Dexterra Group Inc. — Interim / Quarterly Report 2021

Nov 9, 2021

Condensed Consolidated Interim Financial Statements of

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Three and nine months ended September 30, 2021 and 2020

Condensed consolidated statement of financialposition(Unaudited)
(000’s)	Note		September 30, 2021		December 31, 2020
Assets
Current assets
Trade and other receivables	4	$	185,344	$	149,532
Inventories	5		16,217		12,445
Prepaid expenses and other			6,070		5,981
Income tax receivable			464		—
Total current assets			208,095		167,958
Non-current assets
Property, plant and equipment	6		169,111		184,047
Right-of-use assets	7		24,025		22,052
Intangible assets	8		22,482		23,457
Goodwill			98,640		98,640
Deferred income taxes			683		2,587
Other assets	9		17,441		14,782
Total non-current assets			332,382		345,565
Total assets		$	540,477	$	513,523
Liabilities
Current liabilities
Trade and other payables		$	111,905	$	81,815
Deferred revenue			3,181		3,310
Income tax payable			—		2,895
Asset retirement obligations	11		4,704		5,102
Lease liabilities	7		6,881		7,160
Total current liabilities			126,671		100,282
Non-current liabilities
Lease liabilities	7		20,260		18,921
Contingent consideration			1,448		1,448
Asset retirement obligations	11		6,833		6,527
Loans and borrowings	10		79,635		85,369
Non-current liabilities			108,176		112,265
Total liabilities		$	234,847	$	212,547
Shareholders’ Equity
Share capital	12	$	233,541	$	232,348
Contributed surplus			955		354
Retained earnings			71,248		66,451
Non-controlling interest			(114)		1,823
Total shareholders’ equity			305,630		300,976
Total liabilities and shareholders’ equity		$	540,477	$	513,523

The accompanying notes are an integral part of the condensed consolidated interim financial statements.

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Condensed consolidated statement of comprehensive income (Unaudited)

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			Three months ended	Three months ended	September 30,		Nine months ended September 30,	Nine months ended September 30,	Nine months ended September 30,
(000's except per share amounts)	Note		2021		2020		2021		2020
Revenue
Revenue from operations	19	$	202,760	$	170,349	$	531,792	$	306,828
Other revenue	22		—		6,569		—		6,569
Total revenue			202,760		176,918		531,792		313,397
Operating expenses
Direct costs	13		172,538		136,133		445,988		239,498
Selling, general and administrative expenses	14		8,424		7,816		25,305		15,865
Depreciation	6,7		8,516		8,014		26,594		11,907
Amortization of intangible assets	8		867		771		2,554		2,020
Share based compensation	12		522		157		1,582		206
Loss (gain) on disposal of property, plant and equipment			428		385		(117)		(119)
Operating income			11,465		23,642		29,886		44,020
Finance costs			1,224		2,051		3,880		3,094
Earnings from equity investments			(384)		(353)		(1,684)		(288)
Bargain purchase gain	1		—		—		—		(34,128)
Earnings before income taxes			10,625		21,944		27,690		75,342
Income tax
Income tax expense	15		2,861		5,883		7,239		10,890
Net earnings		$	7,764	$	16,061	$	20,451	$	64,452
Net Earnings Attributable to:
Shareholders		$	7,780	$	16,131	$	20,263	$	64,135
Non-controlling interest		$	(16)	$	(70)	$	188	$	317
Earnings per common share:
Net earnings per share, basic	17	$	0.12	$	0.25	$	0.31	$	1.37
Net earnings per share, diluted	17	$	0.12	$	0.25	$	0.31	$	1.37
Weighted average common shares outstanding:
Basic	17		65,145		64,869		65,049		46,758
Diluted	17		65,476		64,896		65,374		46,758

The accompanying notes are an integral part of the condensed consolidated interim financial statements.

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Condensed consolidated statement of changes in equity (Unaudited)

		Share capital				Non-
(000’s)	Note	- Number of Shares(1) Share	capital	Contributed surplus	Retained earnings	controlling interest		Total
Balance as at December 31, 2020		64,869 $	232,348 $	354 $	66,451 $	1,823	$	300,976
Dividends	18	—	—	—	(15,466)	(2,125)	$	(17,591)
Exercise of stock options	12	282	1,193	(334)	—	—		859
Share based compensation	12	—	—	935	—	—		935
Net income (loss)		—	—	—	20,263	188		20,451
Balance as at September 30, 2021		65,151 $	233,541 $	955 $	71,248 $	(114)	$	305,630

		Share capital				Non-
(000’s)	Note	- Number of Shares(1) Share	capital	Contributed surplus	Retained earnings	controlling interest		Total
Balance as at December 31, 2019		31,786 $	131,543 $	— $	12,150 $	1,430	$	145,123
Effect of reverse acquisition of Horizon North Logistics Inc.		33,083	100,904	—	—	—		100,904
Share issuance costs		—	(99)	—	—	—		(99)
Dividends	18	—	—	—	(4,865)	(43)		(4,908)
Shared based compensation	12	—	—	206	—	—		206
Net income (loss)		—	—	—	64,135	317		64,452
Balance as at September 30, 2020		64,869 $	232,348 $	206 $	71,420 $	1,704	$	305,678

(1) Comparative information has been retroactively adjusted to reflect the five-to-one share consolidation which was completed on July 16, 2020.

The accompanying notes are an integral part of the condensed consolidated interim financial statements.

