Badger Infrastructure Solutions Ltd. — Interim / Quarterly Report 2021

May 5, 2021

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Management’s Discussion and Analysis

FOR THE THREE MONTHS ENDED MARCH 31, 2021

May 4, 2021

CAN_DMS: \133188893\2

Management’s Discussion and Analysis

The following Management’s Discussion and Analysis (“MD&A”) should be read in conjunction with the unaudited Interim Condensed Consolidated Financial Statements and notes thereto of Badger Daylighting Ltd. (the “Company” or “Badger”) as at and for the three months ended March 31, 2021 and 2020. Readers should also refer to all previous public filings, including the Company’s Annual Information Form for the year ended December 31, 2020, which may be found on SEDAR at www.sedar.com.

This MD&A is dated and has been prepared taking into consideration information available to May 4, 2021. All references to “dollars” and “$” are to the currency of Canada unless otherwise indicated. This MD&A includes forward-looking statements and assumptions. See “Cautionary Statements Regarding Forward-Looking Information and Statements” for additional details.

Overview of Badger

Badger is North America’s largest provider of non-destructive excavating services. Badger works for contractors and facility owners in a broad range of infrastructure industries. These market segments consist primarily of infrastructure projects in areas such as energy generation, electricity and natural gas transmission networks, roads and highways, telecommunications, water and sewage treatment and general municipal infrastructure. Customers in these segments typically operate near high concentrations of underground power, communication, water, gas and sewer lines, particularly in large urban centres where safety and economic risks are high and therefore nondestructive excavation provides a safe alternative for certain customer excavation requirements. The Company’s key technology is the Badger Hydrovac[TM] , which is used primarily for safe excavation around critical infrastructure and in congested underground conditions. The Badger Hydrovac uses a pressurized water stream to liquefy the soil cover, which is then removed with a powerful vacuum system and deposited into a storage tank. Badger manufactures and designs its truck-mounted hydrovac units, giving Badger the opportunity to incorporate feedback from its hydrovac operators into its existing and future design and manufacturing processes.

Badger’s business model involves the provision of excavating services through two distinct channels to market: via Badger corporate operations and via operating partners (franchisees in the United States and agents in Canada). For the first method, Badger has established corporate run operations in locations to market and deliver the service in the local area directly. For the second method, Badger’s corporate operations work with its operating partners in certain locations to provide hydrovac services to the end user. In this partnership, Badger provides the expertise, the trucks and North American marketing and administration support. The operating partners deliver the service by operating the equipment and developing their local markets. Badger continues to own the trucks and work is invoiced by Badger and then shared with the operating partner based upon a revenue sharing formula. In the earlier phase of its growth and development, Badger frequently used operating partners to expand its business into new markets. Badger’s operating partners remain an important part of Badger’s operations. Badger now pursues expansion into new geographic areas primarily through Badger corporate operations, but continues to seek operating partners in certain markets.

Badger Daylighting Ltd.

Management’s Discussion and Analysis for the Three Months Ended March 31, 2021

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Financial Highlights

Financial Highlights
($ thousands, except revenue per truck per month (“RPT”),	Three months ended	March 31,
per share and share information)	2021	2020
Revenue:
Hydrovac service revenue	102,309	130,207
Other revenue	6,159	6,471
Total revenue	108,468	136,678
RPT - Consolidated (mixed currency)(1)	20,344	24,966
RPT - U.S. (U.S. dollars)(1)	22,551	25,959
RPT - Canada (Canadian dollars)(1)	14,866	22,361
Adjusted EBITDA(1)	5,491	18,139
Adjusted EBITDA per share, basic and diluted(1)(2)	$0.16	$0.52
Adjusted EBITDA margin(1)	5.1%	13.3%
(Loss) profit before income tax	(19,526)	6,838
Net (loss) profit	(14,936)	5,068
Net (loss) profit per share, basic and diluted(2)	($0.43)	$0.15
Cash flow from operating activities before working capital and other adjustments	5,193	18,174
Cash flow from operating activities before working capital and other adjustments
per share, basic and diluted(2)	$0.15	$0.52
Dividends paid	5,226	4,972
Weighted average common shares outstanding(2)(3)	34,853,838	34,892,213

(1) See “Non-IFRS Financial Measures” and “Key Financial Metrics and Other Operational Metrics” for additional detail on the definition and calculation of Adjusted EBITDA, Adjusted EBITDA margin and RPT.

(2) Per share, basic and diluted measures calculated by dividing the respective financial measure with the weighted average common shares outstanding for the respective period.

(3) See “Share Capital” for additional details.

Comparable IFRS Financial Information[(1) ]

Comparable IFRS Financial Information(1)
($ thousands, except per share information)	Three months ended	March 31,
	2021	2020
Cash flow from operating activities	35,775	25,788
Cash flow from operatingactivitiesper share,basic and diluted(2)	$1.03	$0.74

(1) Cash flow from operating activities is provided as a comparable measure to cash flow from operating activities before working capital adjustments.

(2) Per share, basic and diluted measures calculated by dividing the respective financial measure with the weighted average common shares outstanding for the respective period.

Badger Daylighting Ltd.

Management’s Discussion and Analysis for the Three Months Ended March 31, 2021

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Business Outlook and Strategic Milestones

In the near-term, Badger continues to position its operations in preparation for the upcoming summer construction season and for an anticipated improvement in economic activity as COVID-19 restrictions loosen. In the long-term, Badger continues to invest in key strategic initiatives to address the substantial growth opportunity in the North American non-destructive excavation market.

In the fourth quarter of 2020 and continuing in the first quarter of 2021, Badger continued to hire and train operators, sales people and operations support staff. Operator onboarding and training takes a number of months to complete and trained operators are required to be in place before activity levels increase as part of the summer construction season ramp up in the second and third quarters. Positioning operations ahead of revenue growth is inherent in the seasonal nature of Badger’s business. In addition to the typical ramp-up in the summer construction season, Badger is preparing for an anticipated increase in customer activity resulting from the economic recovery from the COVID19 pandemic.

The Company continues to see substantial growth opportunities in the North American non-destructive excavation market to support the maintenance, upgrade and expansion of North America’s critical infrastructure. The fragility of North America’s critical infrastructure was exposed by recent storm and severe weather activity in the Southern U.S. Additionally, the need to reinvest in North America’s critical infrastructure and adapt to new sustainable technology has been emphasized by the recently proposed Infrastructure Investment Plan announced by President Joe Biden in the U.S. In preparation to address these substantial growth opportunities, Badger continues to invest in its organizational design, management capabilities and key strategic initiatives to grow our business and maximize shareholders’ value.

Badger’s current fleet is well positioned to address the 2021 construction season and to address the near-term economic recovery from the COVID-19 pandemic. As reviewed at Badger’s Investor Day on December 4, 2020, the Company’s current fleet size can support annual revenue levels of approximately $700 million.

To address the long-term growth opportunity in the North American non-destructive excavation market, Badger took advantage of the 2020 production slowdown to reconfigure process flows at its Red Deer, Alberta plant. These flow changes combined with changes in warehousing and upgrading parts storage are being implemented and are expected to increase the plant’s production capacity to at least 350 units per year. This compares to the historical peak production of 221 units in 2014. Badger is pleased with this progress, which positions the Company to support continued growth as the current fleet utilization improves.

Badger is looking toward the future and continues to see substantial, long-term growth opportunities in servicing North America’s critical underground infrastructure with non-destructive excavation solutions. Badger continues to strive to achieve its 2025 strategic milestones, which are:

• Doubling the U.S. operation’s revenue from fiscal 2020 over the next 3 to 5 years;

• Targeting annualized Adjusted EBITDA growth of 15% on average from fiscal 2020 over the next 3 to 5 years;

• Targeting annualized Adjusted EBITDA margins of 28% to 29%; and

• Targeting revenue per truck per month over $30,000 (mixed currency).

