deloitte LLP

Chartered Professional Accountants Calgary, Alberta March 23, 2023

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BADGER INFRASTRUCTURE SOLUTIONS LTD. Consolidated Statement of Financial Position

		December 31,	December 31,	January 1,
		2022	2021	2021
($ U.S. thousands)	Notes		Note 5	Note 5
ASSETS
Current Assets
Cash and cash equivalents		5,398	4,137	13,584
Trade and other receivables	6	141,495	113,807	116,327
Prepaid expenses		9,550	5,735	6,708
Inventories	7	25,213	10,700	7,336
Income taxes receivable		—	10,656	4,263
		181,656	145,035	148,218
Non-current Assets
Property, plant and equipment	8	298,636	289,388	298,873
Right-of-use assets	9	29,679	18,960	16,772
Intangible assets	10	21,832	23,652	24,088
Goodwill	10	1,197	1,279	1,273
		351,344	333,279	341,006
Total Assets		533,000	478,314	489,224
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Trade and other payables	11	68,831	50,651	40,070
Lease liability	12	8,751	5,868	4,251
Derivative financial instruments		4,203	1,684	—
Share-based plan liability	15	17,207	17,584	22,133
Income taxes payable		1,141	—	—
Dividends payable	16	4,200	1,428	1,369
Current portion of senior secured notes	13	—	25,000	25,000
		104,333	102,215	92,823
Non-current Liabilities
Trade and other payables	11	—	—	2,521
Lease liability	12	18,356	9,541	7,696
Derivative financial instruments		1,070	455	—
Senior secured notes	13	—	—	25,000
Borrowings under credit facility	13	138,882	95,620	53,461
Deferred income tax	14	47,512	48,668	49,701
		205,820	154,284	138,379
Shareholders’ Equity
Shareholders’ capital	17	66,950	66,950	67,644
Contributed surplus		422	422	422
Accumulated other comprehensive loss		(3,859)	(4,058)	(4,713)
Retained earnings		159,334	158,501	194,669
		222,847	221,815	258,022
Total Liabilities and Shareholders’ Equity		533,000	478,314	489,224

See accompanying Notes to the consolidated financial statements.

BADGER INFRASTRUCTURE SOLUTIONS LTD. Consolidated Statement of Comprehensive Income (Loss)

		Years ended December 31,	Years ended December 31,
($ US thousands, except per share amounts)	Notes	2022	2021
Revenue	18	570,812	453,910
Direct costs		431,662	358,857
Gross profit		139,150	95,053
Depreciation and amortization		59,584	57,125
General and administrative		39,194	37,120
Share-basedplans		5,507	2,453
Operating income (loss)		34,865	(1,645)
(Gain) loss on sale and impairment of property, plant and equipment		(331)	3,147
Unrealized loss on derivatives		3,885	2,140
Finance cost		8,066	4,406
Foreign exchange loss(gain)		362	(66)
Earnings (loss) before income tax		22,883	(11,272)
Current income tax expense (recovery)	14	5,446	(1,499)
Deferred income tax recovery	14	(853)	(1,036)
Income tax expense (recovery)		4,593	(2,535)
Net earnings (loss)		18,290	(8,737)
Other comprehensive income:
Foreign exchange differences on translation of foreign operations		199	655
Other comprehensive income		199	655
Comprehensive income(loss)		18,489	(8,082)
Net earnings (loss) per share
Basic and diluted	20 $	0.53$	(0.25)

See accompanying Notes to the consolidated financial statements.

BADGER INFRASTRUCTURE SOLUTIONS LTD.

Consolidated Statement of Changes in Equity

				Accumulated
				other
		Shareholders’	Contributed	comprehensive	Retained
($ US thousands)	Notes	capital	surplus	income(loss)	earnings	Total equity
At January 1, 2021		67,644	422	(4,713)	194,669	258,022
Net loss		—	—	—	(8,737)	(8,737)
Other comprehensive income		—	—	655	—	655
Dividends		—	—	—	(17,057)	(17,057)
Shares repurchased and
cancelled under normal
course issuer bid	17	(694)	—		(10,374)	(11,068)
At December 31, 2021		66,950	422	**(4,058) **	158,501	221,815
Net earnings		—	—	—	18,290	18,290
Other comprehensive income		—	—	199	—	199
Dividends		—	—	—	(17,457)	(17,457)
At December 31, 2022		66,950	422	**(3,859) **	159,334	222,847

See accompanying Notes to the consolidated financial statements.

BADGER INFRASTRUCTURE SOLUTIONS LTD. Consolidated Statement of Cash Flows

		Years ended	December 31,
($ US thousands)	Notes	2022	2021
Operating activities
Net earnings (loss)		18,290	(8,737)
Items not requiring cash and cash equivalents:
Depreciation and amortization		59,584	57,125
Deferred income tax recovery		(853)	(1,036)
(Gain) loss on sale and impairment of property, plant and equipment		(331)	3,147
Finance cost		8,066	4,406
Current income tax expense (recovery)		5,446	(1,499)
Unrealized loss on derivatives		3,885	2,140
Share-based plans		5,507	2,453
Unrealized foreign exchange loss(gain)		1,007	(209)
Cash flow from operating activities before working capital and other adjustments		100,601	57,790
Change in non-cash working capital	23	(32,605)	9,432
Income taxes paid		(4,310)	(6,726)
Income taxes recovered		10,629	1,834
Financial instruments paid		**(531) **	—
Interest paid on lease liabilities	12	(667)	(505)
Share-basedplanpaid		(4,788)	(7,215)
Cashprovided by operating activities		68,329	54,610
Investing activities
Purchase of property, plant and equipment	8	(65,209)	(42,794)
Purchase of leased assets		(336)	—
Proceeds from sale of property, plant and equipment		2,539	1,899
Proceeds from sale of leased assets		319	—
Additions to intangible asset	10	(1,211)	(1,559)
Change in non-cash workingcapital	23	3,952	(1,181)
Cash used in investing activities		(59,946)	(43,635)
Financing activities
Borrowings under credit facility		60,851	71,978
Repayments of credit facility		(13,132)	(29,166)
Repayment of senior secured notes		(24,629)	(25,184)
Interest paid		(7,412)	(3,892)
Payment of lease liabilities	12	(8,352)	(5,686)
Dividends paid	16	(14,506)	(17,224)
Common shares repurchased under normal course issuer bid	17	—	(11,069)
Cash used in financing activities		(7,180)	(20,243)
Effect of foreign exchange rate changes on cash		58	(179)
Increase (decrease) in cash and cash equivalents		1,261	(9,447)
Cash and cash equivalents,beginningofyear		4,137	13,584
Cash and cash equivalents, end ofyear		5,398	4,137

See accompanying Notes to the consolidated financial statements.

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements (All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

1 Incorporation and operations

Badger Infrastructure Solutions Ltd. and its subsidiaries (together “Badger” or the “Company”) provide nondestructive excavating services to utilities, industrial, construction, transportation and other industries in Canada and the United States (“U.S.”). Badger is a publicly traded company. The head office of Badger is located at Suite 400, 919-11[th] Avenue SW, Calgary, Alberta T2R 1P3. The registered office of Badger is located at c/o CAS Corporate Governance Services Inc., 600, 815-8[th] Avenue SW, Calgary, Alberta T2P 3P2.

The consolidated financial statements of the Company for the years ended December 31, 2022 and December 31, 2021 were authorised for issue in accordance with a resolution of the Board of Directors (“Board”) on March 23, 2023.

2 Significant accounting judgements, estimates and assumptions

The preparation of these consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the consolidated financial statements and reported amounts of revenues, expenses, gains and losses during the reporting periods. Estimates and judgements are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the amounts recognized in the consolidated financial statements are:

A) Useful lives of property, plant and equipment

The Company estimates the useful lives of property, plant and equipment based on the period over which the assets are expected to be available for use. The estimated useful lives of property, plant and equipment are reviewed at the end of each reporting period and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the relevant assets. In addition, the estimation of the useful lives of property, plant and equipment are based on internal technical evaluation and experience with similar assets. Future results of operations could be materially affected by changes in the estimated useful lives due to the factors mentioned above. The amounts and timing of recorded expenses would be affected by this as a reduction in the estimated useful lives of the property, plant and equipment would increase the recorded depreciation expense with an offset to the value of the related property, plant and equipment.

