Badger Daylighting Ltd. Announces Results for the Nine Months Ended September 30, 2016

About this update from Badger Infrastructure Solutions Ltd

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Announces Results for the Nine Months Ended September 30, 2016 Calgary, Alberta (FSCwire) - Badger Daylighting Ltd (the “Company” or “Badger”) is pleased to announce its results for the nine months ended September 30 th , 2016.   FINANCIAL HIGHLIGHTS ($ thousands, except per share and total shares outstanding information)   Three months ended September 30, Nine months ended September 30,    2016 2015 2016 2015 Revenue           Hydrovac service revenue 103,790 102,623 266,986 274,138   Other service revenue 9,375 8,682 26,095 29,061   Truck placement revenue 2 126 225 357 Total revenue 113,167 111,431 293,306 303,556 Adjusted EBITDA 33,517 33,743 76,330 81,563 Profit before tax 18,022 23,291 32,927 24,948 Net profit 11,944 17,090 21,563 18,002 Profit per share – diluted ($) 0.32 0.46 0.58 0.49 Cash flow from operating activities before working capital      adjustments 20,465 20,857 54,354 67,665 Cash flow from operating activities before working capital      adjustments per share – diluted ($) 0.55 0.56 1.47 1.82 Dividends declared 3,673 3,346 10,574 10,015 Total shares outstanding (end of period) 37,100,681 37,100,681 37,100,681 37,100,681   OVERVIEW   Highlights for the three months ended September 30, 2016:   Revenue increased by 1.6 percent to $113.2 million in the third quarter of 2016 from $111.4 million for the same quarter in 2015 as growth in non-oil and gas end use customer segments exceeded lower opportunity in oil and gas end use customer segments.   Adjusted EBITDA was $33.5 million in the third quarter of 2016 versus $33.7 million in the third quarter of 2015. Adjusted EBITDA margins were 29.6 percent in the third quarter of 2016 versus 30.3 percent in the comparable period of the prior year.   Cash flow from operations was $15.0 million in the third quarter of 2016 versus $20.7 million in the third quarter of 2015.  Excluding differences in non-cash working capital, cash flow from operations was $20.5 million in the third quarter which was comparable to the cash flow from operations of $20.9 million in the same period of 2015.  The change in non-cash working capital during Q3 2016 is the net result of increases in current taxes payable and a seasonal increase in accounts receivable offset by increases in accounts payable, accrued liabilities and share-based compensation expense.   Badger had 1,028 daylighting units as of September 30, 2016, reflecting an addition of 45 units in the first nine months of 2016 and the retirement of 35 units in that same period.  Of the 1,028 units, 675 were operating in the US and 353 were operating in Canada.  The new units were financed from cash generated from operations.   MANAGEMENT COMMENTS   In the 2016 first quarter Outlook section it was stated that “Badger does not expect much improvement in financial results until the second half of the year”.  So far during 2016 quarterly results have been sequentially better, and Q3 2016 consolidated results are approximately even with Q3 2015. The Company continued to reposition units to markets with the best growth opportunities during the quarter. Badger focuses on activities critical for long term success.   The third quarter of 2016 saw a continuation of recent trends in hydrovac markets and in Badger’s business.   1.     For both the current quarter and year-to-date period the US is producing two-thirds of Badger’s revenue.   2.    The non-oil and gas markets continue to grow in the US and the Company sees improved revenue in Canadian non-oil and gas markets driven by operational improvements in its eastern Canadian operations. Badger services a wide range of infrastructure end-use market segments including general construction, oil and gas, transportation, utility, communication and industrial activities. The relative mix of each varies by geographic region.   3.    The oil and gas markets continue to be weak on both sides of the border. In the US, Badger has been right-sizing its fleet by reallocating hydrovacs to non-oil and gas areas.  In Canada, the winter freeze is approaching and should spur what oil and gas work there is in the northern areas. Badger will aggressively pursue project work.   4.    Badger Q3 2016 Revenue per Truck (RPT) of $28,062 was consistent with Q3 2015 RPT and reflected seasonal improvement. Sequential quarterly improvement in RPT has continued since a very challenging Q1 2016. Since Q3 2015, Badger has repositioned 211 units within its operations to support organic growth opportunities and improve overall fleet utilization. This successful repositioning of units reflects the flexibility of Badger’s business model and the advantages of scale, geographic diversification and end use market diversification versus smaller competitors. The Company believes that unit repositioning is complete for Canada and largely complete in the US. Q3 2016 RPT improved versus Q3 2015 in Western Canada, Eastern Canada and the Western US, and was lower in the US East due simply to the number of growth units added to that region. The Company continues to monitor RPT, utilization and anticipated demand for replacement and new Badger units in planning the hydrovac build rate, which continued in the range of 3-6 units per month during Q3 2016.   5.    In Q3 2016, 20 Hydrovac trucks were added to the fleet and 11 were retired. The trucks added during Q3 2016 included chassis replacement for the 16 hydrovacs that were taken out of the fleet in Q1 2016 due to unreliable engines. These 16 units are not included in the Q3 2016 build rate of 3-6 units per month. The Company continues to expect to retire 40-50 hydrovac units in 2016 and has retired 35 units so far in the year.   6.    