3 Badger Daylighting Ltd.

Management’s Discussion and Analysis for the Three Months Ended March 31, 2021

Results of Operations for the Three Months Ended March 31, 2021

Revenue

Revenue was $108.5 million or 79% of the $136.7 million in revenue generated during the prior year’s comparative quarter. Normalized for the changes in foreign exchange, revenue was 83% of the prior year’s comparative revenue.

Revenue in the U.S. operations was US$69.4 million or 88% of the US$79.0 million revenue generated in the prior year’s comparative quarter. Refer to “Select Quarterly Financial Information” for U.S. revenue in U.S. dollars by quarter.

• U.S. revenue and underlying activity levels varied regionally due to extended jobsite holiday shutdowns related to COVID-19 and severe winter storms in the Southern U.S.

• Revenue in the U.S. operations was also negatively impacted by reduced oil and gas customer demand in certain U.S. markets.

• Hydrovac customer rates in the U.S. operations were consistent with the prior year across the majority of markets.

Revenue in the Canadian operations was $20.7 million or 68% of the $30.5 million revenue generated in the prior year’s comparative quarter.

• Canadian revenue and underlying activity levels were affected by the impact of COVID-19 on the general Canadian economy, including extended jobsite holiday shutdowns, as well as reduced oil and gas customer demand in Western Canada.

• Hydrovac customer rates in the Canadian operations were consistent with the prior year across the majority of markets.

Other services revenue was $6.2 million for the quarter, compared with $6.5 million generated in the prior year’s comparative quarter. Other services revenue was positively impacted by an increase in customer demand for nonhydrovac related service lines, particularly in Badger’s U.S. operations, offset in part by the exiting of the Company’s Alberta-based oil field services business in the second quarter of 2020.

The Company generates a significant portion of its revenue in U.S. dollars, but presents its results in Canadian dollars. Therefore, year over year variances in revenue and expenses in local currency are impacted by change in the average exchange rate upon conversion into Badger’s presentation currency.

The weighted average foreign currency rate used in the translation of U.S. to Canadian dollars was approximately CDN$1.27 to US$1.00, compared with CDN$1.35 to US$1.00 in the prior year comparative. The impact of this $0.08 change in foreign exchange rate resulted in a decrease in Adjusted EBITDA of $0.4 million.

Badger Daylighting Ltd.

Management’s Discussion and Analysis for the Three Months Ended March 31, 2021

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Using a foreign exchange rate constant with the prior year’s comparative quarter, Adjusted EBITDA would have been $5.9 million for the three months ended March 31, 2021. The table below illustrates the Company’s Adjusted EBITDA by geography:

For the three months ended March 31, 2021 March 31, 2020 ($ thousands) Canada U.S. Total Canada U.S. Total Revenue 20,657 87,811 108,468 30,456 106,222 136,678 Direct costs 17,738 73,749 91,487 23,830 82,569 106,399 Gross margin 2,919 14,062 16,981 6,626 23,653 30,279	For the three months ended March 31, 2021 March 31, 2020 ($ thousands) Canada U.S. Total Canada U.S. Total Revenue 20,657 87,811 108,468 30,456 106,222 136,678 Direct costs 17,738 73,749 91,487 23,830 82,569 106,399 Gross margin 2,919 14,062 16,981 6,626 23,653 30,279
G&A 4,196 7,294 11,490	5,869 6,271 12,140
Adjusted EBITDA (1,277) 6,768 5,491	757 17,382 18,139

Consolidated RPT for the quarter was $20,344 compared with $24,966 in the prior year’s comparative quarter. RPT in the U.S. operations was US$22,551, compared with US$25,959 in the prior year. RPT in the Canadian operations was $14,866, compared with $22,361 in the prior year. The reduction in RPT was due to reduced customer activity resulting from the impact of COVID-19, severe winter storms in the Southern U.S. and the ongoing slowdown in oil and gas activity levels. As at March 31, 2021, Badger had 1,380 hydrovacs in its fleet compared with 1,392 as at December 31, 2020.

Badger continues to focus on optimizing its fleet in response to rapidly changing economic activity brought on by COVID-19. The Company is uniquely positioned to respond to changes in regional customer service requirements due to its large hydrovac fleet and extensive branch network. New units and fleet retirements are closely monitored to ensure Badger is optimizing fleet utilization and shareholder capital in an accretive manner.

Direct Costs

Direct costs were $91.5 million or 84.3% of revenue compared with $106.4 million or 77.8% of revenue in the prior year’s comparative quarter.

Labour related costs as a percentage of revenue were modestly higher than the prior year as a result of Badger recruiting and training operators, sales and operations staff in anticipation of market recovery and the seasonal construction volume increase, with these expenses required to be incurred ahead of revenue. Badger actively manages its operator and non-operator labour related costs, balancing the need for trained operators in advance of demand. Incurring expenses ahead of revenue is inherent in the seasonal nature of Badger’s business model as the operator onboarding and training process takes two to three months and trained operators are needed before activity levels increase. Sales and operations support staff are critical to support operations and to drive further revenue growth.

Costs related to maintenance and repairs were higher as a percentage of revenue due to preventative maintenance being performed during the slower activity levels experienced as a result of extended jobsite holiday shutdowns related to COVID-19 and severe winter storms in the Southern U.S. Insurance related costs as a percentage of revenue were modestly higher than the prior year as a result of increased premiums due to the general insurance market. The Company did not apply for any COVID-19 related government grants during the quarter.

Bad debt expense, which is included in direct costs, was $1.1 million, consistent with $1.0 million in the prior year’s comparative quarter.

5 Badger Daylighting Ltd.

Management’s Discussion and Analysis for the Three Months Ended March 31, 2021

Gross Profit

Gross profit was $17.0 million resulting in a gross profit margin of 15.7% compared with $30.3 million and 22.2% in the prior year. Gross profit margin in the U.S. operations was 16.1% compared with 22.2% for the prior year. Gross profit margin in the Canadian operations was 14.1% compared with 22.0% in the prior year. Average hydrovac customer rates were consistent across the majority of the U.S. and Canadian markets compared with the prior year.

General and Administrative (“G&A”) Expenses

G&A expense was $11.5 million or 10.6% of revenue compared with $12.1 million or 8.9% of revenue in the prior year’s comparative quarter. G&A expense for the quarter was positively impacted by the implementation of cost reduction initiatives completed in the second quarter of 2020, offset by $1.9 million in one-time costs resulting from key strategic initiatives designed to enhance the Company’s organizational design and management structure. Excluding the impact of these one-time costs, G&A expense would have been $9.6 million. The Company did not apply for any COVID-19 related government grants during the quarter.

Depreciation and Amortization of Property, Plant and Equipment, Right-of-Use and Intangible Assets

Depreciation and amortization expense was $17.8 million compared with $18.1 million in the prior year’s comparative quarter. Normalized for the changes in the weighted average foreign currency used in the translation of U.S. to Canadian dollars, depreciation expense remained consistent with the prior year comparative in local currency due to the average number of fleet remaining consistent.

Share-based Compensation Expense

Share-based compensation expense was $5.3 million compared with a recovery of $9.0 million in the prior year’s comparative quarter. The increase in the expense was due to the increase in the market value of Badger’s common shares during the period compared with the prior year’s decrease in market value. Share-based compensation expense will fluctuate based on the effects of the movement in Badger’s share price, combined with the impact of normal course vesting of previously issued long-term incentive plan grants and the issuance, if any, of new long-term incentive plan grants.