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Condensed consolidated statement of cash flows (Unaudited)

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Condensed consolidated statement of cash flows(Unaudited)	Condensed consolidated statement of cash flows(Unaudited)
Three months ended September 30, Nine months ended September 30,
(000’s) Note 2021 2020 2021 2020
Cash provided by (used in): Operating activities: Net earnings $ 7,764 $ 16,061 $ 20,451 $ 64,452 Adjustments for: Depreciation 6,7 8,516 8,014 26,594 11,907 Amortization of intangible assets 8 867 771 2,554 2,020 Share based compensation 12 522 157 1,582 206 Loss (gain) on disposal of property, plant and equipment 428 385 (117) (119) Bargain purchase gain — — — (34,128) Book value of used fleet transferred to inventory upon sale 6 707 277 4,359 375 Purchase of rental fleet 6 (2,099) (1,357) (4,356) (1,357) Earnings on equity investments (384) (353) (1,684) (288) Asset retirement obligation settled 11 (242) (951) (1,091) (1,216) Finance costs 1,224 2,051 3,880 3,094 Income tax expense 15 2,861 5,883 7,239 10,890 Changes in non-cash working capital 16 (13,782) (8,479) (10,834) (14,241) Income taxes paid 15 (4,563) (1,246) (8,694) (1,802)
Net cash flows from operating activities 1,819 21,213 39,883 39,793 Investing activities: Purchase of property, plant and equipment 6 (923) (1,877) (5,225) (3,061) Purchase of intangible assets 8 (151) (128) (1,579) (363) Equity investment — (1,335) (899) (2,152) Proceeds on sale of property, plant and equipment 21 1,684 330 4,368
Net cash flows used in investing activities (1,053) (1,656) (7,373) (1,208) Financing activities: Issuance of common shares 12 56 — 859 — Payments for lease liabilities (2,078) (2,035) (8,205) (2,904) Drawings (payments) on loans and borrowings 8,101 (15,420) (5,620) (34,605) Finance costs paid (1,814) (2,102) (4,200) (3,610) Dividends paid to non-controlling interest (147) — (715) (43) Dividends paid to shareholders 18 (4,884) — (14,629) —
Net cash flows used in financing activities (766) (19,557) (32,510) (41,162) Change in cash position — — — (2,577) Cash, beginning of period — — — 2,577
Cash, end of period $ —	$ — $ — $ —

The accompanying notes are an integral part of the condensed consolidated interim financial statements.

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Notes to the condensed consolidated interim financial statements (Unaudited) Three and nine months ended September 30, 2021 and 2020

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1. Reporting entity

Dexterra Group Inc. (“Dexterra Group” or the “Corporation”) is a corporation registered and domiciled in Canada and its common shares are listed on the Toronto Stock Exchange (“TSX”) under the symbol DXT. Dexterra Group is a diversified support services organization delivering quality solutions for the creation, management, and operation of infrastructure across Canada. Our Integrated Facilities Management (“IFM”) business delivers operation and maintenance solutions for built assets and infrastructure in the public and private sectors, including aviation, defence and security, retail, healthcare, education and government. Our Workforce Accommodations, Forestry and Energy Services (“WAFES”) business provides a full range of workforce accommodations solutions, forestry services and access solutions to clients in the energy, mining, forestry and construction sectors among others. Our Modular Solutions business integrates modern design concepts with off-site manufacturing processes to produce high-quality building solutions for rapid affordable housing, commercial, residential and industrial clients.

On May 29, 2020, Dexterra Group (previously Horizon North Logistics Inc. (“Horizon North”)) completed a transaction (the “Acquisition”) with 10647802 Canada Limited, operating as Dexterra Integrated Facilities Management (“Dexterra”), a subsidiary of Fairfax Financial Holdings Limited (TSX: FFH and FFH.U) (“Fairfax Financial”). Pursuant to the Acquisition, the Corporation acquired all of the outstanding common shares of Dexterra and in exchange issued 31,785,993 common shares of Dexterra Group to Dexterra’s sole shareholder, 9477179 Canada Inc., a wholly-owned subsidiary of Fairfax Financial. Accordingly, Fairfax Financial indirectly owns a 49% interest in the combined Corporation, while existing shareholders of the Corporation maintained a 51% interest. Prior to the Acquisition, Fairfax Financial had no ownership interest in Dexterra Group.

For accounting purposes, the Acquisition constituted a reverse acquisition that involved a change of control of Dexterra Group and a business combination of Horizon North and Dexterra, to form a new corporation that now carries on operations as Dexterra Group Inc. Based on the guidance in IFRS 3, Business Combinations (“IFRS 3”), it was determined that Horizon North was the accounting acquiree and Dexterra was the accounting acquirer, as Fairfax Financial, the sole shareholder of Dexterra, now controls the Corporation. As a result, the operations for Horizon North are included in the results from May 29, 2020 onwards and its assets and liabilities are valued at their fair value on the date of acquisition in accordance with IFRS 3 and a bargain purchase gain of $34.1 million was recorded on Acquisition.

On July 16, 2020, the Corporation completed a five-for-one share consolidation of all of its issued and outstanding common shares (the “Consolidation”). All share and per share data presented in the Corporation’s condensed consolidated interim financial statements, including share options outstanding, has been retroactively adjusted to reflect the Consolidation, unless otherwise noted.