B) Intangible assets

Intangible assets consist of service rights acquired from the Company’s operating partners and software costs. The initial valuation of intangibles at the closing date of any acquisition requires judgement and estimates by management with respect to identification, valuation and determining the expected periods of benefit. Valuations are based on discounted expected future cash flows and other financial tools and models and are amortized over their expected periods of benefit or not amortized if it is determined the intangible asset has an indefinite life. Intangible assets are reviewed annually with respect to their useful lives or more frequently if events or changes in circumstances indicate that the assets might be impaired. A change in the remaining life of an intangible asset would affect the amortization rate used to amortize the intangible asset for assets being amortized, and for assets not being amortized could result in an impairment of the related asset, the impact of which would be recognized in the Company’s consolidated statement of comprehensive income (loss) as amortization expense or an asset impairment charge.

C) Income taxes

Current income taxes

Provisions for current income taxes are made using the best estimate of the amount expected to be paid based on a qualitative and quantitative assessment of all relevant factors that involves management’s judgment. The Company reviews the adequacy of these provisions at the end of the reporting period. However, it is possible that at some future date changes to these provisions could result from audits by tax authorities, reassessments

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements (All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

and changes in interpretations of standards. Where the final outcome of these tax-related matters is different from the amounts that were initially recorded, such differences will affect the income tax provisions in the period in which such determination is made.

Deferred income taxes

Deferred income tax assets are recognized when it is considered probable that the deductible temporary differences will be recovered. If future taxable income or the timing of the reversal differs significantly from the Company’s estimate, the ability to realize the deferred income tax assets could be impacted.

Deferred income tax liabilities are recognized when there are taxable temporary differences that will result in a future outflow to a tax authority. The Company records a provision for the amount that is expected to be settled. Deferred income tax liabilities may be impacted by a change in the likelihood of a future outflow and estimates of the expected settlement amount, timing of reversals and the tax laws in which the Company operates.

D) Allowance for doubtful accounts

The Company records a loss allowance for expected credit losses on financial assets that are measured at amortized cost. The amortized cost is reduced by impairment losses at an amount equal to the lifetime expected credit losses that result from all possible default events over the expected life of the financial instrument. Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amounts of the assets and the loss is recognized in the consolidated statement of comprehensive income (loss). When a trade receivable is uncollectible, it is written off against the allowance for doubtful accounts.

E) Determining cash generating units

For the purpose of assessing impairment of non-financial assets, the Company must determine its cash generating units (“CGUs”). Assets and liabilities are grouped into CGUs at the lowest level of separately identified cash flows. Determination of what constitutes a CGU is subject to management judgment. The asset composition of a CGU can directly impact the recoverability of assets included within the CGU.

F) Impairment of non-financial assets

The Company assesses at each reporting date whether there is an indication that a non-financial asset may be impaired. An impairment occurs when the carrying value of an asset or CGU exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. Fair value less costs to sell is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model. The cash flows are derived from the projection for the next five years and do not include restructuring activities that the Company is not yet committed to or significant future investments that will enhance the asset’s performance of the CGU being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes, which requires management judgement. Impairment of nonfinancial assets would be recognized in the Company’s consolidated statement of comprehensive income (loss).

G) Goodwill

Goodwill is the amount that results when the cost of acquired assets exceeds their fair value at the date of acquisition. Goodwill is recorded at cost, is not amortized and is tested at least annually for impairment. The impairment test includes the application of a fair value test, with an impairment loss recognized when the carrying amount of goodwill exceeds its estimated fair value. Impairment provisions are not reversed if there is a subsequent increase in the fair value of goodwill. Impairment of goodwill would be recognized in the Company’s consolidated statement of comprehensive income (loss).

H) Functional currency

The determination of the functional currency of the Company and each of its subsidiaries requires judgment based on the composition of revenue and costs in the locations in which it operates.

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements (All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

3 Summary of significant accounting policies

The principal accounting policies applied in the preparation of these annual consolidated financial statements are set out below.

A) Basis of consolidation

The consolidated financial statements include the accounts of Badger and its subsidiaries, all of which are wholly owned. Subsidiaries are consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent, using consistent accounting policies. All intercompany balances, income and expenses, unrealized gains and losses and dividends resulting from intercompany transactions are eliminated in full.

B) Statement of compliance

These consolidated financial statements of the Company are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

C) Basis of measurement

These consolidated financial statements have been prepared on a historical cost basis except as detailed in the accounting policies disclosed in Note 5. The accounting policies described in Note 5 have been applied consistently to all periods presented in these consolidated financial statements. Standards and guidance issued but not yet effective for the current accounting period are described in Note 4.

D) Functional and presentation currency

These consolidated financial statements are presented in U.S. dollars. The functional currency of the Canadian operations is in Canadian dollars and the U.S. operations functional currency is in U.S. dollars.

E) Cash and cash equivalents

Cash includes cash and cash equivalents, which are defined as highly liquid investments with maturities of three months or less.

F) Trade and other receivables

During 2022, in the normal course of its business, the Company entered into a receivables purchase agreement with a financial institution whereby it can sell, eligible trade receivables to the financial institution. The Company sells trade receivables of certain designated customers in exchange for a cash payment equal to the face value of the trade receivables sold less an applicable discount. The Company retains substantially all of the risks and rewards relating to the receivables under the receivables purchase agreement, therefore, the trade receivables remain on the consolidated statement of financial position and the funding received is recognized as trade and other payables. The difference between the carrying amount of trade accounts receivables sold under the agreement and the cash received at the time of transfer is recorded in the statement of earnings and comprehensive income within finance costs.

G) Inventories

Inventories are valued at the lower of cost and net realizable value, with cost being defined to include the laid-down cost for materials on a standard cost and where applicable direct labour costs and those overheads incurred in bringing the inventories to their location and condition. Inventories are written down to net realizable value when the cost of inventories is estimated to be unrecoverable due to obsolescence or damage. Net realizable value is defined as the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The Company uses its judgment to determine which costs are necessary to make the sale considering its specific facts and circumstances, including the nature of the inventories.

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements (All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

H) Leases

A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether:

• The contract involves the use of an identified asset, either explicitly or implicitly, and whether the supplier has a substantive substitution right for the asset;

• The Company has the right to obtain substantially all the economic benefits from the use of the asset throughout the period; and

• The Company has the right to direct the use of the identified asset.

The Company determines if a contractual arrangement is a lease at the inception of the contract term. The Company has identified leases for the following asset types: buildings and light duty trucks. The Company recognizes a right-of-use asset and a lease liability to reflect the benefit the Company obtains from the underlying asset in the lease and the requirement to pay the amounts included in the lease contract, respectively. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability, adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to decommission the underlying asset, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method over the lesser of lease term or the useful life of the underlying asset, where appropriate.

The lease liability is initially measured at the present value of remaining lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate.

Lease payments included in the measurement of the lease liability include fixed payments, variable lease payments that depend on an index or rate, amounts expected to be payable under a residual value guarantee, and amounts owing under purchase or termination options, if the Company is reasonably certain to exercise these options. If the lease contains an extension option that the Company is reasonably certain to exercise, all payments in the renewal period are also included in determining the lease liability.

The lease liability is measured at amortized cost using the effective interest method. The amount of the liability is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, or if the Company changes its assessment of whether it will exercise a purchase, extension, or termination option. When the lease liability is remeasured, a corresponding adjustment is made to the carrying value of the right-of-use asset, or is recorded on the consolidated statements of earnings if the carrying amount of the right-of-use asset has been reduced to zero.

The Company has elected not to recognize right-of-use assets and lease liabilities for short-term and lowvalue leases. Short-term leases are lease contracts with lease terms that are less than 12 months. Lease payments associated with these leases will be recognized as an expense on a straight-line basis over the lease term. Certain leases include both lease and non-lease components, which are generally accounted for separately. For certain equipment leases, the Company applies a portfolio approach to effectively account for the lease right-of-use assets and lease liabilities.

I) Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and/or accumulated impairment losses if any. Repair and maintenance costs are recognized in the consolidated statement of comprehensive income (loss) as incurred.

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements (All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

Depreciation is calculated on a straight-line basis to recognize the cost less estimated residual value over the estimated useful life of the assets as follows:

	Useful life
Buildings and land improvements	2 to 30 years
Office equipment and other	4 to 10 years
Trucks and trailers	6 to 10years

Depreciation of equipment under construction is not recorded until such time as the asset is available for use, in other words, when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.

The assets’ residual values, useful lives and methods of depreciation are reviewed at the end of each reporting period or when events or conditions occur that impact capitalized costs or useful lives and are adjusted prospectively, if appropriate.