Q3 2016 Adjusted EBITDA margin of 29.6 percent was slightly below the same period in 2015 at 30.3 percent. Adjusted EBITDA margin from Q3 2015 to Q3 2016 was higher in Canada [24.4% to 26.2%] and was lower in the U.S [from 33.5% to 31.3%].  Consolidated Adjusted EBITDA margin continued above Badger’s 28% target in Q3 2016.   7.    Badger continues to strengthen its balance sheet. On September 30, 2016 the Company had total debt less cash of $52.3 million, zero drawn on its $125 million syndicated revolving credit facility and total debt less cash and cash equivalents to Adjusted EBITDA of 0.51. Badger considers continued organic growth building and operating new Badger units to be an excellent shareholder investment, and plans to push continued organic growth.   OUTLOOK   Badger expects a general continuation of current trends in regional infrastructure market opportunity for the remainder of 2016 versus prior years. Historically Q4 has seen a seasonal slowdown from Q3 as construction slows due to an onset of winter weather in northern markets. However, as Badger continues to grow in the U.S., the Company expects that the winter seasonal effect will lessen over time. Badger’s continued organic growth has also expanded the Company’s participation in non-oil and gas infrastructure market segments. The Company expects that the mix of non-oil and gas end use market segments to increase from the estimated 62 percent of revenue that existed in the full year 2015. Badger continues to manage for the long term and continues to push growth across its service network. The Company believes that its business model includes significant scale advantages and excellent long term opportunity.   Results of Operations R evenues Third quarter revenues of $113.2 million were 1.6 percent higher than the $111.4 million generated during the comparable period in 2015 ($293.3 million for the nine months ended September 30, 2016 as compared to $303.6 million in the same period of 2015). The increase in the third quarter of 2016 over the same quarter of the prior year is attributable to the following:   Canadian revenue increased by 0.6 percent.  Canada revenue growth in the quarter reflects meaningful improvement in Eastern Canada revenue which was partially offset by modest incremental weakness experienced in Western Canada.    United States revenue in US dollars increased by 1.2 percent from $56.5 million in the third quarter of 2015 to $57.2 million in the third quarter of 2016. U.S. non-oil and gas markets continue to grow, and were partially offset by lower demand in oil and gas markets. The third quarter of 2016 is the first in over two years where the exchange rate has not been a benefit versus prior period.   Badger’s average revenue per truck per month during the third quarter of 2016 was $28,062 versus $28,106 for the third quarter of 2015. Revenue per truck is a mixed currency measure, for more information see the definition of this measure under the Non-IFRS Financial Measures section.   Direct Costs Direct costs for the quarter ended September 30, 2016 were $76.5 million as compared to direct costs of $74.2 million in the third quarter of 2015.  Direct costs as a percent of revenue increased from 66.6 percent in the third quarter of 2015 to 67.6 percent in the third quarter of 2016 (direct costs were 70.2 percent of revenue for the nine months ended September 30, 2016 and 69.5 percent for the same period of 2015).   The increase in direct costs as a percentage of revenue in the third quarter of 2016 as compared to the third quarter of 2015 is the result of higher repair and maintenance expense and vacation expense in the US, which was partially offset by reduced liability insurance premiums and lower fuel costs. A portion of higher repair and maintenance occurs as vehicles are repositioned between locations and the opportunity is taken to perform preventative maintenance.    Direct costs in Canada as a percentage of revenue decreased due to ongoing cost management in Western Canada, and in particular at Fieldtek, offsetting higher repair and maintenance costs.   It was noted in the Q1 2016 MDA that bad debt expense returned to normal levels of 0.4 percent of revenue ($0.4 million in the first quarter of 2016).  Bad debt expense was $0.9 million in the third quarter of 2016 ($0.9 million in the third quarter of 2015) largely due to the assessment of specific US-based accounts.  Bad debt expense for the year to date period in 2016 is $1.4 million, as compared to $2.2 million in the same period of 2015 and continues to track within the long-term average of less than one-half a percent of revenue.    Gross Profit The gross profit margin was 32.4 percent for the third quarter of 2016, down from 33.4 percent for the third quarter of 2015 (29.8 percent for the nine months ended September 30, 2016 and 30.5 percent in the same period of 2015). Canada had a gross profit margin of 29.5 percent in the third quarter of 2016 compared to 28.3 percent in the third quarter of 2015.  United States gross profit margin was 33.9 percent in the third quarter of 2016 compared to 36.2 percent in the third quarter of 2015.   Depreciation of Property, Plant and Equipment Depreciation of property, plant and equipment was $10.6 million for the third quarter of 2016, as compared to $10.8 million in the third quarter of 2015 ($32.5 million for the nine months ended September 30, 2016 and $31.4 million for the same period of 2015).  Depreciation was comparable between periods given a net add of 8 units to the fleet.   