2. Statement of compliance

These financial statements have been prepared in accordance with IAS 34, “Interim Financial Reporting” as issued by the International Accounting Standards Board (“IASB”) and using the accounting policies the Corporation adopted in its consolidated financial statements for the year ended December 31, 2020. The condensed consolidated interim financial statements do not include all of the information required for annual financial statements. These financial statements were approved by the board of directors of Dexterra Group on November 9, 2021.

3. Basis of Preparation

The basis of preparation, and accounting policies and methods of their application in these condensed consolidated interim financial statements, including comparatives, are consistent with those used in Dexterra Group’s audited annual consolidated financial statements for the year ended December 31, 2020, and should be read in conjunction with those annual consolidated financial statements. The Corporation's functional currency, and the preparation currency of the condensed consolidated interim financial statements is the Canadian dollar.

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Notes to the condensed consolidated interim financial statements (Unaudited) Three and nine months ended September 30, 2021 and 2020

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4. Trade and other receivables

4. Trade and other receivables
(000’s)		September 30, 2021	December	31, 2020(1)
Trade receivables	$	94,048	$	64,954
Modular receivables		23,696		11,867
Holdbacks receivables		8,228		5,071
Deferred trade receivables		11,082		6,114
Total trade and modular receivables	$	137,054	$	88,006
Accrued trade receivables		24,633		33,681
Accrued modular receivables		15,941		19,716
Other		9,286		9,853
Allowance for expected credit losses		(1,570)		(1,724)
Total	$	185,344	$	149,532

(1) Certain prior year amounts have been amended to conform to the current period's presentation.

Holdbacks receivables and deferred trade receivables of $19.3 million (December 31, 2020 - $11.2 million) represent amounts billed on contracts which are not due until the contract work is substantially complete and any lien period has expired. All holdbacks receivables and deferred trade receivables are expected to be collected within 12 months. Other receivable include amounts due from Gitxaala Horizon North Services LP of $8.7 million (December 31, 2020 - $9.3 million). Credit risks are further described in Note 20.

5. Inventories

5. Inventories
(000’s)		September 30, 2021		December 31, 2020
Raw materials	$	6,815	$	4,082
Work-in-progress		3,902		1,114
Finished goods and supplies		5,500		7,249
Inventories	$	16,217	$	12,445

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Notes to the condensed consolidated interim financial statements (Unaudited) Three and nine months ended September 30, 2021 and 2020

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6. Property, plant and equipment

6. Property, plant and equipment
		Camp			Automotive &
Carrying Amounts		equipment			trucking	Manufacturing &
(000’s)		& mats	Land & buildings		equipment	other	equipment		Total
Cost
December 31, 2020	$	148,449	$	27,684 $	17,458	$	8,167	$	201,758
Additions		1,052		1,928	1,067		1,178		5,225
Asset retirement obligations_(Note 11)_		979		—	—		—		979
Transferred from inventory		4,356		—	—		—		4,356
Transferred to inventory for sale		(4,727)		—	—		—		(4,727)
Transfer to Big Spring Lodging LP_(Note 9)_		(1,972)		—	—		—		(1,972)
Disposals		(239)		(1)	(564)		(46)		(850)
September 30, 2021	$	147,898	$	29,611 $	17,961	$	9,299	$	204,769
Accumulated Depreciation
December 31, 2020	$	9,551	$	1,205 $	3,910	$	3,045	$	17,711
Depreciation		11,329		1,002	4,807		1,527		18,665
Transferred to inventory for sale		(368)		—	—		—		(368)
Transferred to Big Spring Lodging LP_(Note 9)_		(124)		—	—		—		(124)
Disposals		(69)		—	(118)		(39)		(226)
September 30, 2021	$	20,319	$	2,207 $	8,599	$	4,533	$	35,658
Net book value
September 30, 2021	$	127,579	$	27,404 $	9,362	$	4,766	$	169,111
December 31, 2020	$	138,898	$	26,479 $	13,548	$	5,122	$	184,047

7. Leases

(i) Right-of-use assets

(i) Right-of-use assets
		Camp		Automotive &
		equipment		trucking	Manufacturing &
(000’s)		& mats Land & buildings		equipment	other	equipment		Total
Cost
December 31, 2020	$	5,593 $	20,385 $	1,640	$	445	$	28,063
Additions		2,217	11,487	1,078		75		14,857
Disposals		(769)	(5,673)	(326)		—		(6,768)
September 30, 2021	$	7,041 $	26,199 $	2,392	$	520	$	36,152
Accumulated Depreciation
December 31, 2020	$	2,133 $	3,093 $	621	$	164	$	6,011
Depreciation		2,558	4,694	533		144		7,929
Disposals		(1,040)	(576)	(197)		—		(1,813)
September 30, 2021	$	3,651 $	7,211 $	957	$	308	$	12,127
Net book value
September 30, 2021	$	3,390 $	18,988 $	1,435	$	212	$	24,025
December 31, 2020	$	3,460 $	17,292 $	1,019	$	281	$	22,052

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Notes to the condensed consolidated interim financial statements (Unaudited) Three and nine months ended September 30, 2021 and 2020

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Three and	nine months ended September 30, 2021 and 2020
(ii)	Lease liabilities
Maturity Analysis – contractual undiscounted cash flows			(000's)
Year 1		$	9,333
Year 2			5,972
Year 3			4,085
Year 4			3,317
Year 5 and beyond			8,582
Total undiscounted lease payable as at September 30, 2021		$	31,289
Lease liabilities	included in the statement of financial position at September 30, 2021	$	27,141
Current			6,881
Non-current			20,260

At September 30, 2021, the Corporation has not sub-leased any right-of-use assets, there were no restrictions or covenants imposed by leases of a material nature and there were no sale and leaseback transactions.