Gains or losses arising from derecognition of an item of property, plant and equipment are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the consolidated statement of comprehensive income (loss) when the asset is derecognized.

J) Intangible assets

Intangible assets represent service rights acquired and costs associated with the Company’s ERP implementation. Intangible assets acquired separately are measured on initial recognition at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses.

The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least annually. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the consolidated statement of comprehensive income (loss) when the asset is derecognized.

A summary of the policies applied to the Company’s intangible assets is as follows:

	Service rights	ERP and Software
Useful lives	Indefinite	10 years
Amortization method	No amortization	Straight-line

K) Impairment of non-financial assets excluding goodwill

At the end of each reporting period or when there is an indication of impairment, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the CGU to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements (All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

assets are also allocated to individual CGU’s, or otherwise, they are allocated to the smallest group of CGU’s for which a reasonable and consistent allocation basis can be identified.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its recoverable amount. An impairment loss is recognized immediately in the consolidated statement of comprehensive income (loss).

Where an impairment loss subsequently reverses, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset or CGU in prior years. A reversal of an impairment loss is recognized immediately in the consolidated statement of comprehensive income (loss).

L) Provisions

A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as a finance cost.

M) Goodwill

Goodwill represents the excess of the purchase price over the fair value of net assets acquired and liabilities assumed in a business combination. Goodwill is not amortized but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Company’s CGU’s expected to benefit from the synergies of the combination. CGU’s to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the CGU may be impaired. If the recoverable amount of the CGU is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit prorata on the basis of the carrying amount of each asset in the unit. An impairment loss recognized for goodwill is not reversed in a subsequent period.

N) Income taxes

Income tax expense comprises current and deferred income tax. Income tax is recognized in the consolidated statement of comprehensive income (loss) except to the extent it relates to items recognized directly in equity.

Current income tax

Current income tax expense is based on the results for the period as adjusted for items that are not taxable or not deductible. Current income tax is calculated using tax rates and laws that are enacted or substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of most likely amount to be paid to the tax authorities.

Deferred income tax

Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax basis of assets and liabilities and their carrying amounts in the consolidated statement of financial position. Deferred income tax is calculated using income tax rates and laws that are enacted or substantively

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements (All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

enacted at the end of the reporting period, and which are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred income tax assets:

• are recognized to the extent it is probable that taxable profits will be available against which the deductible temporary differences can be utilized; and

• are reviewed at the end of the reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred income tax liabilities:

• are generally recognized for all taxable temporary differences;

• are recognized for taxable temporary differences arising on investments in subsidiaries except where the reversal of the temporary difference can be controlled and it is probable that the difference will not reverse in the foreseeable future; and,

• are not recognized on temporary differences that arise from goodwill which is not deductible for income tax purposes.

Deferred income tax assets and liabilities are not recognized in respect of temporary differences that arise on initial recognition of assets and liabilities acquired other than in a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit.

K) Revenue recognition

Badger’s revenue primarily arises from contracts with customers. Revenue is recognized when a customer obtains control over the goods or services at which point the performance obligations are satisfied and when the collection is reasonably assured. Badger recognizes revenue from non-destructive excavation related services, and other services.

The above mentioned performance obligations are part of contracts that have an expected duration of less than one year.

The total consideration in the service contracts is allocated to all services based on their stand-alone selling prices. The transaction price for the services Badger provides is agreed upon with the customer at the time the contracts are entered into and do not contain significant financing components.

L) Finance costs

Finance costs comprise interest expense on borrowings on the Company’s senior secured notes and syndicated revolving credit facility, stand by fees on the Company’s syndicated revolving credit facility and finance costs relating to the Company’s lease obligations. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in profit or loss using the effective interest rate method. Finance costs also include the difference between the carrying amount of trade accounts receivables sold under a receivables purchase agreement and the cash received at the time of transfer.

M) Share-based plans

The Company has cash-settled share-based plans, Deferred Share Units (“DSUs”), Performance Share Units (“PSUs”) and Restricted Share Units (“RSUs”) under which it receives services from employees as consideration for cash payments.

The Company uses the market price of its shares to estimate the fair value of cash-settled awards. Fair value is established initially at the grant date and the obligation is revalued at the end of each reporting period until the awards are settled with any changes in the obligation recognized in the consolidated statement of comprehensive income (loss). The fair value of the PSUs is adjusted for the estimate of the outcome of the performance conditions.

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements (All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

N) Segment reporting

An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company’s other components. All operating segments’ operating results are reviewed regularly by management to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

O) Foreign currency translation

Items included in the financial statements of each consolidated entity are measured using the currency of the primary economic environment in which the entity operates which is the functional currency. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities not denominated in the functional currency of an entity are recognized in the consolidated statement of comprehensive income (loss).

Assets and liabilities of entities with functional currencies other than U.S. dollars are translated at the period end rates of exchange, and the results of their operations are translated at average rates of exchange for the month. The resulting translation adjustments are included in accumulated other comprehensive income when the settlement of which is neither planned nor likely to occur in the foreseeable future.

When settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely to occur in the foreseeable future, foreign exchange gain or losses related to such items are recognized in other comprehensive income, and presented in accumulated other comprehensive income in equity.

P) Financial instruments

Financial assets

The classification of financial assets is based on the Company’s assessment of its business model for holding financial assets. The classification categories are as follows:

• Financial assets measured at amortized cost: assets that are held within a business model whose objective is to hold assets to collect contractual cash flows and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

• Financial assets at fair value through other comprehensive income: assets that are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

• Financial assets at fair value through profit or loss: assets that do not meet the criteria for amortized cost or fair value through other comprehensive income.

Financial assets measured at amortized cost are measured at cost using the effective interest method. The amortized cost is reduced by impairment losses at an amount equal to the lifetime expected credit losses that result from all possible default events over the expected life of the financial instrument. Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amounts of the assets and the loss is recognized in the consolidated statement of comprehensive income (loss). When a trade receivable is uncollectible, it is written off against the allowance for doubtful accounts.

Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire or when the contractual rights to those assets are transferred.

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements

(All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

Financial liabilities

The classification of financial liabilities is determined by the Company at initial recognition. The classification categories are as follows:

• Financial liabilities measured at amortized cost: financial liabilities initially measured at fair value less directly attributable transaction costs and are subsequently measured at amortized cost using the effective interest method. Interest expense is recognized in the consolidated statement of comprehensive income (loss).

• Financial liabilities measured at fair value through profit or loss: financial liabilities measured at fair value with changes in fair value and interest expense recognized in the consolidated statement of comprehensive income (loss).

Financial liabilities are classified as current liabilities if payment is due within one year or less, if not, they are presented as non-current liabilities. Financial liabilities are derecognized when the obligation in discharged, cancelled or expired.

Fair value measurement

The company has classified its financial instrument fair values based on the required three-level hierarchy:

• Level 1: Valuations based on quoted prices in active markets for identical assets or liabilities;

• Level 2: Valuations based on observable inputs other than quoted active market prices; and,

• Level 3: Valuations based on significant inputs that are not derived from observable market data, such as discounted cash flows methods.

The fair value hierarchy level at which a fair value measurement is categorized is determined on the basis of the lowest level input that is significant to the fair value measurement.

Derivative Financial Instruments

During 2021, the Company entered into total return swaps to manage its exposure to fluctuations in the total return of its common shares related to long-term incentive compensation plans. The derivative financial instruments are utilized by the Company in the management of its equity price as changes in equity price affect share-based plan expense. These cash-settled share swap transactions require the exchange of net contractual payments at maturity without the exchange of the notional principal amounts on which the payments are based. These represent an economic hedge of the long-term incentive compensation plans recorded in the consolidated statement of comprehensive income (loss) in Share-based plans. Changes in fair value are recorded as an expense to the unrealized loss on derivatives in the consolidated statement of comprehensive income (loss). Any change in fair value of the total return swaps is recognized as unrealized losses or gains on derivatives in the period in which the change occurs both in the consolidated statement of comprehensive income (loss) and Cash Flows.

Q) Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received net of direct issue costs.

R) Government grants

Government grants are recognized when the Company has reasonable assurance that it has complied with the conditions of the grants and that they will be received. The Company recognizes the grants in profit and loss on a consistent basis over the periods in which expenses and related costs for which the grants are intended are recognized. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of providing financial support to the Company with no future costs are recognized in profit or loss in the period in which they become receivable.