Gain or Loss on Sale of Property, Plant and Equipment

Loss on sale of property, plant and equipment was $0.1 million compared with $nil in the prior year’s comparative quarter. Gains or losses on the sale of property, plant and equipment are the result of the proceeds on the disposal of general equipment and hydrovac units retired and disposed of, being greater than or less than the residual book value. Gains or losses on the disposition of property, plant and equipment will vary depending on the timing and type of equipment being disposed of in a respective period.

Finance Cost

Finance costs, which consist primarily of interest on the Company’s syndicated revolving credit facility, senior secured notes, standby fees on the syndicated revolving credit facility and finance costs associated with lease liabilities, were $1.2 million, which was $1.2 million lower than the prior year’s comparative quarter of $2.4 million. The decrease in finance costs was due a repayment of a portion of the outstanding principal amount on Badger’s senior secured notes in the current quarter. See “Financing” for details.

Badger Daylighting Ltd.

Management’s Discussion and Analysis for the Three Months Ended March 31, 2021

6

As at March 31, 2021, the Company’s debt obligations, excluding the impact of operating leases and outstanding letters of credit, consisted of $81.3 million drawn on the Company’s syndicated revolving credit facility, US$25.0 million of senior secured notes and $16.9 million in lease liabilities.

Income Tax

Total income tax recovery was $4.6 million compared with an expense of $1.8 million in the prior year’s comparative quarter. Total income tax recovery included a $1.4 million current income tax recovery and a $3.2 million deferred income tax recovery. Total income tax expense in the first quarter of 2020 included a current income tax recovery of $2.5 million and $4.3 million in deferred income tax expense. Total income tax expense was $6.4 million lower than the prior year due to a reduction in the number of hydrovacs put into service in the current period as compared with the prior year and the changes in taxable income.

Current income tax recovery of $1.4 million was comprised of a $1.4 million Canadian current income tax recovery (Q1 2020 – $1.3 million recovery) and nil in the U.S. (Q1 2020 – $1.2 million recovery). The change in U.S. and Canadian current income taxes is due primarily to changes in underlying taxable income.

Deferred income tax recovery was $3.2 million compared with a $4.3 million expense in the prior year’s comparative quarter. The change in deferred income tax expense was due primarily to a reduction in the number of hydrovacs put into service in the current quarter.

Net Profit

Net loss was $14.9 million compared with income of $5.1 million in the prior year’s comparative quarter. Net profit was impacted by lower revenue and gross profit, higher share-based plan expenses offset in part by lower finance costs, reduced income taxes and reduced G&A expenses, all of which is fully described previously in this MD&A.

Other Comprehensive Income

Total other comprehensive income (loss) (“OCI”), which includes the effect of translating U.S. operations into Canadian dollars, and the offsetting translation of U.S. dollar denominated senior secured notes into Canadian dollars that are designated as a hedge of U.S. operations, resulted in an OCI loss of $2.5 million compared with other comprehensive income of $26.9 million in the prior year. The change in OCI is the result of the U.S. dollar weakening relative to the Canadian dollar throughout the period. OCI does not impact Badger’s cash flow from operations or Adjusted EBITDA.

Liquidity and Dividends

Cash flow from operating activities was $35.8 million compared with $25.8 million in the prior year’s comparative quarter. The increase in cash flow from operating activities resulted from the Company’s ongoing efforts to improve the timely collection of accounts receivables. See the Interim Condensed Consolidated Statement of Cash Flows contained within Badger’s unaudited Interim Condensed Consolidated Financial Statements for the three months ended March 31, 2021 for additional details. Cash flow from operating activities before non-cash working capital and other adjustments was $5.2 million, $13.0 million lower than the prior year’s comparative quarter of $18.2 million. The decrease in cash flow from operating activities before noncash working capital and other adjustments was due primarily to lower Adjusted EBITDA.

7 Badger Daylighting Ltd.

Management’s Discussion and Analysis for the Three Months Ended March 31, 2021

Working capital is a normal course component of Badger’s business. Changes in working capital levels may result from increasing or decreasing revenue, the seasonality in operations, the timing of the collection of receivables and the payment of payables, the timing of capital expenditures and the impact of fluctuations in foreign currency exchange rates. Working capital was $32.1 million as at March 31, 2021, compared with $70.5 million as at December 31, 2020. The change in working capital as at March 31, 2021 resulted from a decrease in trade accounts receivables, offset in part by an increase in share-based compensation. As at May 4, 2021, the Company has not incurred, nor does it currently anticipate, any limitations in its ability to access liquidity under its various credit facilities.

The largest component of Badger’s working capital is trade and other receivables. Trade and other receivables totaled $117.5 million as at March 31, 2021, $30.6 million lower than the balance as at December 31, 2020, of $148.1 million. The decrease in trade receivables and other receivables is due to improved processes, systems and programs implemented and the ongoing efforts to improve administrative processes and the timely collection of trade receivables during the quarter. Included in total trade and other receivables at March 31, 2021, was $3.7 million in accrued revenue compared with $3.1 million at December 31, 2020. Accrued revenue at March 31, 2021 relates to services performed prior to March 31, 2021; accrued revenue is recognized when it meets the requirements of Badger’s revenue recognition policy.

As at March 31, 2021, 80% of Badger’s trade receivables were aged 90 days or less compared with 77% at December 31, 2020. The Company continues to actively manage its receivables portfolio and drive further improvements in all aspects of the cash collection cycle. The implementation of supplemental credit and collections processes, including the overall management of the collections function, has resulted in improved accounts receivable collection metrics.

The Company uses its cash and cash equivalents for the purchase and manufacture of property, plant and equipment, to fund day-to-day operations, pay dividends and for general corporate purposes. Badger assesses its need for general liquidity based on its cash flow from operating activities combined with the financial capacity available under its various credit facilities. Badger’s access to liquidity, through a combination of cash flows from operating activities and its various credit facilities, is sufficient to meet the existing operational and capital expenditures of the business. Cash flows from operating activities are subject to variations and risks associated with the normal course operations of the business, including the impact of the seasonality within the business and the normal course timing and collection of working capital. See “Financing” for a summary of the key terms, conditions and unutilized capacity of the Company’s various credit facilities.

Badger is restricted from declaring dividends if it is in breach of the covenants governing its credit facilities or senior secured notes. As at the date of this MD&A, the Company is in compliance with all debt covenants and is able to fully use its various credit facilities as well as declare dividends. The Company does not maintain a credit rating.

Badger Daylighting Ltd.

Management’s Discussion and Analysis for the Three Months Ended March 31, 2021

8

Capital Resources

Investing

Badger invested $12.1 million in total capital expenditures during the quarter, compared with $20.9 million in the prior year’s comparative quarter. Capital expenditures during the quarter were primarily related to the production of hydrovacs and specialty units.

In 2021, Badger expects to manufacture between 20 to 30 hydrovacs, while continuing to manufacture specialty units and retire 60 to 70 units. Badger continues to focus on optimizing its current fleet in response to rapidly changing economic activity brought on by COVID-19. The Company is uniquely positioned to be able to respond to changes in regional customer service requirements due to its large hydrovac fleet and extensive branch network.

For the first quarter of 2021, Badger completed 8 hydrovacs, compared with 58 hydrovacs in the first quarter of 2020.