The amount of lease interest expense recognized during the three and nine months ended September 30, 2021 is $0.2 million (2020 - $0.3 million) and $0.8 million, respectively (2020 - $0.4 million).

8. Intangible assets

Intangible assets at the consolidated statement of financial position date are as follows:

					Customer	Computer software
(000’s)		Trade Names			Relationships	and other		Total
Cost
December 31, 2020	$	3,800		$	22,483 $	2,649	$	28,932
Additions		—			—	1,579		1,579
September 30, 2021	$	3,800		$	22,483 $	4,228	$	30,511
Accumulated Amortization
December 31, 2020	$	380		$	4,017 $	1,078	$	5,475
Amortization		488			1,325	741		2,554
September 30, 2021	$	868		$	5,342 $	1,819	$	8,029
Net book value
September 30, 2021	$	2,932		$	17,141 $	2,409	$	22,482
December 31, 2020	$	3,420		$	18,466 $	1,571	$	23,457

9. Other assets

On September 2, 2021, the Corporation signed a new limited partnership agreement with an existing Aboriginal partner to form Big Spring Lodging Limited Partnership (“BSL LP”). The Corporation owns 49% of the newly formed partnership. During the period, the Corporation contributed assets to the BSL LP with a carrying value of $1.8 million as a in-kind contribution to BSL LP. The Partnership is accounted for as a joint venture using the equity method.

Other assets at September 30, 2021 include equity accounted investments in Gitxaala Horizon North Services Limited Partnership (“Gitxaala”) and BSL LP, both joint ventures that are 49% owned by the Corporation with carrying value of $14.4 million (December 31, 2020 - $11.7 million) and $1.8 million (2020 - nil) respectively. In addition to the equity investments, the other assets include long-term lease receivables of $1.2 million (December 31, 2020 - $3.1 million).

10. Loans and borrowings

10. Loans and borrowings
(000’s)		September 30, 2021		December 31, 2020
Committed credit facility	$	80,791	$	86,411
Unamortized financing costs		(1,156)		(1,042)
Total borrowings	$	79,635	$	85,369

Effective September 7, 2021, the Corporation reached an agreement with its lenders to amend its credit facility and extend the maturity date to September 7, 2024. The amended credit facility has an available limit of $200 million plus an uncommitted accordion of $125 million and is secured by a $400 million first fixed and floating charge debenture over all assets of the Corporation and its wholly-owned subsidiaries. The interest rate for the credit facility is calculated on a grid pricing structure

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Notes to the condensed consolidated interim financial statements (Unaudited) Three and nine months ended September 30, 2021 and 2020

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based on the Corporation’s debt to EBITDA ratio. Amounts drawn on the credit facility incur interest at bank prime rate plus 0.50% to 1.75% or the Bankers’ Acceptance rate plus 1.50% to 2.75%. The credit facility has a standby fee ranging from 0.30% to 0.55% per annum.

As at September 30, 2021, the Corporation was in compliance with all financial and non-financial covenants related to the credit facility and available borrowing capacity was $107.7 million (September 2020 - $58.6 million), after adjusting for $11.5 million (September 30, 2020 - $6.8 million) in letters of credit outstanding at September 30, 2021.

11. Asset retirement obligations

Provisions include constructive site restoration obligations for company owned camp projects to restore lands to previous condition when camp facilities are dismantled and removed.

(000’s)		September 30, 2021		December 31, 2020
Balance, beginning of period	$	11,629	$	—
Acquisition		—		11,100
Additions		—		1,419
Asset retirement obligations settled		(1,091)		(1,360)
Change in estimate		979		448
Accretion of provisions		20		22
Balance, end of period	$	11,537	$	11,629

The estimated present value of rehabilitating the sites at the end of their useful lives has been estimated using existing technology, adjusted for inflation and discounted using a risk-free rate. The future value amount of $11.7 million at September 30, 2021 (December 31, 2020 - $11.8 million) was determined using a risk free interest rate of 0.63% and an inflation rate of 0.30%. The timing of these payments is dependent on various factors, such as the estimated lives of the equipment and industry activity in the region but is anticipated to occur up to 2028.

equipment and industry activity in the region but is anticipated to occur up to 2028.
(000’s)		September 30, 2021		December 31, 2020
Current	$	4,704	$	5,102
Non-current		6,833		6,527
Balance, end of period	$	11,537	$	11,629

12. Share capital

(a) Authorized and issued

The Corporation is authorized to issue an unlimited number of voting common shares without nominal or par value and an unlimited number of preferred shares issuable in series, of which no preferred shares are outstanding. The number of common shares and share capital are presented in the table below:

shares and share capital are presented in the table below:
	Total number of
(In 000's, other than number of shares)	shares		Total share capital
Balance, December 31, 2020	64,869,417	$	232,348
Options exercised	281,666		1,193
Balance, September 30, 2021	65,151,083	$	233,541

• (b) Long-term incentive plans

• (i) Share option plan

(i) Share option plan
			Weighted average
	Outstanding options		exercise price
Balance, December 31, 2020	990,000	$	3.22
Granted	527,272		6.49
Exercised	(281,666)		3.05
Forfeited	(35,466)		4.55
Balance, September 30, 2021	1,200,140	$	4.66