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements (All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

4 Recently announced accounting pronouncements

IAS 1 Presentation of Financial Statements

In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality Judgements, in which it provides guidance and examples to help a company apply materiality judgements to accounting policy disclosures. The amendments seek to help a company provide more useful accounting policy disclosures by replacing the requirement for a company to disclose their ‘significant’ accounting policies with a requirement to disclose their ‘material’ accounting policies, as well as add guidance on how a business applies the concept of materiality in making decisions about accounting policy disclosures. The company will now have to consider both the size of the transactions, other events or conditions, and the nature of them. ‘Material’ is a defined term in IFRS and is more widely understood by users of financial statements.

In October 2022, the IASB issued amendments to clarify that the classification of liabilities as current or non-current is based solely on a company’s right to defer settlement for at least twelve months at the reporting date. The right needs to exist at the reporting date and must have substance. In addition to the amendment from January 2020 where the IASB issued amendments to IAS 1, to provide a more general approach to the presentation of liabilities as current or non-current, only covenants with which a company must comply on or before the reporting date may affect this right. Covenants to be complied with after the reporting date do not affect the classification of a liability as current or noncurrent at the reporting date.

These amendments are effective January 1, 2024 and are to be applied retrospectively. Management has not yet determined the impact this amendment will have on the Company

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

Effective January 1, 2023, the definition of accounting estimates will be amended under IAS 8. Under the amended definition, a change in an input or a change in a measurement technique are changes in accounting estimates if they do not result from the correction of prior period errors. The amendment further clarifies that accounting estimates are monetary amounts in the financial statements subject to measurement uncertainty.

Under the prior definition, IAS 8 stated that a change in accounting estimates specified that changes in accounting estimates may result from new information or new developments. Therefore, such changes are not corrections of errors.

This amendment will impact changes in accounting policies and changes in accounting estimates made after the amendment is adopted by the Company.

Income Taxes

Amendments to IAS 12, Income Taxes (effective January 1, 2023) clarify how companies should account for deferred tax related to assets and liabilities arising from a single transaction, such as leases and decommissioning obligations. The amendments narrow the scope of the initial recognition exemption so that it does not apply to transactions that give rise to equal and offsetting temporary differences. As a result, companies will need to recognize a deferred tax asset and a deferred tax liability for temporary differences arising on initial recognition of the related asset and liability. Management believes these amendments will have no impact on the Company.

5 Changes in Accounting Policies

Change in Presentation Currency

Effective January 1, 2022, Badger began reporting results in U.S. dollars to improve year over year comparability given foreign exchange rate fluctuations as the majority of its business activities are denominated in U.S. dollars. The change in presentation currency represents a voluntary change in accounting policy. The Company has applied the presentation currency change retrospectively. All periods presented in the consolidated financial statements have been

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements (All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

translated into the new presentation currency, in accordance with the guidance in IAS 21, The Effects of Changes in Foreign Exchange Rates.

The consolidated statements of income (loss) and the consolidated statements of cash flows have been translated into the presentation currency using the average exchange rates prevailing during each reporting period. In the consolidated statements of financial position, all assets and liabilities have been translated using the period-end exchange rates, and all resulting exchange differences have been recognized in accumulated other comprehensive income. Assets and liability amounts previously reported in Canadian dollars have been translated into U.S. dollars (“USD”) as at January 1, 2021, and December 31, 2021, using the period-end exchange rates and material shareholder’s equity balances have been translated using historical rates in effect on the date of the transactions.

The change in presentation currency resulted in the following impact on the January 1, 2021, opening consolidated statement of financial position:

	Previously reported in	Previously reported in		Reported in	Reported in
	CAD		Presentation currency	USD
	**January 1, **	2021	change	**January 1, **	2021
Total assets		622,885	(133,661)		489,224
Total liabilities		294,366	(63,164)		231,202
Total equity		328,519	(70,497)		258,022

The change in presentation currency resulted in the following impact on the December 31, 2021, consolidated statement of financial position:

	Previously reported in		Reported	in
	CAD	Presentation currency	USD
	December 31, 2021	change	December 31, 2021
Total assets	606,406	(128,092)		478,314
Total liabilities	325,204	(68,705)		256,499
Total equity	281,202	(59,387)		221,815

The change in presentation currency resulted in the following impact on the year ended December 31, 2021, consolidated statement of comprehensive income (loss):

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements

(All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

	Previously reported in	Previously reported in		Reported in
	CAD	Presentation currency		USD
	December 31, 2021		change	December 31, 2021
Revenue		568,752	(114,842)	453,910
Direct costs		449,743	(90,886)	358,857
Gross profit		119,009	(23,956)	95,053
Operating loss		(2,313)	668	(1,645)
Income tax recovery		(3,185)	650	(2,535)
Net loss		(11,249)	2,512	(8,737)
Comprehensive loss		(11,959)	3,877	(8,082)
Net loss per share
Basic and diluted	$	(0.33) $	0.08 $	(0.25)

6 Trade and other receivables

Trade and other receivables
	December 31, 2022	December 31, 2021	January 1, 2021
		Note 5	Note 5
Trade receivables	136,398	110,125	114,801
Holdback receivables	1,273	668	1,267
Allowance for doubtful accounts	(1,405)	(2,790)	(4,622)
Total trade receivables	136,266	108,003	111,446
Accrued revenue and other receivables	5,229	5,804	4,881
Trade and other receivables	141,495	113,807	116,327

Trade receivables include $7.2 million (December 31, 2021 - nil) of trade accounts receivables being serviced under a receivables purchase agreement. The Company has transferred the relevant accounts receivables of certain designated customers to a third-party financial institution in exchange for a cash payment equal to the face value of the sold trade receivables less an applicable discount. The Company retains substantially all of the risks and rewards relating to the receivables sold, and therefore, continues to recognize the transferred accounts receivables in their entirety. The amounts repayable under receivables purchase agreement are recorded as accounts payable in Note 11.

Holdback receivables are amounts customers withhold paying until the completion of the contract. These amounts are agreed in advance and typically have collection terms beyond the Company’s general payment terms .

Accrued revenue represents revenue for services which have been completed and for which an invoice has not yet been rendered. All such recorded amounts are considered collectable.

Trade receivables are non-interest bearing and are generally on 30-90 day payment terms.

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements

(All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

The aging analysis of trade receivables, holdback receivables and the allowance for doubtful accounts is as follows:

	December 31, 2022	December 31, 2021	January 1, 2021
		Note 5	Note 5
Current to 90 days	120,322	98,027	85,751
Over 90 days	15,944	9,976	25,695
Total trade receivables	136,266	108,003	111,446

Movement in allowance for doubtful accounts is as follows:

	December 31, 2022	December 31, 2021
Opening balance	2,790	4,622
Additions to the allowance	1,059	4,896
Accounts written off	(2,345)	(6,025)
Amounts recovered that were previously allowed for	(64)	(696)
Exchange differences	(35)	(7)
Closing balance	1,405	2,790

7 Inventory

During the first quarter of 2022, the application of the Company’s accounting policy to its revised operating model resulted in the inclusion of finished goods, manufacturing parts, and work in progress as part of Inventory. Inventory includes manufacturing finished goods, manufacturing and spare parts, and work in progress related to non-destructive excavation units that will be sold in the ordinary course of business. Manufacturing inventories is measured at the lower of cost and net realizable value. Cost comprises direct materials and, where applicable, direct labour costs and those overhead costs that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the standard cost method. Net realizable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

In accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors , the application of Inventory policy to new transactions is treated prospectively with no comparative prior period adjustments.

Inventory includes manufacturing finished goods, manufacturing and spare parts, and work in progress related to nondestructive excavation units that will be sold in the ordinary course of business.