Capital Expenditures

Capital Expenditures
($ thousands)	Three months ended	March 31,
	2021	2020
Hydrovac completed units and work-in-progress(1)(2)	1,086	20,367
Other vehicles and trailers	9,165	27
Buildings(3)	1,767	417
Other	85	-
Total expenditures of property, plant and equipment	12,103	20,811
Upfrontpayments for right-of-use assets(4)	39	88
Total capital expenditures	12,142	20,899

(1) Total work-in-progress (“WIP”), including chassis and WIP on other vehicles, recognized on Badger’s balance sheet as at March 31, 2021, and 2020, was $16.4 million and $16.4 million, respectively. The net change in WIP for hydrovacs for the three months ended March 31, 2021, was a net inflow of $3.8 million and for the three months ended March 31, 2020, was a net inflow of $5.1 million. The net change in WIP is included in hydrovac completed units and work-in-progress in the above table.

(2) WIP includes hydrovacs currently being manufactured and chassis that will be used in future hydrovac builds.

(3) Additions to buildings includes Badger’s U.S. administrative center in Brownsburg, Indiana.

(4) Upfront payments for right-of-use assets relate to the Company’s leasing of light-duty trucks.

The cost to build a hydrovac will fluctuate on an annual basis due to factors such as: the number of hydrovac units built; the cost of chassis; labour and materials; and the impact of foreign currency rates as certain materials are denominated or otherwise influenced by foreign currency exchange rates.

Badger Daylighting Ltd.

Management’s Discussion and Analysis for the Three Months Ended March 31, 2021

9

Financing

Syndicated Revolving Credit Facility

The Company has a $300.0 million syndicated revolving credit facility with a syndicate of five lenders. The $300.0 million 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 U.S. operations. The syndicated revolving credit facility, which has a five-year term, matures on September 30, 2024. Badger has the flexibility to expand the facility, subject to approval by the lenders, by an additional $150.0 million. 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 extension of the syndicated revolving credit facility, which was completed on September 30, 2019, had no impact on the Company’s existing senior secured notes, including the respective financial covenant ratios and maturity dates, all of which is detailed below.

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”)/London interbank offered rate (“LIBOR”) also with a tiered structure. A standby fee is also required on the unused portion of the Credit Facility on a tiered basis. The prime rate tiers range between zero and 175 basis points. The BA/LIBOR tiers range from 120 to 300 basis points. The standby fee tiers range between 24 and 60 basis points. All of the tiers are based on the Company’s Total Debt to Compliance EBITDA ratio. Standby fees are expensed as incurred.

The syndicated revolving credit facility is collateralized by a general security interest over the Company’s assets, property and undertaking, present and future. The facility requires that the Company maintain a Total Debt to Compliance EBITDA ratio of no greater than 4.0:1. See “Compliance” for a summary of certain covenants.

As at March 31, 2021, the Company had $81.3 million outstanding on its syndicated revolving credit facility (December 31, 2020 – $68.8 million) and had issued letters of credit of $4.7 million (December 31, 2020 – $4.7 million). The outstanding letters of credit, which reduce the amount of available credit under the facility, support the U.S. insurance program and certain other performance bonds.

Supplemental Credit Facility

On May 7, 2020, the Company entered into a supplemental $100.0 million credit facility with the same group of lenders as its existing syndicated revolving credit facility. The facility is available for general corporate purposes, providing the Company with additional liquidity and financial flexibility should it be required. Key conditions of the facility, including financial covenants and pricing, are consistent with the Company’s existing syndicated revolving credit facility.

On May 4, 2021, the Company renewed its supplemental $100.0 million credit facility for an additional year, expiring on May 3, 2022.

As at March 31, 2021, the Company had no amounts outstanding on its supplemental credit facility.

As at March 31, 2021, the Company has approximately $13.5 million of cash and cash equivalents and has access to approximately $314.0 million of borrowing capacity under its committed credit facilities in respect of which all conditions precedent had been met.

10 Badger Daylighting Ltd.

Management’s Discussion and Analysis for the Three Months Ended March 31, 2021

Senior Secured Notes

On January 24, 2014, Badger closed a private placement of senior secured notes with an original principal of US$75.0 million. The notes, which rank pari passu with the Credit Facility and the Supplemental Credit Facility, have a current principal amount outstanding of US$25.0 million ($31.4 million Canadian equivalent as at March 31, 2021) and an interest rate of 4.83% per annum and mature on January 24, 2022. Repayments of US$25.0 million, as required under the terms of the notes, were completed on January 24, 2020 and on January 24, 2021 utilizing the Company’s syndicated revolving credit facility and cash on hand. The remaining amortizing principal repayments of US$25.0 million are due under the notes on January 24, 2022. Interest is paid semiannually in arrears. The Canadian dollar equivalent on January 24, 2014, was $82.9 million.

The senior secured notes are collateralized by a general security interest over the Company’s assets, property and undertaking, present and future. The senior secured notes require that the Company maintain a Total Debt to Compliance EBITDA ratio of no greater than 2.75:1.

Lease Liability

As at March 31, 2021, the Company had $16.9 million in lease liabilities (December 31, 2020 – $15.2 million) related primarily to operating and administrative building lease arrangements. There is no lease liability associated with the Company’s light-duty vehicle leases as the full consideration of the underlying lease is paid at the inception of the lease.

Compliance

Under the terms of the syndicated revolving credit facility and the senior secured notes, the Company must comply with certain financial and non-financial covenants, as defined by the respective credit agreements. The Company’s significant financial covenants and the summary of the compliance with these covenants are detailed in the summary below.

in the summary below.
Select Financial Covenants(1)(2)(3)(4)(5)	March 31, 2021	December 31,2020	Threshold
Total Debt to Compliance EBITDA Credit Facility	1.2:1	1.2:1	4.00:1 max
Total Debt to Compliance EBITDA Senior Secured Notes	1.4:1	1.2:1	2.75:1 max
Interest Coverage Ratio Credit Facility	14.4:1	14.1:1	3.00:1 min
Interest Coverage Ratio Senior Secured Notes	12.3:1	14.0:1	3.00:1 min
Tangible Net Worth	$257.9 million	$277.4 million	$201.4 million

(1) See “Non-IFRS Financial Measures” for additional details on the calculation of Total Debt, Compliance EBITDA and Tangible Net Worth.

(2) Total Debt to Compliance EBITDA Credit Facility as at March 31, 2021, calculated as $120.8 million in Total Debt divided by $103.4 million of Compliance EBITDA and for December 31, 2020, calculated as $135.1 million in Total Debt divided by $117.3 million of Compliance EBITDA.

(3) Total Debt to Compliance EBITDA senior secured notes as at March 31, 2021, calculated as $124.3 million in Total Debt divided by $88.2 million of Compliance EBITDA and for December 31, 2020, calculated as $142.4 million in Funded Debt divided by $116.0 million of Compliance EBITDA.

(4) The Interest Coverage Ratio Credit Facility is calculated as Compliance EBITDA divided by interest expense. For the twelve months ended March 31, 2021, calculated as $103.4 million in Compliance EBITDA divided by $7.2 million in interest expense and for the twelve months ended December 31, 2020, calculated as $117.3 million in Compliance EBITDA divided by $8.3 million in interest expense. Interest expense is calculated in accordance with IFRS on a trailing 12-month basis.

(5) The Interest Coverage Ratio senior secured notes is calculated as Compliance EBITDA divided by interest expense. For the twelve months ended March 31, 2021, calculated as $88.2 million in Compliance EBITDA divided by $7.2 million in interest expense and for the twelve months ended December 31, 2020, calculated as $116.0 million in Compliance EBITDA divided by $8.3 million in interest expense. Interest expense is calculated in accordance with IFRS on a trailing 12-month basis.

11 Badger Daylighting Ltd.

Management’s Discussion and Analysis for the Three Months Ended March 31, 2021

Throughout the quarter and as at March 31, 2021, the Company was in compliance with all covenants. For additional details on the syndicated revolving credit facility and the senior secured notes, including the financial and non-financial covenants, see the Company’s 2020 audited Consolidated Financial Statements and the Company’s 2020 Annual Information Form.