General and Administrative Expenses General and administrative expenses decreased from $3.5 million in the third quarter of 2015 to $3.2 million in the third quarter of 2016 largely due to a reduction in the liability for health benefits in the US.  General and administrative expenses were $11.0 million for the nine months ended September 30, 2016 and $10.9 million for the same period in 2015.  As a percentage of revenues, general and administrative expenses were 2.8 percent in the third quarter of 2016 as compared to 3.1 percent in the third quarter of 2015.  For the current year to date period, general and administrative expenses were 3.7 percent of revenue as compared to 3.6 percent in the prior year.  Badger’s target for general and administrative expenses is 4 percent or less of revenue.   Share-based Compensation Share-based compensation increased from a recovery of $1.9 million in the third quarter of 2015 to an expense of $3.5 million in the third quarter of 2016.  The increase in the share-based compensation was largely the result of a 28 percent appreciation in Badger’s share price between June 30, 2016 and September 30, 2016, as compared to a 28 percent decline in the comparable period in 2015.  In addition, performance share units (PSUs) were granted in the third quarter of 2016 related to the CEO transition.   Loss (Gain) on Sale of Property, Plant and Equipment A loss on disposal of property, plant and equipment for the nine months ended September 30, 2016 of $2.4 million was largely the result of disposing sixteen truck chassis with a particular engine that has proven to be unreliable.  The loss on these sixteen vehicles was recognized in the first quarter of 2016.  Badger has no more units in the fleet with this particular engine.    Finance Cost Finance cost was $1.3 million for the third quarter of 2016 compared to $1.3 million for the same quarter in 2015.  Finance costs were comparable between these periods as the syndicated revolving credit facility balance was eliminated early in the third quarter of 2015, and the only long-term debt that was outstanding was the senior secured notes.   Income Taxes The effective tax rate for the nine months ended September 30, 2016 increased to 34.5 percent.  The effective tax rate for the full fiscal year 2015 was 6.7 percent, however that included the recognition of a transfer pricing benefit relating to prior years.  Excluding the transfer pricing benefit, the effective tax rate for the full fiscal year 2015 would have been 28.8 percent.  The increased effective tax rate results from the growth in taxable income to the US relative to Canadian taxable income.   Net Profit Net profit for the third quarter decreased from $17.1 million in 2015 to $11.9 million in 2016.  An increase in share-based compensation and an increase in the effective tax rate were the two largest causes in the reduction.   Other Comprehensive Income Total other comprehensive income, which includes the effect of translating US operations and the offsetting translation of US dollar denominated senior secured notes that are designated as a hedge of the US operations resulted in net other comprehensive income of $1.1 million compared to a net other comprehensive income of $7.2 million in the third quarter of 2015.  Other comprehensive income results from the effect of a strengthening USD and the translation of US operations, offset in part by the net investment hedge.   Liquidity and Dividends Cash flow from operations was $15.0 million for the quarter ended September 30, 2016, compared to $20.7 million for the comparable period in 2015.  The decrease in cash flow is largely the result of increased working capital requirements in the third quarter of 2016 as compared to the same period in 2015, as cash flow before working capital adjustments was relatively comparable between periods with $20.9 million in the third quarter of 2015 versus $20.5 million in the third quarter of 2016.   The Company uses its cash to pay dividends to shareholders, to build additional hydrovac units, to invest in maintenance capital expenditures and to repay long-term debt.   The Company had working capital of $108.0 million at September 30, 2016 compared to $83.7 million at December 31, 2015.    The following table outlines the cash available to fund growth and pay dividends to shareholders for the three months ended September 30, 2016:   Three months ended September 30, Nine months ended September 30,    2016 2015 2016 2015 Cash flow from operating activities before non-cash working capital adjustments 20,465 20,857 54,354 67,665 Add: Proceeds from sale of property, plant and equipment 168 157 525 389 Deduct: Maintenance capital 2,698 3,344 13,249 11,349 Cash available for growth capital and dividends 17,935 17,670 41,630 56,705 Growth capital 2,834 2,623 4,247 22,188 Dividends declared 3,673 3,346 10,574 10,015   Badger is restricted from declaring dividends if it is in breach of the covenants under its credit facilities. As at the date of this MD&A the Company is in compliance with all debt covenants and is able to fully utilize its credit facilities as well as declare dividends. Badger does not have a credit rating.   Capital Resources Investing The Company invested $5.5 million on property, plant and equipment (including work in process) for the three months ended September 30, 2016 compared to $6.0 million for the three months ended September 30, 2015. The majority of the capital spend was for the production of 20 hydrovacs (which includes the completion of the 16 chassis replacements) in the third quarter of 2016 as well as work in process on five flusher trucks for the Benko Sewer Service business.   