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Notes to the condensed consolidated interim financial statements (Unaudited) Three and nine months ended September 30, 2021 and 2020

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The exercise prices for options outstanding and exercisable at September 30, 2021 are as follows:

			Total options outstanding	Total options outstanding		Exercisable options
				Weighted average
			Weighted average	remaining		Weighted average
			exercise price per	contractual life in		exercise price per
Exercise price per share	Number		share	years	Number	share
$3.05	638,334	$	3.05	3.7	165,008 $	3.05
$6.21 to $6.53	561,806		6.48	4.3	—	—
	1,200,140	$	4.66	3.9	165,008 $	3.05

The Corporation calculated the fair value of the share options granted using the Black-Scholes pricing model to estimate the fair value of the share options issued at the date of grant. The weighted average fair value of all options granted during the period and the assumptions used in their determination are as follows:

and the assumptions used in their determination are as follows:
Fair value per option	$	2.08
Forfeiture rate		10.00 %
Grant price	$	6.49
Expected life		3.0 years
Risk free interest rate		0.25 %
Dividend yield rate		4.62 %
Volatility		62.92 %

Expected volatility is estimated by considering historic average share price volatility. For the three and nine months ended September 30, 2021, share based compensation for share options included in net earnings amounted to $0.3 million (2020 - $0.2 million) and $0.9 million (2020 - $0.2 million), respectively.

(ii) Restricted Share Units (“RSU”) and Performance Share Units (“PSU”) incentive award plan

(a) RSUs

The Corporation has a RSU Plan whereby RSUs may be granted, subject to certain terms and conditions.

Under the terms of the RSU Plan, the awarded units vest in three equal portions on the first, second and third anniversary from the grant date, and will be settled in cash in the amount equal to the fair market value of the Corporation's share price on that date. The RSUs have been issued to directors of the Corporation.

The following table summarizes the RSU’s outstanding:

The following table summarizes the RSU’s outstanding:
	Number
Units outstanding at December 31, 2020	—
Granted	28,970
Units outstanding at September 30, 2021	28,970

(b) PSUs

The Corporation has a PSU Plan whereby PSUs may be granted, subject to certain terms and conditions.

Under the terms of the PSU Plan, the awarded units vest on the third anniversary of the grant date according to the vesting criteria, and the vested units will be settled in cash in the amount equal to the fair market value of the Corporation's share price on that date. The vesting criteria is fixed by the Board of Directors. Performance Criteria set by the Board at the time of the grant of PSUs, may include i) total shareholder return, including dividends; ii) the participant’s satisfactory individual performance; and (iii) any other terms and conditions the Board may in its discretion determine with respect to vesting. The PSUs have been issued to the Corporation’s officers and key employees and will be settled in cash upon vesting, if the performance criteria are met.

The following table summarizes the PSU’s outstanding:

The following table summarizes the PSU’s outstanding:
	Number
Units outstanding at December 31, 2020	—
Granted	301,454
Forfeited	(9,692)
Units outstanding at September 30, 2021	291,762

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Notes to the condensed consolidated interim financial statements (Unaudited) Three and nine months ended September 30, 2021 and 2020

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As at September 30, 2021, $0.7 million (2020 - nil) was included in accounts payable and accrued liabilities for outstanding RSUs and PSUs. For the three and nine months ended September 30, 2021, share based compensation for RSUs included in net earnings amount to $0.05 million and $0.2 million, respectively (2020 - nil). Share based compensation for PSUs included in net earnings amounted to $0.2 million and $0.5 million, respectively (2020 - nil).

13. Direct costs

		Three months ended September 30,	Three months ended September 30,	Three months ended September 30,		Nine months ended September 30,	Nine months ended September 30,	Nine months ended September 30,
(000's)		2021		2020		2021		2020
Cost of goods manufactured - materials and direct labour	$	38,970	$	20,402	$	88,634	$	26,592
Wages and benefits		68,887		56,260		172,348		109,166
Subcontracting		26,841		21,601		71,990		40,228
Product cost		17,158		19,310		55,967		32,053
Equipment and repairs		2,812		2,462		7,482		5,102
Transportation		4,362		3,579		8,597		5,124
Partnership profit sharing		461		226		1,528		226
Workforce accommodations operating costs		3,997		3,673		12,452		4,673
Other operating expense		9,050		8,620		26,990		16,334
	$	172,538	$	136,133	$	445,988	$	239,498

Included in wages and benefits is the impact of the Canada Emergency Wage Subsidy (“CEWS”), which reduced wages and benefits by nil (2020 - $9.1 million) and $8.9 million (2020 - $27.5 million) for the three and nine months ended September 30, 2021, respectively.

14. Selling, general and administrative expenses

		Three months ended	Three months ended	September 30,		Nine months ended September 30,	Nine months ended September 30,	Nine months ended September 30,
(000's)		2021		2020		2021		2020
Wages and benefits	$	4,575	$	5,358	$	14,690	$	12,971
Other selling and administrative expenses		3,849		2,458		10,615		2,894
	$	8,424	$	7,816	$	25,305	$	15,865

Included in wages and benefits is the impact of CEWS, which reduced wages and benefits by nil (2020 - $0.4 million) and $0.2 million (2020 - $1.2 million) for the three and nine months ended September 30, 2021 respectively.