Off-Balance Sheet Arrangements

As at March 31, 2021, and December 31, 2020, the Company did not have any material off-balance sheet arrangements.

Share Capital

As at March 31, 2021, the number of common shares outstanding was 34,853,838 (December 31, 2020 – 34,853,838). The weighted average common shares outstanding for the three months ended March 31, 2021 was 34,853,838 (December 31, 2020 – 34,870,893).

As at May 4, 2021, the number of common shares outstanding was 34,848,438. Badger does not currently have any material financial instruments which can be converted into additional common shares.

Refer to the Company’s unaudited Interim Condensed Consolidated Financial Statements for the three months ended March 31, 2021, and “Normal Course Issuer Bid” for additional details on changes to share capital.

Normal Course Issuer Bid

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. Under the NCIB, the Company may acquire up to 1,500,000 common shares during the period commencing on March 24, 2021, and ending on March 23, 2022, or such earlier date on which the Company completes its purchases of common shares under the NCIB, or terminates the NCIB at its option.

The Company continues to focus on prudent capital allocation to drive long-term shareholder value and believes that from time-to-time, the market price of its common shares may not fully reflect the underlying value of its business. Purchases of common shares for cancellation under the NCIB may provide an opportunity to enhance long-term total shareholder return.

During the three months ended March 31, 2021, the Company did not purchase any of its common shares for cancellation under its NCIB program. For the period April 1, 2021, through May 4, 2021, the Company purchased and cancelled 5,400 common shares at a weighted average price per share of $39.86.

Badger’s previous NCIB expired on May 20, 2020 (the “Previous NCIB”). Under the Previous NCIB, Badger obtained the approval of the TSX to purchase up to 2,000,000 common shares, which represented 5.61% of the public float at the time of approval. Badger purchased on the open market and cancelled an aggregate of 1,025,600 common shares under the Previous NCIB at a volume-weighted average purchase price of $41.40 per common share.

Badger Daylighting Ltd.

Management’s Discussion and Analysis for the Three Months Ended March 31, 2021

12

Contractual Obligations

Refer to the Company’s unaudited Interim Condensed Consolidated Financial Statements for disclosure related to contractual obligations. The company anticipates using its cash and cash equivalents, in addition to the financial capacity available under its various credit facilities to fund its contractual obligations.

Response to COVID-19

In March 2020, the World Health Organization declared a global pandemic due to the novel coronavirus (“COVID-19”). In response to the COVID-19 pandemic, Badger established a COVID-19 task force, responsible for overseeing, supporting and directing the Company’s business continuity actions amidst the outbreak of the virus. The Company’s response to COVID-19 reflects its focus on health and safety for employees and customers. Throughout the pandemic and in the first quarter of 2021, as Badger provides essential services to North America’s critical infrastructure, the Company continued to provide customers with safe and reliable non-destructive excavation services.

Badger did not apply for any COVID-19 related government grants during the first quarter of 2021, however, Badger’s operations continued to be impacted by an overall slowdown in economic activity in certain markets across North America. Customer activity levels continued to be suppressed in the first quarter of 2021 as compared to the prior year due to the third wave of COVID-19 related shutdowns experienced in a number of markets, as well as extended holiday related jobsite shutdowns and the ongoing economic uncertainty resulting from COVID-19. However, results achieved in the first quarter of 2021, including during the peaks of COVID19 and severe weather-related events, have reinforced the Company’s ability to remain profitable across a range of market conditions.

On May 7, 2020, the Company entered into a one year supplemental $100.0 million credit facility available for general corporate purposes, providing additional liquidity and financial flexibility should it be required. Throughout 2020, the first quarter of 2021 and as at March 31, 2021, there were no amounts drawn on the supplemental credit facility and the Company remained well within all financial covenants associated with all lending arrangements.

At this time, it is uncertain how long the impacts of COVID-19 will affect the North American economy, however, there are early signs of economic recovery, which Badger expects will coincide with the 2021 summer construction season ramp-up. In anticipation of this recovery, Badger continued to focus on hiring and training operators, sales and operations staff in the first quarter. See “Business Outlook and Strategic Milestones” for additional details on the Company’s long-term growth potential for non-destructive excavation services in North America.

Badger Daylighting Ltd.

Management’s Discussion and Analysis for the Three Months Ended March 31, 2021

13

Financial Instruments and Risk Management

Fair values

The Company’s financial instruments recognized on the consolidated statements 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, borrowings under credit facility, current and long-term lease liabilities and current and long-term debt. The fair values of these recognized financial instruments, excluding long-term debt, approximate their carrying value due to their short-term maturity. The carrying value of the Company’s credit facility and lease liabilities approximate fair value because these liabilities utilize floating and/or market based interest rates. The fair value of the Company’s senior secured notes are disclosed in the Interim Condensed Consolidated Financial Statements.

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. The Company has an agreement with Export Development Canada (“EDC”), a Government of Canada Crown Corporation, to insure its trade receivables portfolio which further mitigates the Company’s credit risk exposure.

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 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 Company raising capital by issuing equity or obtaining additional debt financing. The Company also mitigates liquidity risk by maintaining a credit facility and an insurance program to minimize exposure to insurable losses. Due to COVID-19, the Company entered into a one year supplemental $100.0 million credit facility available for general corporate purposes, providing additional liquidity and financial flexibility should it be required. Throughout the first quarter and as at March 31, 2021, there were no amounts drawn on the supplemental credit facility and the Company remained well within all financial covenants associated with all lending arrangements. On May 4, 2021, the Company renewed its $100 million credit facility for an additional year.

Badger Daylighting Ltd.

Management’s Discussion and Analysis for the Three Months Ended March 31, 2021

14

Market risk

The significant market risks 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 or the London interbank offered rate and is dependent on the nature of the borrowing. Interest rates are subject to change. As at March 31, 2021 the Company had $81.3 million drawn on its syndicated revolving term credit facility which is subject to a floating interest rate. 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, but has issued fixed rate senior secured notes (US$25.0 million outstanding as at March 31, 2021) which fixes interest exposure on a portion of the Company’s total debt obligations.

Foreign exchange risk

The Company is exposed to foreign currency fluctuations as revenue and expenses derived from United States operations are denominated in U.S. dollars. The United States subsidiaries are subject to translation gains and losses on consolidation. The Company’s Canadian operations purchase certain products in U.S. dollars. Foreign exchange gains and losses are included in net profit while foreign exchange gains and losses arising on the translation of the assets, liabilities, revenues and expenses of the Company’s United States operations are included in OCI. The Company also holds U.S. dollar denominated debt, with US$25.0 million of senior secured notes which are used to manage, in part, the exposure to foreign exchange gains and losses arising from the translation of its United States functional currency operations included in OCI. The Company does not utilize foreign currency forward contracts or similar derivative instruments to manage its exposure to foreign currency fluctuations.

Badger Daylighting Ltd.