	December 31, 2022	December 31, 2021	January 1, 2021
		Note 5	Note 5
Finished goods	2,367	—	—
Manufacturing and spare parts	17,498	10,700	7,336
Work inprogress	5,348	—	—
Total inventory	25,213	10,700	7,336

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements

(All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

8 Property, plant and equipment

	Land, land	Equipment	Office	Trucks
	improvements	under	equipment	and other
	and buildings	construction	and other	vehicles	Total
Cost
January 1, 2021	29,124	16,848	5,365	501,322	552,659
Additions/transfers ¹	3,804	(3,911)	2,415	40,486	42,794
Disposals	(27)	—	(1,264)	(17,294)	(18,585)
Exchange differences	70	18	65	(1,058)	(905)
December 31, 2021	32,971	12,955	6,581	523,456	575,963
Additions/transfers ¹	4,387	4,342	51	56,429	65,209
Disposals	(880)	(175)	(228)	(22,562)	(23,845)
Exchange differences	(1,212)	46	120	(9,590)	(10,636)
December 31, 2022	35,266	17,168	6,524	547,733	606,691
Depreciation
January 1, 2021	8,890	—	3,184	241,712	253,786
Depreciation	978	—	567	46,643	48,188
Disposals	(14)	—	(266)	(15,428)	(15,708)
Exchange differences	25	—	49	235	309
December 31, 2021	9,879	—	3,534	273,162	286,575
Depreciation	1,324	—	498	46,330	48,152
Disposals	(345)	—	(99)	(20,735)	(21,179)
Exchange differences	(584)	—	(168)	(4,741)	(5,493)
December 31, 2022	10,274	—	3,765	294,016	308,055
Net book value
January1, 2021	20,234	16,848	2,181	259,610	298,873
December 31, 2021	23,092	12,955	3,047	250,294	289,388
December 31, 2022	24,992	17,168	2,759	253,717	298,636

(1) The net additions of equipment under construction are included in additions/transfers.

9 Right-of-use assets

Badger enters into leases primarily in order to secure office and yard space for the non-destructive excavation units and for light-duty vehicles. Terms of property leases vary including the life of the lease and the existence of extension options.

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements

(All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

Right-of-use assets
		Light-duty
	Property	vehicles	Total
January 1, 2021	11,494	5,278	16,772
Additions	9,680	3,360	13,040
Depreciation	(6,000)	(870)	(6,870)
Disposals/modifications	(3,832)	(183)	(4,015)
Impact of foreign exchange	29	4	33
December 31, 2021	11,371	7,589	18,960
Additions	11,656	9,510	21,166
Depreciation	(8,281)	(961)	(9,242)
Disposals/modifications	(973)	—	(973)
Impact of foreign exchange	(107)	(125)	(232)
December 31, 2022	13,666	16,013	29,679

10 Goodwill and intangible assets

	Service rights	ERP	Total Intangible Assets	Goodwill
Cost
January 1, 2021	6,384	19,901	26,285	2,463
Additions	—	1,559	1,559	—
Exchange differences	27	(196)	(169)	11
December 31, 2021	6,411	21,264	27,675	2,474
Additions	—	1,211	1,211	—
Exchange differences	(406)	(565)	(971)	(82)
December 31, 2022	6,005	21,910	27,915	2,392
Amortization
January 1, 2021	—	(2,197)	(2,197)	(1,190)
Amortization	—	(2,057)	(2,057)	—
Exchange differences	—	231	231	(5)
December 31, 2021	—	(4,023)	(4,023)	(1,195)
Amortization	—	(2,190)	(2,190)	—
Exchange differences	—	130	130
December 31, 2022	—	**(6,083) **	**(6,083) **	(1,195)
Net book value
January1,2021	6,384	17,704	24,088	1,273
December 31,2021	6,411	17,241	23,652	1,279
December 31, 2022	6,005	15,827	21,832	1,197

Impairment testing of goodwill and intangibles with indefinite lives

For impairment testing purposes, goodwill acquired through business combinations and service rights with indefinite lives have been allocated to the Canada, Western U.S., Central U.S. and Eastern U.S. CGU’s.

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements

(All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

The Company performed the annual impairment tests of goodwill and service rights as at December 31, 2022. The recoverable amount of the Canada, Western U.S., Central U.S. and Eastern U.S. CGU’s have been determined based on the higher of its fair value less cost to sell and its value in use. The value in use calculation uses post income tax cash flow projections from financial budgets approved by the Company, forecasts over a five-year period based on management’s best estimates, management’s estimated a terminal rate of growth beyond five years based on longrange term forecast, and uses a post income tax discount rate of 11% (2021 – 10%).

No impairment related to goodwill and intangibles was recorded for the years ended December 31, 2022 or 2021.

11 Trade and other payables

Trade and other payables
	December 31, 2022	December 31, 2021	January 1, 2021
		Note 5	Note 5
Current
Trade payables	24,356	15,377	12,972
Bonuses payable	12,896	6,288	1,964
Receivables purchase agreement1	7,188	—	—
Accrued expenses – short-term	24,391	28,986	25,134
	68,831	50,651	40,070
Non-current
Accrued expenses – long-term	—	—	2,521
Total trade and otherpayables	68,831	50,651	42,591

1 Represents amounts repayable under receivables purchase agreement.

Trade payables are non-interest bearing and are normally settled on 45-day payment terms. During 2020, at the onset of COVID-19, U.S government allowed to defer U.S payroll taxes to 2022. There was no additional deferral program allowed in 2021. As at December 31, 2020 accrued expenses – long-term relate to deferral of U.S. payroll taxes to 2022, with no corresponding long term payable in 2021 and 2022.

12 Lease liability

	December 31, 2022	December 31,2021
Opening balance	15,409	11,947
Additions	21,086	13,007
Interest expense	667	505
Lease payments	(9,019)	(6,191)
Disposals/modifications	(827)	(3,586)
Exchange differences	(209)	(273)
Closing Balance	27,107	15,409
Current	8,751	5,868
Long-term	18,356	9,541
Total lease liabilities	27,107	15,409

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements

(All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

	Contractual undiscounted cash flows
		December 31, 2022 December 31, 2021
	Less than one year		8,751	6,367
	One to five years		18,356	9,994
	More than fiveyears		—	—
	Total		27,107	16,361
	Amounts recognized in net earnings
		December 31, 2022 December 31, 2021
	Expenses related to short-term leases		486	2,395
	Total		486	2,395
	Debt
		December 31, 2022	December 31, 2021	January 1, 2021
			Note 5	Note 5
	Currentportion of senior secured notes	—	25,000	25,000
	Current debt	—	25,000	25,000
		December 31, 2022	December 31, 2021	January 1, 2021
			Note 5	Note 5
	Borrowings under credit facility	140,038	96,802	54,053
	Less: unamortized debt issuance costs	(1,156)	(1,182)	(592)
	Net borrowings under credit facility	138,882	95,620	53,461
	Senior secured notes	—	—	25,000
	Total long-term debt	138,882	95,620	78,461
		December 31, 2022	December 31, 2021	January 1, 2021
			Note 5	Note 5
	Syndicated revolving credit facility capacity	295,334	315,507	235,627
	Supplemental credit facility	—	—	78,542
	Less: borrowings under credit facility	(140,038)	(96,802)	(54,053)
	Less: letters of credit	(3,950)	(3,957)	(3,730)
	Available amount	151,346	214,748	256,386

13 Debt

Syndicated revolving credit facility

The Company has a C$400.0 million (USD$295.3 million) committed syndicated revolving credit facility with a syndicate of six lenders. The committed syndicated revolving credit facility allows for borrowings in either Canadian or U.S. dollars, providing Badger with the administrative flexibility to borrow in the functional currency in both its Canadian and the U.S. operations. On August 31, 2022, the Company renewed its syndicated revolving credit facility for a 5-year term, expiring on August 31, 2027. Badger has the flexibility to expand the syndicated revolving credit facility, subject to approval by the lenders, by an additional $150.0 million in Canadian dollars. Badger maintains the syndicated revolving credit facility for general corporate and liquidity purposes, in addition to financing requirements, if any, related to Badger’s capital expenditure requirements.

The syndicated revolving credit facility bears interest, at the Company's option, at either the bank's prime rate plus a tiered set of basis points or bankers' acceptance (“BA”)/Secured Overnight Financing Rate (“SOFR”) also with a tiered structure. A standby fee is also required on the unused portion of the syndicated revolving credit facility on a tiered

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements (All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

basis. Standby fees are expensed as incurred. Under the terms of the syndicated revolving credit facility, the Company must comply with certain financial and non-financial covenants, as defined by the bank. Throughout 2022, and as at December 31, 2022, the Company was in compliance with all of these covenants.

The syndicated revolving credit facility is collateralized by a general security interest over the Company’s assets, property and undertaking, present and future. The outstanding letters of credit, which reduce the amount of available credit under the syndicated revolving credit facility, support the U.S. insurance program and certain other performance bonds.

As at December 31, 2022, the Company had available $151.3 million (December 31, 2021 - $214.7 million) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met.