The costs to build a hydrovac unit was comparable to the cost to build hydrovacs in 2015.  The hydrovac fleet is relatively new, with an average age of less than four years.   Maintenance capital expenditures are defined as those incurred during an annual period to keep the hydrovac fleet at the same number of units plus any other capital expenditures required to maintain the business. This amount will fluctuate quarter-to-quarter depending on the number of new build units relative to the number of units retired from the fleet. In the first nine months of 2016, Badger produced 45 hydrovac units (of which 12 were rebuilds of units taken out of the fleet in the first quarter), retired 35 units and therefore the fleet grew by ten units from 1,018 units to 1,028 units at September 30, 2016.  As the fleet in total has grown by ten units, 35 of the 45 units are reflected as maintenance capital and there are ten units recorded as growth capital.  Total maintenance capital expenditures for the third quarter of 2016 was $2.7 million as compared to $3.3 million in the third quarter of 2015.  Included in maintenance capital in the third quarter is $0.5 million related to production of five flusher trucks for the Benko Sewer Service business.   Financing Syndicated credit facility In 2014, the Corporation established a $125 million syndicated credit facility.  The purpose of the credit facility is to finance the Corporation's capital expenditure program and for general corporate purposes. The credit facility bears interest, at the Corporation's option, at either the bank's prime rate plus a tiered set of basis points or bankers' acceptance rate also with a tiered structure. A stand-by fee is also required on the unused portion of the credit facility on a tiered basis. The prime rate tiers range between zero and 125 basis points. The bankers’ acceptance tiers range from 125 to 250 basis points. The stand-by fee tiers range between 25 and 50 basis points.  All of the tiers are based on the Corporation’s Funded Debt to “Bank EBITDA” ratio.  Bank EBITDA is defined as earnings before interest, taxes, depreciation and amortization.  The stand-by fee is expensed as incurred.   The credit facility expires on July 22, 2018.   The syndicated credit facility is collateralized by a general security interest over the Corporation’s assets, property and undertaking, present and future.   As at September 30, 2016, the Corporation has issued letters of credit of approximately $3.6 million. The outstanding letters of credit support the U.S. insurance program and certain performance bonds and reduce the amount available under the syndicated credit facility.   At September 30, 2016, the Corporation had available $121.4 million (December 31, 2015 - $121.6 million) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met.   Senior secured notes On January 24, 2014 Badger closed a private placement of senior secured notes.  The notes, which rank pari passu with the extendable revolving credit facility, have a principal amount of US $75.0 million and an interest rate of 4.83 percent per annum and mature on January 24, 2022. The Canadian dollar equivalent on January 24, 2014 was $82.9 million. Amortizing principal repayments of US $25.0 million are due under the notes on January 24, 2020, January 24, 2021 and January 24, 2022.  Interest is paid semi-annually in arrears.   The senior secured notes are collateralized by a general security interest over the Corporation’s assets, property and undertaking, present and future.   Under the terms of the credit facility and the senior secured notes, the Corporation must comply with certain financial and non-financial covenants, as defined by the bank. A description of the compliance with covenants is included in the liquidity and dividends section.   SHARE CAPITAL Shares outstanding at September 30, 2016 and November 10, 2016 were 37,100,681.   SELECTED QUARTERLY FINANCIAL INFORMATION   All amounts are $000’s except Per Share amounts are $’s 2016 2015 2014 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Revenue 113,167 91,981 88,157 101,064 111,431 90,435 101,689 108,350 Net profit 11,944 5,951 3,668 20,486 17,090 (10,533) 11,443 17,045 Net profit per share – basic and diluted 0.32 0.16 0.10 0.55 0.46 (0.28) 0.31 0.47   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 related to the Company’s capital expenditures, projected growth, view and outlook toward margins, cash dividends, customer pricing, future market opportunities and statements, and information that contain words such as “could”, “should”, “can”, “anticipate”, “expect”, “believe”, “will”, “may” 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 forward-looking 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 include discussion reflecting the Company’s belief that:   Badger can grow geographically and in a wide range of end use segments where non-destructive hydrovac market services are recognized as having high value;   Overall 2016 activity and the economy reflects modest overall GDP growth in most market segments except for activities in the oil and natural gas sector;   Areas associated with the oil and natural gas industry have continued to decline throughout 2016 YTD;   Badger can manage costs and reallocate assets as required to areas which have stronger opportunity;   Badger can further develop the organization to position itself to execute on its growth strategy;   The business development efforts will provide Badger with the additional new customers necessary to grow the business;   Badger’s fleet is available to perform work in 2016 and truck replacements are not significantly more than planned;   Badger’s Adjusted EBITDA margin targets are approximately 28 to 29 percent of revenue.   