Management’s Discussion and Analysis for the Three Months Ended March 31, 2021

15

Selected Quarterly Financial Information

($ thousands, except per	2021		2020	2020			2019
share amounts)	Q1	Q4	Q3	Q2	Q1	Q4	Q3	Q2
Total revenue(1)	108,468	130,612	156,853	134,484	136,678	162,715	183,743	161,210
Canada	20,657	26,297	30,923	25,054	30,456	35,241	37,408	33,544
U.S. (U.S. dollar)	69,410	79,904	94,592	79,074	78,970	96,564	110,793	94,458
Net (loss) profit	(14,936)	1,827	16,153	1,701	5,068	15,913	25,839	11,949
Net (loss) profit per share,
basic and diluted ($)	($0.43)	$0.05	$0.46	$0.05	$0.15	$0.45	$0.73	$0.33
Dividends paid	5,226	5,229	5,229	5,229	4,972	5,001	5,067	5,112
Dividends per share, basic
and diluted($)	$0.153	$0.150	$0.150	$0.150	$0.145	$0.140	$0.140	$0.140

(1) Refer to Note 14 – Segment reporting in the Company’s Interim Condensed Consolidated Financial Statements for the three months ended March 31, 2021 for select information by geographic segments.

During the periods in the above table, Badger’s results were impacted by the following factors and trends:

• General changes in economic growth and overall macro-economic conditions in both the U.S. and Canada;

• Increased usage and demand for Badger’s hydrovac services, particularly in the U.S., which is Badger’s largest market. The increase in customer demand has typically resulted in an increase in revenues, gross dollar direct costs, general and administrative expenses and Adjusted EBITDA;

• Reduced customer activity levels beginning in March 2020 as a result of COVID-19, resulting in the curtailment of the production of hydrovacs at Badger’s Red Deer manufacturing facility in the second quarter of 2020;

• The impact of the COVID-19 pandemic on both the U.S. and Canadian operations, which resulted in a broad-based slowdown of the North American economy. Revenue and underlying customer activity levels varied by region, largely due to the variability in the impact of COVID-19 on economic and construction activity levels;

• Impact of unusual and/or non-typical weather conditions such as natural disasters, general precipitation levels or extreme winter weather conditions which may impact the timing and level of customer demand;

• Timing of customer emergency response services due to natural disasters;

• Additional investments related to the manufacture of hydrovac units and an increase in working capital requirements associated with the underlying growth in the business;

• The impact of the fluctuation of the foreign exchange rate to translate the U.S. dollar to Canadian dollars; and

• The execution and implementation of Badger’s Common Business Platform/ERP project.

16 Badger Daylighting Ltd.

Management’s Discussion and Analysis for the Three Months Ended March 31, 2021

Key Financial Metrics and Other Operational Metrics

“Revenue per truck per month” (RPT) is a measure of hydrovac fleet utilization. It is calculated using hydrovac and hydrovac related revenue only. RPT is calculated on both a consolidated basis and for each geographic segment by dividing hydrovac and hydrovac related revenue for each segment, in the respective local currency, by the average number of hydrovacs in the segment during the period.

Revenue per truck per month – United States

Revenueper truckper month – United States
($ thousands, except for RPT and average hydrovacs)	Three months ended March 31,
	2021	2020
Total revenue	87,811	106,222
Less: Other revenue	3,252	1,574
Hydrovac revenue	84,559	104,648
Foreign exchange rate(1)	1.2651	1.3451
Hydrovac revenue - U.S. equivalent	66,840	77,799
Average hydrovacs(2)	988	999
RPT(U.S. dollars) (3)	22,551	25,959

Revenue per truck per month – Canada

Revenueper truckper month – Canada
($ thousands, except for RPT and average hydrovacs)	Three months ended	March 31,
	2021	2020
Total revenue	20,657	30,456
Less: Other revenue	2,907	4,897
Hydrovac revenue	17,750	25,559
Average hydrovacs(2)	398	381
RPT(3)	14,866	22,361

Revenue per truck per month – Consolidated (mixed currency)

($ thousands, except for RPT and average hydrovacs)	Three months ended	March 31,
	2021	2020
Hydrovac revenue - U.S.	66,840	77,799
Hydrovac revenue-Canada	17,750	25,559
Total hydrovac revenue	84,590	103,358
Average hydrovacs(2)	1,386	1,380
RPT(3)	20,344	24,966

(1) Foreign exchange rate calculated on a weighted average basis for the respective period. See “Foreign Exchange Rates” for additional details.

(2) See “Fleet Summaries” for additional details.

(3) RPT is calculated by taking hydrovac revenue divided by the number of average trucks for the period and further divided by the number of months in the respective period, being three months for a quarter and twelve months for an annual period.

Badger Daylighting Ltd.

Management’s Discussion and Analysis for the Three Months Ended March 31, 2021

17

Fleet Summaries

Number of hydrovacs at period end

==> picture [500 x 29] intentionally omitted <==

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2021 2020 2019
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
----- End of picture text -----

Canada	397	398	399	390	382	380	371	366
U.S.	982	993	999	1,008	1,017	981	949	922
	1,379	1,391	1,398	1,398	1,399	1,361	1,320	1,288
Hydrovac operator trainingcenter(1)	1	1	2	3	3	3	3	2
Total	1,380	1,392	1,400	1,401	1,402	1,364	1,323	1,290

(1) Represents hydrovac units being utilized at Badger’s U.S. hydrovac operator training center. Hydrovacs utilized for training on a permanent basis are not available for day-to-day revenue generation, and as such, these units are excluded in the calculation of RPT.

Average number of hydrovacs during the period[(1)]

	2021 2020 2019
	Q1 Annual Q4 Q3 Q2 Q1 Annual Q4 Q3 Q2
Canada U.S.	398 389 399 394 386 381 367 376 369 362 988 987 996 1,004 1,013 999 924 965 936 903
Total	1,386 1,376 1,395 1,398 1,399 1,380 1,291 1,341 1,305 1,265

(1) The average number of hydrovacs during the period is calculated using a simple average between the opening number of hydrovacs during the period and the closing number of hydrovacs during the period.

Marketing and Franchise Agreements

	2021 2020 2019 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 15 15 15 15 15(4) 14 14(2) 11(1) 2 2 2 2 2(5) 3 3(3) 4
Number of Marketing and Franchise Agreements
Canada U.S.

(1) A new Canadian based operating partner agreement was executed during the second quarter of 2019.

(2) Three new Canadian based operating partner agreements were executed during the third quarter of 2019.

(3) Badger purchased the assets of a U.S. based franchisee to facilitate the franchisee’s exit from the business.

(4) A new Canadian based operating partner agreement was executed during the first quarter of 2020.

(5) A U.S. based franchise agreement was terminated in the first quarter of 2020.

Foreign Exchange Rates

1 USD:CAD	2021 2020 2019
	Q1 Annual Q4 Q3 Q2 Q1 Annual Q4 Q3 Q2
Period weighted average(1) Period end	1.2651 1.3408 1.3055 1.3313 1.3839 1.3451 1.3267 1.3201 1.3208 1.3374 1.2575 1.2732 1.2732 1.3339 1.3628 1.4187 1.2988 1.2988 1.3243 1.3087

(1) Period weighted average foreign exchange rate as calculated utilizing individual monthly average foreign exchange rates, on a weighted basis, for the underlying respective period.

The U.S. dollar to Canadian dollar foreign exchange rate impacts financial results due to the translation of U.S. operations into Canadian dollars.

Badger Daylighting Ltd.

Management’s Discussion and Analysis for the Three Months Ended March 31, 2021

18

Non-IFRS Financial Measures

This MD&A contains references to certain financial measures, including some that do not have any standardized meaning prescribed by IFRS and that may not be comparable to similar measures presented by other companies or entities. These financial measures are identified and defined below:

“Adjusted EBITDA” is earnings before interest, taxes, depreciation and amortization, share-based compensation, gains and losses on sale of property, plant and equipment and gains and losses on foreign exchange. Adjusted EBITDA is a measure of the Company’s operating profitability and is therefore useful to management and investors as it provides improved continuity with respect to the comparison of operating results over time. Adjusted EBITDA provides an indication of the results generated by the Company’s principal business activities prior to how these activities are financed, the results are taxed in various jurisdictions, and assets are amortized. In addition, Adjusted EBITDA excludes gains and losses on sale of property, plant and equipment as these gains and losses are considered incidental and secondary to the principal business activities, it excludes gains and losses on foreign exchange, as such gains and losses can vary significantly based on factors beyond the Company’s control, and it excludes share-based compensation as these expenses can vary significantly with changes in the price of the Company’s common shares.