Senior secured notes

On January 24, 2014, Badger closed a private placement of senior secured notes with an original principal of $75.0 million. The notes, which ranked pari passu with the syndicated revolving credit facility, had an interest rate of 4.83% per annum and matured on January 24, 2022. The final amortizing principal repayment of $25.0 million was completed on January 24, 2022, with no outstanding balance as at December 31, 2022.

14 Income taxes

The provision for income taxes, including deferred income taxes, reflects an effective income tax rate that differs from the actual combined Canadian federal and provincial statutory rates of 24.7% (2021 - 24.5%). The Company’s U.S. subsidiaries are subject to federal and state statutory tax rates of approximately 25.7% (2021 – 25.7%). The main differences are in the table below.

	December 31, 2022	December 31,2021
Earnings (loss) before tax	22,883	(11,272)
Income tax (recovery) expense at the Canadian statutory rate	5,642	(2,818)
Increase (decrease) resulting from:
Income tax rates in foreign jurisdictions	(1,062)	(33)
Income tax rate changes	73	407
True-up of prior period income taxes	275	(462)
Foreign exchange differences	(800)	24
Other items	465	347
Income tax expense(recovery)	4,593	(2,535)

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements

(All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

The following table details the nature of the Company’s temporary differences:

	December 31, 2022	December 31, 2021	January 1, 2021
		Note 5	Note 5
Net deferred income tax liability
Deferred income tax assets
Share-based plan	4,276	4,303	5,370
Accrued liabilities	746	716	1,179
Lease liabilities	6,906	3,903	2,985
Salaries and wages	3,035	1,735	901
Derivative Financial Instrument	1,305	524	—
Deferred payroll taxes	—	647	—
Non-capital losses	1,954	229	—
Total deferred tax asset	18,222	12,057	10,435
Deferred income tax liabilities
Property, plant and equipment	57,023	54,636	54,736
Right-of-use assets	6,801	3,774	2,891
Intangible assets	1,344	1,419	1,401
Share issuance costs	69	55	—
Prepaid expenses	700	729	912
Unrealized foreign exchangegain	(203)	112	196
Total deferred income tax liability	65,734	60,725	60,136
Net deferred income tax liability	47,512	48,668	49,701

The Company is subject to routine audits of its tax filing positions by the Canada Revenue Agency and the Internal Revenue Service (the “IRS”). In 2020, the Company appealed the findings of one such audit conducted by the IRS in respect of excise tax paid and payable during the 2015-2019 fiscal years (the “Excise Tax Audit”), and that appeal was heard by the IRS’ Independent Office of Appeals in the fourth quarter of 2021. The matter remains unresolved as of December 31, 2022. The Company and its tax advisors continue to believe that the Company's tax filing positions are appropriate and, accordingly, no amounts have been accrued in the consolidated financial statements in connection with the Excise Tax Audit.

15 Share-based plans

A) Deferred Share Unit Plan

The Deferred Share Unit (“DSU”) Plan was established to promote greater alignment of interests between the executive officers and the Shareholders of the Company. The Board may also participate in the plan whereby they will be paid 60% to 100% of the annual retainer in the form of deferred units. Pursuant to the terms of the DSU, participants are granted deferred units with a value equivalent to the value of a Badger share. The deferred units granted earn additional deferred units at the same rate as dividends on Badger common shares. Prior to 2021, the deferred units granted other than to the Board, which vest immediately, vested equally over a period of three years from the date of the grant. For units granted prior to 2021, the participant could elect to redeem the deferred units upon vesting for an equal number of Badger shares or the cash equivalent. For grants to participants other than to the Board granted in 2021, shares vest immediately and are redeemed upon departure from the company.

The DSU Plan is accounted for as a cash-settled plan. Compensation expense is based on the estimated fair value of the deferred units outstanding at the end of each quarter using a volume weighted average share price and recognized using graded vesting throughout the term of the vesting period, with a corresponding credit to liabilities.

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements (All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

The liability for deferred units outstanding as at December 31, 2022 is $10.0 million (December 31, 2021 - $12.7 million). The fair value of deferred units exercisable as at December 31, 2022 is $9.4 million (December 31, 2021 - $10.5 million). Changes in the number of deferred units under the DSU Plan were as follows:

	Units
Opening balance	660,096
Granted	24,294
Dividends earned	9,774
Redeemed for cash	(141,711)
Forfeited	(19,931)
December 31, 2021	532,522
Granted	57,172
Dividends earned	12,400
Redeemed for cash	(81,620)
Forfeited	(8,418)
December 31, 2022	512,056
Exercisable as at December 31, 2022	475,195

B) Performance Share Unit Plan

The Company also has a Performance Share Unit (“PSU”) Plan for officers of the Company. Officers must elect to have at least half but may elect to have all of their annual long-term incentive compensation awarded in PSUs, with the remainder, if any, awarded in RSUs. The PSUs represent rights to share value based on the number of PSUs issued and achieving certain performance criteria as set out by the Board of Directors. Subject to achievement of performance criteria, under the terms of the plan, PSUs awarded will vest on a three-year term on their anniversary date and are recognized over their vesting period. PSUs, which meet the performance and other vesting criteria, will be settled in cash upon exercise.

The PSU Plan is accounted for as a cash-settled plan. Compensation expense is based on the estimated fair value of the PSUs outstanding at the end of each quarter using a volume weighted average share price and recognized over the vesting period, with a corresponding credit to liabilities.

The liability for PSUs outstanding as at December 31, 2022 is $3.5 million (December 31, 2021 - $2.9 million). The fair value of units exercisable at December 31, 2022 is $2.5 million (December 31, 2021 - $2.0 million). Changes in the number of PSUs under the PSU plan were as follows:

Changes in the number of PSUs under the PSU plan were as follows:
	Units
Opening Balance	373,520
Granted	95,674
Dividends earned	1,091
Redeemed	(135,500)
Forfeited	(25,205)
December 31, 2021	309,580
Granted	211,825
Dividends earned	4,796
Redeemed	(178,826)
Forfeited	(36,123)
December 31, 2022	311,252
Exercisable as at December 31, 2022	126,910

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements (All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

C) Restricted Share Unit Plan

On March 11, 2021 the Board approved a new Restricted Share Unit (“RSU”) Plan to promote greater alignment of interests between the executive officers and the Shareholders of the Company. Pursuant to the terms of the RSU, participants are granted restricted units with a value equivalent to the value of a Badger share. The restricted units granted earn additional restricted units at the same rate as dividends on Badger common shares. The restricted units granted vest equally over a period of three years from the date of the grant. Upon vesting, payment for the vested RSUs will be made by the Company to the participants.

The RSU Plan is accounted for as a cash-settled plan. Compensation expense is based on the estimated fair value of the restricted units outstanding at the end of each quarter using a volume weighted average share price and recognized using graded vesting throughout the term of the vesting period, with a corresponding credit to liabilities.

The liability for RSUs outstanding as at December 31, 2022 is $3.7 million (December 31, 2021 - $2.0 million). The fair value of units exercisable at December 31, 2022 is $2.0 million (December 31, 2021 - $1.1 million). Changes in the number of RSUs under the RSU plan were as follows:

	Units
Opening Balance	—
Granted	138,913
Dividends earned	1,718
Redeemed	(1,574)
Forfeited	(7,400)
December 31, 2021	131,657
Granted	223,776
Dividends earned	5,655
Redeemed	(49,829)
Forfeited	(37,783)
December 31, 2022	273,476
Exercisable as at December 31, 2022	103,493

16 Dividends payable

During the year ended December 31, 2022, the Company paid dividends of $14.5 million (2021 - $17.2 million) or C$0.660 per common share (2021 - C$0.625 per common share) and declared $4.2 million in dividends (2021 - $1.4 million) or C$0.1650 per common share (2021 - C$0.0525 per common share) to its shareholders of record at the close of business on December 31, 2022, that was paid on January 17, 2023.

During the year, the Company changed the frequency of dividend payments from monthly to quarterly, starting with the March 2022 dividend payment. Determination of the amount of cash dividends for any period is at the sole discretion of the Board and is based on certain criteria including financial performance as well as the projected liquidity and capital resource position of the Company. Dividends, if and when, are declared to shareholders of the Company on the last business day of each quarter and paid on the 15th day of the month following the declaration (or if such day is not a business day, the next following business day).

17 Shareholders' capital

A) Authorized shares

An unlimited number of voting common shares are authorized without nominal or par value.