The forward-looking statements rely on certain expected economic conditions and overall demand for Badger’s services and are based on certain assumptions.  The assumptions used to generate forward-looking statements are, among other things, that:   Badger has the ability to achieve its revenue, net profit and cash flow forecasts for 2016;   There will be a long-term demand for non-destructive hydrovac services from a wide range of end use market segments 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;   The overall market for its services will not be adversely affected by weather, natural disasters, global events, legislation changes, technological advances, economic disruption or other external factors beyond Badgers control;   Badger will execute on its growth strategy;   Badger will obtain labour, parts and supplies necessary to complete the planned hydrovac build.   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: the level of economic activity across a broad range of end use market segments that Badger sewer; political and economic conditions; industry competition; 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.   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.   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 corporations or entities. These financial measures are identified and defined below:   “Adjusted EBITDA” is earnings before interest, taxes, depreciation and amortization, share-based compensation, gains and losses on sale of property, plant and equipment, gains and losses on foreign exchange, and a non-recurring legal provision.  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 our 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 our control, it excludes share-based compensation as these expenses can vary significantly with changes in the price of our common shares and it excludes the legal provision that was recorded in the third quarter of 2015 as this is non-recurring and outside our normal course of business.   Adjusted EBITDA is calculated as follows:     Three months ended September 30, Nine months ended September 30, Adjusted EBITDA 2016 2015 2016 2015 Net profit 11,944 17,090 21,563 18,002 Add:           Depreciation of property, plant and equipment 10,648 10,801 32,457 31,372   Amortization of intangible assets - 319 - 957   Share-based compensation expense 3,454 (1,931) 4,593 (324)   Loss (gain) on sale of property, plant and equipment (17) (24) 2,375 (82)   Finance cost 1,317 1,289 3,943 3,622   Legal provision - - - 21,620   Foreign exchange gain 93 (2) 35 (550)   Tax expense 6,078 6,201 11,364 6,946 Adjusted EBITDA 33,517 33,743 76,330 81,563   Adjusted EBITDA is more directly calculated as follows:     Three months ended September 30, Nine months ended September 30, Adjusted EBITDA 2016 2015 2016 2015 Revenue 113,167 111,431 293,306 303,556 Less:           Direct costs 76,481 74,228 205,991 211,082   General and administrative expense 3,169 3,460 10,985 10,911 Adjusted EBITDA 33,517 33,743 76,330 81,563    “ Growth capital expenditures” are capital expenditures that are intended to improve Badger’s efficiency, productivity or overall capacity and thereby allow Badger to expand overall activity and/or access new markets. They generally represent any new build daylighting units that represent a net addition to the daylighting fleet or other assets. Growth capital expenditures exclude acquisitions.   “Maintenance capital expenditures” are any amounts incurred during a reporting period to keep the Company’s productive capacity at the existing level.  Productive capacity is the hydrovac fleet, support vehicles and other capital assets required to maintain the existing business.  The amount will fluctuate from period-to-period depending on the number of new build hydrovac units relative to the number of units retired from the fleet or the replacement of other assets. Costs incurred to repair hydrovac units are expensed as incurred because the repairs do not extend the life of the hydrovac unit.     Three months ended September 30,   Nine months ended September 30, Growth capital expenditures 2016 2015 2016 2015 Hydrovac trucks 2,559 260 2,919 16,436 Other vehicles and trailers 235 692 1,137 1,827 Buildings 30 1,594 30 3,829 Other 10 77 161 96 Total growth capital expenditures 2,834 2,623 4,247 22,188   Three months ended September 30, Nine months ended September 30,  Maintenance capital expenditures 2016 2015 2016 2015 Hydrovac trucks 1,722 3,162 10,340 10,720 Other vehicles and trailers 494 183 2,424 629 Buildings - - - - Other 482 - 485 - Total maintenance capital expenditures 2,698 3,345 13,249 11,349 Purchase of property, plant and equipment 5,532 5,968 17,496 33,538   “Revenue per truck per month” (RPT) is a measure of hydrovac fleet utilization.  It is a measure of hydrovac revenue only.  The RPT is calculated by combining Canadian and US dollar hydrovac revenue without converting for exchange differences, dividing the hydrovac revenue for the period by the number of hydrovacs in service throughout the period, and further dividing by the number of months in the period.   Revenue per truck (/mo) 2016 2015 2014 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Total 28,062 23,038 21,105 25,197 28,106 23,317 26,258 30,435   FLEET SUMMARY   Number of hydrovacs 2016 2015 2014 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Canada 353 358 361 364 375 393 393 410 US 675 661 651 654 645 626 618 588 Total 1,028 1,019 1,012 1,018 1,020 1,019 1,011 998   MARKETING AND FRANCHISE AGREEMENTS   Number of Marketing and Franchise Agreements 2016 2015 2014 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Canada 12 12 13 13 14 14 15 15 US 5 5 5 5 5 7              8 8 Total 17 17 18 18 19 21 23 23   FOREIGN EXCHANGE RATES   Foreign exchange rates are an important factor that affects the results of Badger’s operations. 