Adjusted EBITDA is calculated as follows:

($ thousands)	Three months ended March 31,	Three months ended March 31,
Adjusted EBITDA	2021	2020
Net (loss) profit	(14,936)	5,068
Add:
Depreciation and amortization	17,847	18,096
Share-based plans	5,334	(9,048)
Loss on sale of property, plant and equipment	95	39
Finance cost	1,208	2,379
Foreign exchange loss (gain)	533	(165)
Income tax(recovery)expense	(4,590)	1,770
Adjusted EBITDA	5,491	18,139

Adjusted EBITDA can also be calculated as follows:

Adjusted EBITDA can also be calculated as follows:
($ thousands)	Three months ended March 31,
Adjusted EBITDA	2021	2020
Revenue	108,468	136,678
Less:
Direct costs	91,487	106,399
General and administrative expense	11,490	12,140
Adjusted EBITDA	5,491	18,139

19 Badger Daylighting Ltd.

Management’s Discussion and Analysis for the Three Months Ended March 31, 2021

“Adjusted EBITDA margin” is Adjusted EBITDA as defined above, expressed as a percentage of revenues.

Adjusted EBITDA margin is calculated as follows:

Adjusted EBITDA margin is calculated as follows:
($ thousands except for percentages)	Three months ended March 31,
Adjusted EBITDA margin	2021	2020
Adjusted EBITDA	5,491	18,139
Revenue	108,468	136,678
Adjusted EBITDA margin	5.1%	13.3%

“Normalized net profit” is net profit adjusted for share-based compensation, gains and losses on sale of property, plant and equipment, gains and losses on foreign exchange and certain items of a one-time nature. Normalized net profit is a measure of the Company’s profitability and is therefore useful to management and investors as it provides improved continuity with respect to the comparison of operating results over time. In addition, normalized net profit excludes gains and losses on sale of property, plant and equipment as these gains and losses are considered incidental and secondary to the principal business activities, it excludes gains and losses on foreign exchange, as such gains and losses can vary significantly based on factors beyond the Company’s control, it excludes share-based compensation as these expenses can vary significantly with changes in the price of the Company’s common shares, and it excludes certain one-time items such as business restructuring, government subsidy programs, and other certain items of a one-time nature.

Normalized net profit is calculated as follows:

($ thousands, except per share information)	Three months ended	March 31,
Normalized netprofit	2021	2020
Net (loss) profit	(14,936)	5,068
Add:
Share-based plans	5,334	(9,048)
Loss on sale of property, plant and equipment	95	39
Foreign exchange loss(gain)	533	(165)
Normalized net (loss) profit before tax effect of normalizing adjustments	(8,974)	(4,106)
Income tax expense (recovery) related to normalizing adjustments	1,401	(2,375)
Normalized net (loss) profit	(10,375)	(1,731)
Normalized net(loss) profitper share, basic and diluted(1)	($0.30)	$0.05

(1) Per share, basic and diluted measures calculated by dividing the respective financial measure with the weighted average common shares outstanding for the three months ended March 31, 2021 of 34,853,838 (March 31, 2020 – 34,892,213).

20 Badger Daylighting Ltd.

Management’s Discussion and Analysis for the Three Months Ended March 31, 2021

“Compliance EBITDA” is earnings before interest, taxes, depreciation, amortization, and certain other items, calculated on a 12-month trailing basis, and is used by the Company to calculate compliance with its debt covenants and other credit information.

Compliance EBITDA is calculated as follows:

Compliance EBITDA is calculated as follows:
($ thousands)	Twelve months ended March 31,
Compliance EBITDA	2021	2020
Net profit	4,745	58,769
Add:
Depreciation and amortization, including non-cash impairments	74,246	66,945
Finance cost	7,166	7,852
Income tax expense	2,034	15,897
Compliance EBITDA – for purposes of senior secured notes	88,191	149,463
Add:
Foreign currency revaluations	(2,698)	(225)
Loss on sale of property, plant and equipment	152	302
Share-basedpayments	17,787	(7,710)
Compliance EBITDA – forpurposes of credit facilities(1)	103,432	141,830

(1) The calculation of Compliance EBITDA related to the Company’s credit facilities for the twelve months ended March 31, 2021, is in accordance with the requirements of the Company’s syndicated revolving credit facility, which was closed on September 30, 2019, and the Company’s supplemental credit facility, which was closed on May 7, 2020.

“Total Debt” consists of long-term debt and lease liabilities, including the current portion thereof, and issued letters of credit, less certain cash on hand. Total Debt is used by the Company to calculate compliance with its debt covenants and other credit information.

Total Debt is calculated as follows:

Total Debt is calculated as follows:
($ thousands)
Total Debt	March 31, 2021	December 31,2020
Long-term debt	-	31,830
Current portion of long-term debt	31,438	31,830
Borrowings under credit facility	81,263	68,820
Lease liability	11,100	9,798
Current portion of lease liability	5,760	5,412
Total obligations	129,561	147,690
Add: issued letters of credit	4,692	4,750
Less: cash on hand upto$10.0 million(1)	(10,000)	(10,000)
Total Debt – for purposes of senior secured notes	124,253	142,440
Less: cash on handgreater than$10.0 million upto$50.0 million	(3,498)	(7,295)
Total Debt – forpurposes of credit facilities(2)	120,755	135,145

(1) Badger may deduct certain cash on hand in the calculation of Total Debt in accordance with the requirements of its credit facilities. The Company’s syndicated revolving credit facility and its supplemental credit facility, allow for the deduction of up to $50.0 million of cash on hand with the senior secured note facility allowing for the deduction of up to $10.0 million of cash on hand.

(2) The calculation of Total Debt related to the Company’s credit facilities for the twelve months ended March 31, 2021, is in accordance with the requirements of the Company’s syndicated revolving credit facility, which was closed on September 30, 2019, and the Company’s supplemental credit facility, which was closed on May 7, 2020.

Badger Daylighting Ltd.

Management’s Discussion and Analysis for the Three Months Ended March 31, 2021

21

“Tangible Net Worth” consists of total shareholders equity less other comprehensive income subsequent to September 30, 2013, as adjusted for certain impairments and less intangible assets. Tangible Net Worth is used by Badger to calculate compliance with its debt covenants and other credit information.

Tangible Net Worth is calculated as follows:

Tangible Net Worth is calculated as follows:
($ thousands)
Tangible Net Worth	March 31, 2021	December 31,2020
Shareholders equity	305,742	328,519
Less: accumulated other comprehensive income subsequent
to September 30, 2013 adjusted for certain impairments	(16,354)	(18,880)
Less: intangible assets andgoodwill	(31,494)	(32,289)
Tangible Net Worth	257,894	277,350

Critical Accounting Policies and Estimates

The Company’s significant accounting policies are set out in Note 4 of the 2020 audited Annual Consolidated Financial Statements. Additionally, refer to the Company’s unaudited Interim Condensed Consolidated Financial Statements for details on accounting policy changes adopted by the Company on, or after, December 31, 2020. Certain of these accounting policies, as well as estimates made by management in applying such policies, are recognized as critical because they require management to make subjective or complex judgements about matters that are inherently uncertain. The Company’s critical accounting estimates, as detailed in the 2020 annual MD&A relate to: useful lives of property, plant and equipment; depreciation; income taxes; allowance for doubtful accounts; determining cash generating units; impairment of non-financial assets; intangible assets; goodwill; and functional currency.