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements (All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

B) Issued and outstanding

Normal course issuer bid (“NCIB”)

On March 11, 2021, the Board of Directors approved the Company to pursue the implementation of a normal course issuer bid (“NCIB”), pursuant to which Badger would have an option to repurchase its common shares for cancellation and on March 22, 2021, the Toronto Stock Exchange (“TSX”) accepted the notice filed by the Company to implement the NCIB program. The NCIB expired on March 23, 2022. Under the NCIB, the Company may acquire up to 1,500,000 common shares, which represented 4.3% of the public float at the time of approval.

During the year ended December 31, 2021, under its NCIB program, the Company purchased and cancelled 380,400 common shares at a weighted average price per share of $36.02. No purchases were made during the period beginning January 1, 2022, through March 23, 2022.

	Number of Shares	Amount
December 31, 2020	34,853,838	67,644
Common shares repurchased and cancelled through NCIB	(380,400)	(694)
December 31, 2021	34,473,438	66,950
Common shares repurchased and cancelled through NCIB	—	—
December 31, 2022	34,473,438	66,950

18 Revenue

The following table disaggregates the Company’s revenue by type of service and type of customer.

	Years ended December 31,	Years ended December 31,
	2022	2021
Non-destructive excavation service revenue – corporate	527,827	415,195
Non-destructive excavation service revenue – operating partners	20,031	17,265
Total non-destructive excavation service revenue	547,858	432,460
Other service revenue – corporate ¹	21,534	20,328
Other service revenue – operating partners ¹	1,420	1,122
Total other revenue	22,954	21,450
Total revenue	570,812	453,910

(1)

Other revenue includes other non-destructive excavation services, truck placement fees and other administrative related revenue.

19 Other expenses

Restructuring

During 2021, the Company executed a number of business restructuring and related cost reduction activities as part of its long-term strategic initiative to improve business processes. There were no restructuring costs during the year ended December 31, 2022. During 2021, the Company recognized $3.4 million restructuring costs related to costs reduction initiatives in response to the COVID-19 pandemic. Restructuring activities include severance costs, office consolidation expenses, asset impairments and lease terminations.

Government assistance

The Company’s results include the benefit of its participation in the Canada Emergency Wage Subsidy program and Canada Emergency Rent Subsidy, which has been made available to eligible Canadian businesses that have been affected by the COVID-19 pandemic. The Company did not receive any government assistance in 2022 compared with $2.4 million during the year ended December 31, 2021.

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements

(All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

The following table outlines the total restructuring expenses and CEWS recognized during the years ended December 31, 2022 and December 31, 2021.

	Years ended December 31,	Years ended December 31,
	2022	2021
Restructuring expenses included in:
Direct costs	—	—
General and administrative	—	353
Assets impairment	—	1,778
Onerous leases	—	1,253
Total restructuring expenses	—	3,384
Government assistance included in:
Direct costs	—	(2,203)
General and administrative	—	(195)
Totalgovernment assistance	—	(2,398)

20 Earnings per share

Basic earnings per share (“EPS”)

Basic EPS is calculated by dividing profit or loss attributable to ordinary equity holders (the numerator) by the weighted average number of ordinary shares outstanding (the denominator) during the year. The denominator is calculated by adjusting the shares in issue at the beginning of the year by the number of shares bought back or issued during the year, multiplied by a time-weighting factor.

	Years ended December 31,	Years ended December 31,
	2022	2021
Net earnings(loss)	18,290	(8,737)
	Years ended December 31,
	2022	2021
Weighted average number of common shares, basic	34,473,438	34,600,681

Diluted EPS

Diluted EPS is calculated by adjusting the earnings and number of shares for the effects of any dilutive potential shares. The effects of anti-dilutive potential shares are ignored in calculating diluted EPS.

	Years ended December 31,	Years ended December 31,
	2022	2021
Basic weighted average number of common shares	34,473,438	34,600,681
Effect of dilutive deferred share units	—	—
Weighted average number of common shares, diluted	34,473,438	34,600,681
	Years ended December 31,
	2022	2021
Basic and diluted earningsper share	$0.53	($0.25)

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements (All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

21 Financial instruments and risk management

Fair values

The Company's financial instruments recognized on the consolidated statement of financial position consist of cash and cash equivalents, trade and other receivables, income taxes receivable, trade and other payables, dividends payable, income taxes payable and long-term debt. The fair values of these recognized financial instruments, excluding long-term debt, approximate their carrying values due to their short-term maturity.

Credit risk

Credit risk arises where a financial loss would be experienced if a counterparty to a financial asset failed to meet its contractual obligations. The Company’s credit risk exposure is primarily through its trade receivables which are subject to industry credit risks. Credit risks are mitigated by the Company’s large and diversified customer base across the utility, petroleum and construction industries. The Company actively monitors the financial strength of its customer base through its credit process to minimize the risk of default on receivables. The Company has a due diligence process to approve credit for new and existing customers by assessing the creditworthiness of each customer. Before work is performed for the customer, its creditworthiness is assessed and a credit rating and maximum credit limit are assigned.

Liquidity risk

Liquidity risk is the risk that, as a result of operational liquidity requirements, the Company will not have sufficient funds to settle an obligation on the due date and will be forced to sell financial assets at a price which is less than what they are worth, or will be unable to settle or recover a financial asset.

The Company's operating cash requirements are continuously monitored by management. As factors impacting cash requirements change, liquidity risks may necessitate the need for the Company to raise capital by issuing equity or obtaining additional debt financing. The Company also mitigates liquidity risk by maintaining an insurance program to minimize exposure to insurable losses.

At December 31, 2022, the Company had available $151.3 million of authorized borrowing capacity on the syndicated revolving credit facility. The credit facility matures on August 31, 2027. The Company believes it has sufficient funding through operations and the use of this facility to meet foreseeable financial obligations.

The table below summarizes the maturity profile of the Company’s financial liabilities at December 31, 2022, based on contractual undiscounted payments.

	Less than 1
	year	1 to 2years	2 to 5years	> 5years	Total
December 31, 2022
Trade and other payables	68,831	—	—	—	68,831
Share-based plan liability	17,207	—	—	—	17,207
Long-term debt	—	—	138,882	—	138,882
Total	86,038	—	138,882	—	224,920
	Less than 1
	year	1 to 2years	2 to 5years	> 5years	Total
December 31, 2021
Trade and other payables	50,651	—	—	—	50,651
Share-based plan liability	17,584	—	—	—	17,584
Long-term debt	25,000	—	95,620	—	120,620
Total	93,235	—	95,620	—	188,855

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements (All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

Market risk

The significant market risk exposures affecting the financial instruments held by the Company are those related to interest rates and foreign currency exchange rates, which are explained as follows:

Interest rate risk

The Company is exposed to interest rate risk in relation to interest expense on a portion of its long-term debt whose rate is floating. Interest is calculated based on prime lending rates, banker’s acceptance rates (“BA”) or the Secured Overnight Financing Rate (“SOFR”) and is dependent on the nature of the borrowing. Interest rates are subject to change. The Company does not use interest rate hedges, fixed interest rate contracts or other similar derivative instruments to manage its exposure to interest rate fluctuations.

The following table demonstrates the impact to earnings before income taxes if interest rates had been 1% higher and all other variables were held constant.

Years ended	December 31, 2022	December 31, 2021
Effect on earnings before income taxes	(1,333)	(791)

For a hypothetical 1% decrease in interest rates, there would be an equal and opposite effect on earnings before income taxes in the table above.

Foreign exchange risk

In the normal course of operations, the Company is exposed to movement in the Canadian dollar in its Canadian operations. As a result, fluctuations in the value of the Canadian dollar relative to the United States dollar can result in foreign exchange gains and losses. The Company’s Canadian operations are subject to foreign exchange gains and losses on consolidation. Realized foreign exchange gains and losses are included in net earnings while foreign exchange gains and losses arising on the translation of the assets, liabilities, revenue and expenses of the Company’s United States operations are included in other comprehensive income.

The following table demonstrates the Company’s sensitivity for the above noted Canadian dollar denominated balances to a hypothetical 10% strengthening in the United States dollar against the Canadian dollar and the increased (decreased) earnings before income taxes and other comprehensive income is as follows:

Years ended	December 31, 2022	December 31,2021
Effect on earnings before income taxes	1,068	668
Effect on other comprehensive income	10,217	7,305

For a hypothetical 10% weakening of the Canadian dollar against the United States dollar, there would be an equal and opposite effect on earnings before income taxes and other comprehensive income in the tables above.