1 USD:CAD 2016 2015 2014 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Quarterly average   1.3051   1.2885 1.3748 1.3354 1.3085 1.2300 1.2409 1.1364 Period end 1.3116 1.3009 1.2970 1.3847 1.3391 1.2475 1.2678 1.1591   C H ANG E S IN ACCOUNTING POLICIES   There were no new accounting standards that were adopted in the third quarter of 2016.   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 filings are being prepared; and (ii) material information required to be disclosed in the annual filings is recorded, processed, summarized and reported on a timely basis.  Further,  they  have  evaluated,  or  caused  to  be  evaluated  under  their  direct  supervision,  the effectiveness of Badger’s disclosure controls and procedures at September 30, 2016 and have concluded the disclosure controls and procedures are fully effective.   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. Further, using the criteria established in Internal Control – Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission, they have evaluated, or caused to be evaluated under their direct supervision, the effectiveness of Badger’s internal control over financial reporting at September 30, 2016 and have concluded the internal controls over financial reporting are effective.   Changes in Internal Control over Financial Reporting There were no changes to Badger’s internal control over financial reporting in the second quarter of 2016.   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.   DESCRIPTION OF BUSINESS   B adger is North America’s largest provider of non-destructive excavating and related services. Badger traditionally works for contractors and facility owners across a broad range of infrastructure related industries. The Company’s key technology is the Badger Hydrovac, which is used primarily for safe digging in congested grounds and challenging conditions. The Badger Hydrovac uses a pressurized water stream to liquefy the soil cover, which is then removed with a powerful vacuum system and deposited into a storage tank. Badger manufactures its truck-mounted hydrovac units.   Badger’s business model involves the provision of excavating services through two distinct methods: 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 Corporate works 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 all 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, however, Badger largely pursues expansion into new geographic areas through Badger Corporate operations.   BUSINESS RISKS [Reference is also made to Badger’s 2015 Annual Information Form]   The Toronto Stock Exchange has neither approved nor disapproved the information contained herein. For more information regarding this press release, please contact:   Paul Vanderberg                                                        Gerald Schiefelbein   P resident and CEO                                               Vice President Finance and CFO   1000, 635 – 8th Avenue SW Calgary, Alberta 5T2P 3M3 Telephone 403-264-8500 F ax 403-228-9773   Badger Daylighting Ltd. Interim Condensed Consolidated Financial Statements (unaudited) For the three and nine months ended September 30, 2016   BADGER DAYLIGHTING LTD. Interim Consolidated Statement of Financial Position (Unaudited - Expressed in thousands of Canadian Dollars)   As at Notes September 30, 2016 December 31, 2015         ASSETS       Current Assets       Cash and cash equivalents   46,076 24,991 Trade and other receivables   99,757 83,402 Prepaid expenses   4,569 2,734 Income taxes receivable   - 9,486 Inventories   3,374 3,300     153,776 123,913 Non-current Assets       Property, plant and equipment   284,926 313,666 Goodwill and intangible assets   9,106 9,106     294,032 322,772 Total Assets   447,808 446,685         LIABILITIES AND SHAREHOLDERS’ EQUITY       Current Liabilities       Trade and other payables   32,792 30,765 Share-based plan liability 5 10,271 8,381 Income taxes payable   1,505 - Dividends payable   1,224 1,113     45,792 40,259 Non-current Liabilities       Long-term debt 3 98,374 103,852 Deferred income tax   31,454 34,888     129,828 138,740 Shareholders’ Equity       Shareholders’ capital 4 82,724 82,724 Contributed surplus   548 548 Accumulated other comprehensive income   26,730 33,218 Retained earnings   162,186 151,196     272,188 267,686 Total Liabilities and Shareholders’ Equity   447,808 446,685             The accompanying notes are an integral part of these interim condensed consolidated financial statements.   BADGER DAYLIGHTING LTD. Interim Consolidated Statement of Comprehensive Income (Unaudited - Expressed in thousands of Canadian Dollars)       For the three months ended September 30, For the nine months ended September 30,   Notes 2016 2015 2016 2015             Revenues   113,167 111,431 293,306 303,556 Direct costs   76,481 74,228 205,991 211,082 Gross profit   36,686 37,203 87,315 92,474             Depreciation of property, plant and equipment   10,648 10,801 32,457 31,372 Amortization of intangible assets   - 319 - 957 General and administrative   3,169 3,460 10,985 10,911 Share-based compensation   3,454 (1,931) 4,593 (324) Operating profit   19,415 24,554 39,280 49,558             Loss (gain) on sale of property, plant and equipment   (17) (24) 2,375 (82) Finance cost   1,317 1,289 3,943 3,622 Legal provision   - - - 21,620 Foreign exchange gain   93 (2) 35 (550) Profit before tax   18,022 23,291 32,927 24,948             Current income tax expense   8,192 13,540 13,400 11,125 Deferred income tax (recovery) expense   (2,114) (7,339) (2,036) (4,179) Income tax expense   6,078 6,201 11,364 6,946             Net profit for the period   11,944 17,090 21,563 18,002             Other comprehensive income (loss):           Exchange differences on translation of foreign operations   1,883 14,028 (11,966) 26,382 Unrealized foreign exchange gain (loss) on net investment hedge   (806) (6,870) 5,479 (13,500) Other comprehensive income (loss)   1,077 7,158 (6,487) 12,882             Total comprehensive income   13,021 24,248 15,076 30,884             Earnings per share           Basic and diluted 6 0.32 0.46 0.58 0.49               The accompanying notes are an integral part of these interim condensed consolidated financial statements.   