In the preparation of the Company’s unaudited Interim Condensed Consolidated Financial Statements, management has made judgments, estimates and assumptions that affect the recorded amounts of revenues, expenses, assets, liabilities and the disclosure of commitments, contingencies and guarantees. Estimates and judgements used are based on management’s experience and the assumptions used are believed to be reasonable given the circumstances that exist at the time the unaudited Interim Condensed Consolidated Financial Statements are prepared. Actual results could differ from these estimates. The most significant estimates and judgments used in the preparation of the Company’s unaudited Interim Condensed Consolidated Financial Statements have been set out in Note 3 of the Company’s 2020 audited Annual Consolidated Financial Statements.

Badger Daylighting Ltd.

Management’s Discussion and Analysis for the Three Months Ended March 31, 2021

22

Disclosure Controls and Procedures and Internal Control Over Financial Reporting

Disclosure Controls and Procedures

Badger’s President and CEO and its VP Finance and CFO have designed, or caused to be designed under their direct supervision, Badger’s disclosure controls and procedures (as defined by National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings, adopted by the Canadian Securities Administrators) to provide reasonable assurance that (i) material information relating to Badger, including its consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which the annual and interim filings are being prepared; and (ii) material information required to be disclosed in Badger’s annual filings, interim filings or other reports filed or submitted by it under Canadian securities legislation is recorded, processed, summarized and reported on a timely basis.

Internal Control over Financial Reporting

Badger’s President and CEO and its VP Finance and CFO have also designed, or caused to be designed under their direct supervision, Badger’s internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Badger uses the criteria established in Internal Control - Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of Badger’s internal control over financial reporting.

Changes in Internal Control over Financial Reporting

There were no changes to Badger’s internal control over financial reporting in the first quarter of 2021.

Inherent Limitations

Notwithstanding the foregoing, because of its inherent limitations, a control system can provide only reasonable assurance that the objectives of the control system are met and may not prevent or detect misstatements. Management’s estimates may be incorrect, or assumptions about future events may be incorrect, resulting in varying results. In addition, management has attempted to minimize the likelihood of fraud. However, any control system can be circumvented through collusion and illegal acts.

Risk Factors to Badger

A comprehensive listing of the Company’s risk factors is set out in the Company’s 2020 Annual Information Form under the heading “Risk Factors”. This section of the Annual Information Form does not describe all risks applicable to the Company, its industry or its business, and is intended only as a summary of certain material risks. If any of such risk or uncertainties actually occurs, the Company’s business, financial condition or operating results could be harmed substantially and could differ materially from the plans and other forward-looking statements discussed in this MD&A.

Badger Daylighting Ltd.

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Cautionary Statements Regarding Forward-Looking Information and Statements

Certain statements and information contained in this MD&A and other continuous disclosure documents of the Company referenced herein, including statements and information that contain words such as “could”, “should”, “can”, “anticipate”, “expect”, “believe”, “will”, “may”, “continues to”, “goal” and similar expressions relating to matters that are not historical facts, constitute “forward-looking information” within the meaning of applicable Canadian securities legislation. These statements and information involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forwardlooking statements and information. The Company believes the expectations reflected in such forward-looking statements and information are reasonable, but no assurance can be given that these expectations will prove to be correct. Such forward-looking statements and information included in this MD&A should not be unduly relied upon. These forward-looking statements and information speak only as of the date of this MD&A.

In particular, forward-looking information and statements in this MD&A include, but are not limited to the following:

• The anticipated benefit of the continual review of all aspects of Badger’s operations;

• Badger’s intention to continue to make investments into its organizational design and management structure in 2021 and its impact on maximizing shareholder value;

• Badger’s expectation to continue to optimize asset utilization;

• Badger’s expectations with respect to hydrovac and specialty unit production and retirement in 2021;

• Anticipated market recovery from the COVID-19 pandemic in 2021 and its impact on Badger and its operations, including in connection with seasonal construction volume increases;

• The anticipated impact of reconfigured process flows at the Red Deer facility on future production capacity;

• The expectation of future market opportunities for Badger with respect to infrastructure strengthening;

• Disclosure under the heading “Business Outlook and Strategic Milestones”,

• The expectation that the execution of the EDC credit insurance policy will improve Badger’s credit risk exposure;

• The timing and impact on the business, if any, of the implementation of supplemental credit and collections processes;

• Badger’s ability to continue to grow its business, including revenue, as a result of capitalizing on the longterm growth opportunity in the North American hydrovac business;

• Badger does not anticipate any limitations in its ability to access liquidity under its various credit facilities; and

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

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The forward-looking information and statements made in this MD&A rely on certain expected economic conditions and overall demand for Badger’s services and are based on certain assumptions. The assumptions used to generate this forward-looking information and statements are, among other things, that:

• Badger will maintain its financial position and financial resources will continue to be available to Badger;

• The monitoring of potential impacts of COVID-19 on all aspects of Badger’s business, including the impact on the demand for Badger’s services and the expectation that Badger’s business model, operating scale and financial position will enable it to manage effectively through the current uncertain economic environment as a result of COVID-19, and that the long-term growth potential of non-destructive excavation will not be adversely impacted by the same;

• The actions taken by Badger to protect the health and safety of its employees, customers and communities, and to mitigate the operational and financial effects of COVID-19, will have the intended effects;

• The overall market for Badger’s services will not be adversely affected in the long-term by COVID-19, economic disruption, or other factors beyond Badger’s control such as weather, natural disasters, global events, legislation changes and technological advances;

• There will be long-term sustained customer demand for non-destructive excavation services from a broad range of end use markets in North America;

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

• Badger will collect customer payments in a timely manner;

• Badger will be able to compete effectively for the demand for its services;

• There will not be significant changes in profit margins due to pricing changes driven by market conditions, competition, regulatory factors or other unforeseen factors; and

• Badger will realize and continue to realize the efficiencies and benefits of the executed business restructuring activities, the formation of the shared services center and other business improvement initiatives.

Risk factors and other uncertainties that could cause actual results to differ materially from those anticipated in such forward-looking statements include, but are not limited to: political and economic conditions; industry competition; price fluctuations for oil and natural gas and related products and services; Badger’s ability to attract and retain key personnel; the availability of future debt and equity financing; changes in laws or regulations, including taxation and environmental regulations; extreme or unsettled weather patterns; and fluctuations in foreign exchange or interest rates.

Any future orientated financial information and financial outlook information (collectively, “FOFI”) contained in this MD&A, as such terms are defined by applicable securities laws, is provided for the purpose of providing information about management’s current expectations and plans relating to the future and is subject to the same assumptions, risk factors, limitations and qualifications as set forth in the above paragraphs. Management believes that the FOFI has been prepared on a reasonable basis, reflecting best estimates and judgments; however, actual results of the Company’s operations and financial outcomes may vary from the amounts set forth herein. FOFI contained in this MD&A was made as of the date of this MD&A and the Company does not undertake any obligation to publicly update or revise any FOFI contained in this MD&A, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws. Readers are cautioned that any FOFI contained herein should not be used for purposes other than those for which it has been disclosed herein.

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Readers are cautioned that the foregoing factors are not exhaustive. Additional information on these and other factors that could affect the Company’s operations and financial results is included in reports on file with securities regulatory authorities in Canada and may be accessed through the SEDAR website (www.sedar.com) or at the Company’s website. The forward-looking statements and information contained in this MD&A are expressly qualified by this cautionary statement. The Company does not undertake any obligation to publicly update or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

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