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements (All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

22 Capital management

The Company's strategy is to have a sufficient capital base to maintain investor, creditor and market confidence and to sustain future development of the business. The Company considers the capital structure to consist of net debt and shareholders' equity. The Company considers net debt to be total long-term debt less cash and cash equivalents. The Company seeks to maintain a balance between the level of net debt and shareholders' equity to facilitate access to capital markets to fund growth and working capital. The Company may occasionally need to increase these levels to facilitate acquisition or expansion activities. This ratio was as follows:

	December 31, 2022	December 31, 2021
Current portion of senior secured notes	—	25,000
Borrowings under credit facility	140,038	96,802
Lease liability	18,356	9,541
Currentportion of lease liability	8,751	5,868
Total obligations	167,145	137,211
Add: issued letters of credit	3,950	3,957
Cash and cash equivalents	(5,398)	(4,137)
Net debt	165,697	137,031
Shareholders’ equity	222,847	221,815
Total capitalization	388,544	358,846
Net debt to total capitalization	43%	38%

The Company sets the amounts of its various forms of capital in proportion to risk. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce net debt.

Under the terms of the syndicated revolving credit facility, the Company must comply with certain financial and nonfinancial covenants, as defined by the respective credit agreements. Throughout 2022 and as at December 31, 2022, the Company was in compliance with all its covenants. The Company’s significant financial covenants are detailed in the summary below:

Ratio	December 31, 2022	December 31, 2021	Threshold
Total Debt to Compliance EBITDA Credit Facility	1.6	2.7	4.00:1 max
Interest Coverage Ratio Credit Facility	11.7	11.8	3.00:1 min

There were no changes in the Company's approach to capital management during the year.

The Company’s activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk. The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance.

Risk management is carried out by senior management and the Board of Directors.

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements (All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

23 Statement of cash flow supplemental information

The following table provides supplemental information on the components of changes in non-cash working capital in operating and investing activities:

	Years ended December 31,	Years ended December 31,
	2022	2021
Operating activities
Source (use) of cash:
Trade and other receivables	(20,719)	2,706
Prepaid expenses	(4,051)	985
Inventories	(15,489)	(3,368)
Trade and otherpayables	7,654	9,109
Change in non-cash workingcapital	(32,605)	9,432
Investing activities
Source (use) of cash:
Trade and otherpayables ¹ and capital leases	3,952	(1,181)
Change in non-cash workingcapital	3,952	(1,181)

(1) Non-cash working capital changes from trade and other payables relate to vendors supplying Badger’s manufacturing operations and are included in investing activities as these supplies are additions to property, plant and equipment.

24 Segment reporting

The Company has identified three reportable segments consisting of two geographic segments (U.S. and Canada) and a Corporate segment. The U.S. and Canadian operating segments provide non-destructive excavating and related services. The following is selected information for the years ended December 31, 2022 and 2021 based on these geographic/reportable segments.

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements

(All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

Years ended December 31, 2022 December 31, 2021	Years ended December 31, 2022 December 31, 2021
Canada U.S. Corporate Total	Canada U.S. Corporate Total
Non-destructive excavation service revenue 91,072 456,786 — 547,858 74,710 357,750 — 432,460 Other revenue 9,697 13,257 — 22,954 10,340 11,110 — 21,450 Total revenue 100,769 470,043 — 570,812 85,050 368,860 — 453,910
Direct costs 74,276 357,386 — 431,662 Depreciation and amortization 15,502 44,039 43 59,584 General and administrative ¹ 2,570 32,351 4,273 39,194 Derivative financial instruments ² — — 3,885 3,885 Share-based plan ² — — 5,507 5,507 Finance cost ³ 168 496 7,402 8,066 Other4 (109) 137 3 31	63,895 294,962 — 358,857 15,310 41,733 82 57,125 5,953 26,292 4,875 37,120 — — 2,140 2,140 — — 2,453 2,453 143 357 3,906 4,406 629 2,452 — 3,081
Earnings (loss) before tax 8,362 35,634 (21,113) 22,883	(880) 3,064 (13,456) (11,272)

(1) Included in general and administrative expenses for the corporate segment are employee, office, and other costs related to public company administration.

(2) Derivative financial instruments and share-based plans for participants in both the U.S. and Canada are reported in the corporate segment.

(3) Finance costs from the Company’s credit facilities are reported in the corporate segment.

(4) Included in other are the loss on sale of property, plant and equipment and foreign exchange (gain) losses.

	Canada	U.S.	Corporate	Total
December 31, 2022
Property, plant and equipment	90,756	207,880	—	298,636
Right of use assets	5,836	23,518	325	29,679
Intangible assets	12,196	9,636	—	21,832
Goodwill	1,197	—	—	1,197
Total assets	178,443	354,232	325	533,000
Total liabilities ¹	48,644	100,020	161,489	310,153
December 31, 2021
Property, plant and equipment	86,936	202,452	—	289,388
Right of use assets	4,503	14,162	295	18,960
Intangible assets	14,388	9,264	—	23,652
Goodwill	1,279	—	—	1,279
Total assets	144,902	333,117	295	478,314
Total liabilities ¹	51,512	64,567	140,420	256,499
December 31, 2020
Property, plant and equipment	97,065	201,808	—	298,873
Right of use assets	5,216	11,186	370	16,772
Intangible assets	13,557	10,531	—	24,088
Goodwill	1,273	—	—	1,273
Total assets	165,287	323,567	370	489,224
Total liabilities ¹	57,806	44,992	128,404	231,202

(1) Included in total liabilities for the corporate segment are dividends payable, share-based plan liabilities, senior secured notes, borrowings under credit facility and accrued interest.

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements (All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

25 Related party disclosure

There were no significant outstanding balances with related parties as at December 31, 2022 and December 31, 2021.

Compensation of key management personnel

The remuneration of the Board and other members of key management personnel were as follows:

Years ended	December 31, 2022	December 31, 2021
Compensation, including bonuses	6,567	4,105
Share-basedpayments	5,652	4,818
Total	12,219	8,923

26 Subsidiaries

The consolidated financial statements include the financial statements of Badger Infrastructure Solutions Ltd. and the subsidiaries listed in the following table:

		Percentage equity	interest
Name	Country of Incorporation	2022	2021
Badger Daylighting (Fort McMurray) Inc.	Canada	100%	100%
Badger Edmonton Ltd.	Canada	100%	100%
Fieldtek Ltd.	Canada	100%	100%
Badger Manufacturing (Canada) Ltd.	Canada	100%	100%
Badger Leasing (Canada) Ltd.	Canada	100%	100%
Badger Daylighting Limited Partnership	Canada	100%	100%
Badger US Holdings (Canada) Ltd.	Canada	100%	100%
Badger Infrastructure Solutions USA Inc	United States of America	100%	100%
Badger Manufacturing (USA) LLC	United States of America	100%	100%
Badger Transportation LLC	United States of America	100%	100%
Badger Daylighting Corp.	United States of America	100%	100%
Badger Leasing (USA) LLC	United States of America	100%	100%
Badger Finance Hungary Kft.	Hungary	100%	100%
Badger, LLC ¹	United States of America	—	—

(1) Badger LLC was dissolved in the year ended December 31, 2021.

27 Commitments and contingencies

The Company had the following commitments as at December 31, 2022:

	2023	2024	2025	2026	**2027 **	Thereafter	Total
Operating leases ¹	835	762	630	433	99	45	2,804
Service contract ²	8,003	4,345	3,204	—	—	—	15,552
Purchase commitments3	30,838	—	—	—	—	—	30,838
Total	39,676	5,107	3,834	433	99	45	49,194

(1) Operating leases include building and office space.

(2) Contract with third party service provider for information technology services related to the ERP.

(3) Purchase commitments include amounts related to manufacturing operations, the purchase of light-duty trucks and other committed capital expenditures. The Company has the option to cancel certain purchase commitments at its sole discretion and without penalty.

BADGER INFRASTRUCTURE SOLUTIONS LTD. Notes to the Consolidated Financial Statements

(All amounts in thousands of U.S. dollars, except per share amounts or as otherwise stated)

Legal disputes

Badger is involved in various claims and actions arising in the course of its operations. Management does not believe any of these legal disputes would result in a material impact to the financial results of the Company.

28 Subsequent events

Subsequent to December 31, 2022, Badger declared a quarterly dividend of $0.1725 per share, payable on April 15, 2023, to shareholders of record on March 31, 2023. Badger’s Board of Directors will continue to evaluate dividend payments on a quarterly basis, based on the availability of cash flow and anticipated market conditions.