BADGER DAYLIGHTING LTD. Interim Consolidated Statement of Changes in Equity (Unaudited - Expressed in thousands of Canadian Dollars)   For the nine months ended   Shareholders’ capital Contributed surplus Accumulated other comprehensive income (loss) Retained earnings Total equity               As at January 1, 2015   80,944 548 16,700 126,056 224,248 Net profit for the period   - - - 18,002 18,002 Other comprehensive income for the period   - - 12,882 - 12,882 Shares issued on exercise of deferred share units   1,780 - - - 1,780 Dividends   - - - (10,009) (10,009) As at September 30, 2015   82,724 548 29,582 134,049 246,903               As at January 1, 2016   82,724 548 33,217 151,197 267,686 Net profit for the period   - - - 21,563 21,563 Other comprehensive income for the period   - - (6,487) - (6,487) Dividends   - - - (10,574) (10,574) As at September 30, 2016   82,724 548 26,730 162,186 272,188                 The accompanying notes are an integral part of these interim condensed consolidated financial statements.   BADGER DAYLIGHTING LTD. Interim Consolidated Statement of Cash Flows (Unaudited - Expressed in thousands of Canadian Dollars)   The accompanying notes are an integral part of these interim condensed consolidated financial statements.   For the three months ended September 30, For the nine months ended September 30,     2016 2015 2016 2015             Operating activities           Net profit for the period   11,944 17,090 21,563 18,002 Non-cash adjustments to reconcile profit from operations to net cash flows:                Depreciation of property, plant and equipment   10,648 10,801 32,457 31,372      Amortization of intangible assets   - 319 - 957      Deferred income tax   (2,114) (7,339) (2,036) (4,179)      Loss (gain) on sale of property plant and equipment   (17) (24) 2,375 (82)      Legal provision   - - - 21,620      Unrealized foreign exchange (gain) loss   4 10 (5) (25) Cash flow from operating activities before working capital adjustments   20,465 20,857 54,354 67,665 Change in non-cash working capital   (5,464) (133) (5,594) 904 Cash flows from operating activities   15,001 20,724 48,760 68,569             Investing activities           Purchase of property, plant and equipment   (7,394) (5,968) (17,618) (33,538) Purchase of property, plant and equipment as work in process   1,862 - 122 - Proceeds from sale of property, plant and equipment   168 157 525 389 Change in non-cash working capital   1,101 (165) 1,247 (1,138) Cash flows used in investing activities   (4,263) (5,976) (15,724) (34,287)             Financing activities           Repayment of long-term debt   - (8,976) - (37,425) Proceeds from issuance of shares on exercise of deferred units   - 86 - 1,780 Dividends paid to owners   (3,673) (3,339) (10,574) (10,009) Change in non-cash working capital   (1,171) (1,130) (1,303) (1,271) Unrealized foreign exchange gain   7 - (47) - Cash flows used in financing activities   (4,837) (13,359) (11,924) (46,925)             Effect of foreign exchange rate changes on cash   16 33 (27) 166 Increase (decrease) in cash and cash equivalents   5,917 1,422 21,085 (12,477) Cash and cash equivalents, beginning of period   40,158 5,253 24,991 19,152 Cash and cash equivalents, end of period   46,076 6,675 46,076 6,675             Supplemental cash flow information:                Interest paid   2,649 2,356 5,306 4,990      Income tax paid   1,754 2,583 2,409 20,243   The accompanying notes are an integral part of these interim condensed consolidated financial statements.   BADGER DAYLIGHTING LTD. Notes to the Interim Consolidated Financial Statements Nine months ended September 30, 2016 (Unaudited – Expressed in thousands of Canadian Dollars unless stated otherwise)   1      Incorporation and operations   Badger Daylighting Ltd. and its subsidiaries (together “Badger” or the “Corporation”) provide non-destructive excavating and related services to the utility, transportation, industrial, engineering, communications, construction and petroleum industries in Canada and the United States. Badger is a publicly traded corporation. The address of the registered office is 1000, 635 – 8 th Avenue SW, Calgary, Alberta T2P 3M3.   The interim condensed consolidated financial statements of the Corporation for the period ended September 30, 2016 were authorised for issue in accordance with a resolution of the directors on November 10, 2016.   2      Basis of preparation   Statement of compliance These interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting ("IAS 34") as issued by the International Accounting Standards Board ("IASB").   The interim condensed consolidated financial statements should be read in conjunction with the Corporation’s annual consolidated financial statements for the year ended December 31, 2015.   Basis of measurement These consolidated financial statements have been prepared under the historical cost convention.   Functional and presentation currency These consolidated financial statements are presented in Canadian dollars, which is the Corporation’s functional currency.   