15. Income taxes

For the three and nine months ended September 30, 2021, the Corporation's effective income tax rate was 26.9% and 26.1%, respectively, compared to 26.8% and 14.5% in 2020. The effective tax rate for the three and nine months ended September 30, 2021 is consistent with the combined federal and provincial income tax rate after taking the tax benefit of non-capital loss carry forwards of $1.1 million recorded in Q1 2021 into account and an adjustment upon filing of the 2020 tax returns.

The Corporation has non-capital losses for Canadian tax purposes of $70.8 million at September 30, 2021 (December 31, 2020 - $77.1 million) available to reduce future taxable income in Canada, and non-capital losses for United States tax purposes of $0.8 million available to reduce future taxable income in the United States. The Corporation expects to fully utilize these losses before their expiry except as noted below.

Deferred tax assets of $0.6 million have not been recognized in respect of $2.4 million of tax losses as it is not probable that future taxable profit will be generated against which a subsidiary of the Corporation can utilize the benefits.

The Corporation paid $4.6 million (2020 - $1.2 million) and $8.7 million (2020 - $1.8 million) in income taxes for the three and nine months ended September 30, 2021 respectively. $3.3 million of this amount related to amounts owing for the year ended December 31, 2020 and $5.4 million was paid for 2021 tax installments.

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Notes to the condensed consolidated interim financial statements (Unaudited) Three and nine months ended September 30, 2021 and 2020

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The current and deferred tax expense breakdown is as follows:

		Three months ended September 30,	Three months ended September 30,			Nine months ended September 30,	Nine months ended September 30,	Nine months ended September 30,
Income tax expense (000's):		2021		2020		2021		2020
Current	$	2,494	$	3,303	$	5,335	$	8,125
Deferred		367		2,580		1,904		2,765
	$	2,861	$	5,883	$	7,239	$	10,890

16. Cash flow information

The details of the changes in non-cash working capital are as follows:

		Three months ended September 30,	Three months ended September 30,	Nine months ended September 30,	Nine months ended September 30,
(000's)		2021	2020	2021	2020
Trade and other receivables	$	(21,189)	(4,896) $	(35,812) $	(2,214)
Inventories		(1,592)	391	(3,772)	(524)
Prepaid expenses and other		1,300	131	1,684	2,678
Trade and other payables		9,017	(4,450)	27,195	(12,371)
Deferred revenue		(1,318)	345	(129)	(1,810)
	$	(13,782) $	(8,479) $	(10,834) $	(14,241)

17. Net earnings per share

A summary of the common shares used in calculating earnings per share is as follows:

	Three months ended September 30,	Three months ended September 30,	Nine months ended September 30,	Nine months ended September 30,
	2021	2020	2021	2020
Number of common shares, beginning of period	65,132,750	64,869,417	64,869,417	31,785,993
Common shares issued, weighted average	12,391	—	179,286	—
Effect of reverse Acquisition of Horizon North	—	—	—	14,972,041
Weighted average common shares outstanding - basic	65,145,141	64,869,417	65,048,703	46,758,034
Effect of share purchase options(1)	330,737	26,423	325,779	—
Weighted average common shares outstanding - diluted	65,475,878	64,895,840	65,374,482	46,758,034

(1) The Corporation utilizes the treasury stock method for calculating the dilutive effect of share purchase options when the average market price of the Corporation’s common stock during the period exceeds the exercise price of the option.

18. Dividends

A dividend of $0.0875 per share was declared for the quarter ended September 30, 2021 and has been accrued in trade and other payables as at September 30, 2021. The dividend is payable to shareholders of record at the close of business on September 30, 2021 and was paid on October 15, 2021.

(000's except per share amounts)		2021	2021			2020	2020
		Amount per share	Total dividend amount			Amount per share	Total dividend amount
March 31	$	0.075	$	4,880	$	—	$	—
June 30		0.075		4,884		—		—
September 30		0.0875		5,702		0.075		4,865
December 31		—		—		0.075		4,865
Total dividend	$	0.2375	$	15,466	$	0.15	$	9,730

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Notes to the condensed consolidated interim financial statements (Unaudited) Three and nine months ended September 30, 2021 and 2020

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19. Reportable segment information

The Corporation operates through three operating segments: IFM, WAFES and Modular Solutions as described in Note 1. Information regarding the results of all segments is included below. Inter-segment pricing is determined on an arm’s length basis.

					Modular		Inter-segment	Inter-segment
Three months ended September 30, 2021 (000's)		IFM		WAFES	Solutions	Corporate		Eliminations	Total
Revenue	$	39,073	$	118,680 $	45,055 $	—	$	(48) $	202,760
Operating expenses
Direct costs(2)		34,725		96,807	41,050	—		(44)	172,538
Selling, general and administrative expenses(2)		1,215		1,547	1,224	4,438		—	8,424
Depreciation and amortization		850		6,629	1,411	493		—	9,383
Share based compensation		41		95	61	325		—	522
Loss on disposal of property, plant and equipment		—		424	4	—		—	428
Operating income (loss)(2)		2,242		13,178	1,305	(5,256)		(4)	11,465
Finance costs		22		141	200	861		—	1,224
Earnings from equity investments		—		(384)	—	—		—	(384)
Earnings (loss) before income taxes	$	2,220	$	13,421 $	1,105 $	(6,117)	$	(4) $	10,625
Total assets	$	109,050	$	333,828 $	93,501 $	5,418	$	(1,320) $	540,477
					Modular		Inter-segment
Three months ended September 30, 2020 (000's)		IFM		WAFES	Solutions	Corporate		Eliminations	Total
Revenue	$	35,696	$	103,160 $	39,511 $	—	$	(1,449) $	176,918
Operating expenses
Direct costs(2)		28,988		74,164	34,303	—		(1,322)	136,133
Selling, general and administrative expenses(2)		1,109		938	1,273	4,496		—	7,816
Depreciation and amortization		763		6,704	970	348		—	8,785
Share based compensation		5		23	8	121		—	157
Loss on disposal of property, plant and equipment		—		385	—	—		—	385
Operating income (loss)(2)		4,831		20,946	2,957	(4,965)		(127)	23,642
Finance costs		—		108	404	1,539		—	2,051
Earnings from equity investment		—		(353)	—	—		—	(353)
Earnings (loss) before income taxes	$	4,831	$	21,191 $	2,553 $	(6,504)	$	(127) $	21,944
Total assets(1)	$	112,514	$	339,916 $	88,432 $	7,558	$	(1,163) $	547,257
					Modular		Inter-segment
Nine months ended September 30, 2021 (000's)		IFM		WAFES	Solutions	Corporate		Eliminations	Total
Revenue	$	115,880	$	281,874 $	135,228 $	—	$	(1,190) $	531,792
Operating expenses
Direct costs(2)		100,525		225,912	120,633	—		(1,082)	445,988
Selling, general and administrative expenses(2)		4,581		4,316	4,196	12,212		—	25,305
Depreciation and amortization		2,494		21,195	3,910	1,549		—	29,148
Share based compensation		106		256	156	1,064		—	1,582
Gain on disposal of property, plant and equipment		—		(12)	(102)	(3)		—	(117)
Operating income (loss)(2)		8,174		30,207	6,435	(14,822)		(108)	29,886
Finance costs		22		322	750	2,786		—	3,880
Earnings from equity investments		—		(1,684)	—	—		—	(1,684)
Earnings (loss) before income taxes	$	8,152	$	31,569 $	5,685 $	(17,608)	$	(108) $	27,690
Total assets	$	109,050	$	333,828 $	93,501 $	5,418	$	(1,320) $	540,477

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Notes to the condensed consolidated interim financial statements (Unaudited) Three and nine months ended September 30, 2021 and 2020

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				Modular		Inter-segment	Inter-segment
Nine months ended September 30, 2020 (000's)		IFM	WAFES	Solutions	Corporate		Eliminations	Total
Revenue	$	108,706 $	156,456 $	50,555 $	—	$	(2,320) $	313,397
Operating expenses
Direct costs(2)		86,949	112,082	42,592	—		(2,125)	239,498
Selling, general and administrative expenses(2)		3,021	1,963	1,703	9,178		—	15,865
Depreciation and amortization		2,339	9,510	1,398	680		—	13,927
Share based compensation		6	30	12	158		—	206
(Gain) loss on disposal of property, plant and equipment		(4)	(155)	40	—		—	(119)
Operating income (loss)(2)		16,395	33,026	4,810	(10,016)		(195)	44,020
Finance costs		—	143	475	2,476		—	3,094
Earnings from equity investment		—	(288)	—	—		—	(288)
Bargain purchase gain		—	—	—	(34,128)		—	(34,128)
Earnings (loss) before income taxes	$	16,395 $	33,171 $	4,335 $	21,636	$	(195) $	75,342
Total assets(1)	$	112,514 $	339,916 $	88,432 $	7,558	$	(1,163) $	547,257

(1) Certain prior year amounts have been amended to conform to the current period's presentation.

(2) Includes CEWS of nil and $9.1 million for the three and nine months ended September 30, 2021, respectively: IFM - $1.7 million, WAFES -$6.6 million, Modular Solutions -$0.6 million, Corporate - $0.2 million. CEWS of $9.5 million and $28.7 million for the three and nine months ended September 30, 2020, respectively: IFM - $3.5 million ($12.7 million), WAFES - $4.2 million ($11.9 million), Modular Solutions -$1.4 million ($2.9 million), Corporate - $0.4 million ($1.2 million).

20. Financial risk management

Overview

The Corporation is exposed to a number of different financial risks arising from the normal course of business operations as well as through the Corporation’s financial instruments comprised of cash and cash equivalents, trade and other receivables, trade and other payables, and loans and borrowings. These risk factors include credit risk, liquidity risk, and market risk, including interest rate risk.

The Corporation’s risk management practices include identifying, analyzing and monitoring the risks faced by the Corporation. The annual consolidated financial statements for the year ended December 31, 2020 present information about the Corporation’s exposure to each of the business and financial risks and the Corporation’s objectives, policies and processes for measuring and managing risk.

COVID-19 Pandemic

The rapid spread of the COVID-19 virus, which was declared by the World Health Organization to be a pandemic on March 11, 2020, and actions taken globally in response to COVID-19, have significantly disrupted business activities throughout the world. The Corporation's business relies, to a certain extent, on free movement of goods, services, and capital within Canada, which has been significantly restricted as a result of the COVID-19 pandemic. Given the ongoing and dynamic nature of the circumstances surrounding COVID-19, it is difficult to predict how significant the impact of COVID-19, including any responses to it, will be on the economy and the Corporation’s business in particular, or for how long any disruptions are likely to continue. The extent of such impact will depend on future developments, which are highly uncertain, rapidly evolving and difficult to predict, including additional actions which may be taken to contain COVID-19, as well as the timing of the complete re-opening of the economy in Canada. Such further developments could have a material adverse effect on the Corporation's business, financial condition, results of operations and cash flows.

Management has continued to invest in resources for the future as it believes the COVID-19 pandemic will have a lessening impact on the business in the fourth quarter of 2021 and into 2022. The Corporation continues to monitor the recoverability of trade receivables and the impact of current and expected future credit losses, and the recoverability of non-financial assets. There was no significant impact to expected future credit losses due to COVID-19 at September 30, 2021. Further developments related to the economy in Canada from COVID-19, which are unforeseen as at September 30, 2021, could have an adverse effect on the recoverability of trade receivables and the expected credit loss provision. No indicators of impairment were identified for non-financial assets for the period ended September 30, 2021. The ultimate impact of COVID-19 on the Corporation's liquidity and future cash flows may not be fully known for an extended period of time.

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Notes to the condensed consolidated interim financial statements (Unaudited) Three and nine months ended September 30, 2021 and 2020

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Credit risk

The following shows the aged balances of trade and other receivables:

The following shows the aged balances of trade and other receivables:
(000's)		September 30, 2021		December 31, 2020
Trade receivables
Neither impaired nor past due	$	92,063	$	58,974
Outstanding 31-60 days		7,816		7,798
Outstanding 61-90 days		3,330		1,152
Outstanding more than 90 days		1,921		3,144
Total trade receivables		105,130		71,068
Modular receivables
Neither impaired nor past due		25,396		11,396
Outstanding 31-60 days		2,486		3,527
Outstanding 61-90 days		2,599		1,309
Outstanding more than 90 days		1,443		706
Total modular receivables		31,924		16,938
Accrued receivables		24,633		33,681
Accrued modular receivables		15,941		19,716
Other receivables		9,286		9,853
Provision for expected credit losses		(1,570)		(1,724)
Total trade and other receivables	$	185,344	$	149,532

As at September 30, 2021, the Corporation provided for expected credit losses in the amount of $1.6 million. The provision for expected credit losses is based on an expected credit losses matrix and fluctuates based on the aging of balances in receivables.

Liquidity risk

The following shows the timing of cash outflows relating to trade and other payables, lease liabilities and loans and borrowings:

					September 30, 2021	September 30, 2021				December 31, 2020	December 31, 2020
		Trade and				Loans and		Trade and			Loans and
(000's)		other payables(1)		Lease liabilities(2)		borrowings(3)		other payables(1)	Lease liabilities(2)		borrowings(3)
Year 1	$	111,905	$	9,333	$	—	$	81,815 $	8,394	$	—
Year 2		767		5,972		—		767	5,474		86,411
Year 3		—		4,085		80,791		—	3,888		—
Year 4		—		3,317		—		—	2,600		—
Year 5 and beyond		681		8,582		—		681	10,041		—
	$	113,353	$	31,289	$	80,791	$	83,263 $	30,397	$	86,411

(1) Trade and other payables include trade and other payables and contingent consideration.

(2) Lease liabilities include total undiscounted lease payments.

(3) Loans and borrowings include Dexterra Group's senior secured revolving term credit facility. The timing and amount of interest payments will fluctuate depending on balances outstanding and applicable interest rates.

Market risk

Market risk is the risk or uncertainty arising from possible market price movements and their impact on future performance of the Corporation. The market price movements that could adversely affect the value of the Corporation’s financial assets, liabilities and expected future cash flows include foreign currency exchange risk and interest rate risk. As the Corporation’s exposure to foreign currency exchange risk and interest rate risk is limited, the Corporation does not currently hedge its financial instruments.

• i. Foreign currency exchange risk

The Corporation has limited exposure to foreign currency exchange risk as sales and purchases are typically denominated in CAD. The Corporation’s nominal exposure to foreign currency exchange risk arises from the purchase of some raw materials, which are denominated in USD, and foreign operations with USD functional currency.

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Notes to the condensed consolidated interim financial statements (Unaudited) Three and nine months ended September 30, 2021 and 2020

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• ii. Interest rate risk

The Corporation is exposed to interest rate risk as changes in interest rates may affect interest expense and future cash flows. The primary exposure is related to the Corporation’s revolving credit facility which bears interest at a rate of prime plus 0.50% to 1.75% or the Bankers’ Acceptance rate plus 1.50% to 2.75% per annum. If prime were to have increased by 1.00%, it is estimated that the Corporation’s net earnings would have decreased by approximately $0.2 million for the three months ended September 30, 2021 (September 30, 2020 - $0.3 million). This assumes that the amount and mix of fixed and floating rate debt in the period remains unchanged and that the change in interest rates is effective from the beginning of the period.

21. Related parties

As at September 30, 2021 Dexterra Group has performance and labour bonds outstanding with Northbridge General Insurance Corporation (“Northbridge”), a company with the same controlling shareholder as Dexterra Group, totaling $44.0 million. No fees for these bonds were incurred for the nine months ended September 30, 2021 (2020 - $0.4 million).

Also, Dexterra Group has certain property insurance policies with Northbridge. This insurance coverage started on September 29, 2021 and the premiums paid were $0.3 million for coverage through the subsequent 12 month period.

22. Other revenue

Other revenue comprises amounts awarded to the Corporation through legal proceedings with two former customers.

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