3      Long-term debt     September 30,    2016 December 31, 2015 Syndicated revolving credit facility - - Senior secured notes 98,374 103,852   98,374 103,852   Syndicated revolving credit facility   The Corporation has established a $125 million syndicated revolving credit facility (the “credit facility”).  The purpose of the credit facility is to finance the Corporation's capital expenditure program and for general corporate purposes. The credit facility bears interest, at the Corporation's option, at either the bank's prime rate plus a tiered set of basis points or bankers' acceptance rate also with a tiered structure. A stand-by fee is also required on the unused portion of the credit facility on a tiered basis. The prime rate tiers range between zero and 125 basis points. The bankers’ acceptance tiers range from 125 to 250 basis points. The stand-by fee tiers range between 25 and 50 basis points.  All of the tiers are based on the Corporation’s Funded Debt to “Bank EBITDA” ratio.  Bank EBITDA is defined as earnings before interest, taxes, depreciation and amortization.  The stand-by fee is expensed as incurred.   The credit facility expires on July 22, 2018.     The credit facility is collateralized by a general security interest over the Corporation’s assets, property and undertaking, present and future.   Under the terms of the credit facility, the Corporation must comply with certain financial and non-financial covenants, as defined by the bank. Throughout 2016, and as at September 30, 2016, the Corporation was in compliance with all of these covenants.  A complete listing and definition of the debt covenants is found in the Corporation’s annual consolidated financial statements for the year ended December 31, 2015.   As at September 30, 2016, the Corporation has issued letters of credit of approximately $3.6 million. The outstanding letters of credit support the U.S. insurance program and certain performance bonds and reduce the amount available under the syndicated credit facility.   At September 30, 2016, the Corporation had available $121.4 million (December 31, 2015 - $121.6 million) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met.   Senior secured notes   On January 24, 2014 Badger closed a private placement of senior secured notes.  The notes, which rank pari passu with the extendable revolving credit facility, have a principal amount of US $75.0 million, and an interest rate of 4.83% per annum and mature on January 24, 2022. The Canadian dollar equivalent on January 24, 2014 was $82,912. Amortizing principal repayments of US $25.0 million are due under the notes on January 24, 2020, January 24, 2021 and January 24, 2022.  Interest is paid semi-annually in arrears.   4      Shareholders’ capital   A)   Authorized shares   An unlimited number of voting common shares are authorized without nominal or par value.   B)     Issued and outstanding       Number of Shares Amount $ At December 31, 2015 37,100,681 82,724 Shares issued on redemption of deferred share units - - At September 30, 2016 37,100,681 82,724   5      Share-based payment plans   A)     Deferred Share Unit Plan   The Deferred Share Unit (“DSU”) Plan was established to promote a greater alignment of interests between the executive officers and the Shareholders of the Corporation. Directors may also participate in the plan whereby they are paid 60% to 100% of the annual retainer in the form of deferred units. Pursuant to the terms of the DSU, participants are granted deferred units with a value equivalent to the value of a Badger share.  The deferred units granted earn additional deferred units at the same rate as dividends on Badger common shares. The deferred units granted other than to the directors, which vest immediately, vest equally over a period of three years from the date of the grant. Upon vesting, the participant may elect to redeem the deferred units for an equal number of Badger shares or the cash equivalent.  A maximum of 1,500,000 Common Shares have been reserved for issuance pursuant to the DSU Plan.   The DSU Plan has been accounted for as a cash-settled plan. The compensation expense is based on the estimated fair value of the deferred units outstanding at the end of each quarter using a volume weighted average share price and recognized using graded vesting throughout the term of the vesting period, with a corresponding credit to liabilities.   The liability of deferred units outstanding as at September 30, 2016 is $8,391 (December 31, 2015 - $8,039). The fair value of deferred units exercisable as at September 30, 2016 is $7,755 (December 31, 2015 - $6,936). Changes in the number of deferred units under the DSU Plan were as follows:     Units At December 31, 2014 511,806 Granted 63,086 Dividends earned 6,846 Redeemed (221,262) Forfeited (2,968) At December 31, 2015 357,508 Granted 78,529 Dividends earned 4,620 Redeemed (97,445) Forfeited (10,739) At September 30, 2016 332,473 Exercisable at September 30, 2016 273,555   B)     Performance Share Unit Plan   The Corporation introduced a Performance Share Unit (PSU) Plan for officers of the Corporation in the second quarter of 2015. Officers must elect to have at least half, but may elect to have all of their annual long-term incentive compensation awarded in PSUs, with the remainder awarded in DSUs.  The PSUs will be granted annually and represent rights to share value based on the number of PSUs issued and achieving certain performance criteria as set out by the Board of Directors. Subject to achievement of performance criteria, under the terms of the plan, PSUs awarded will vest following a three-year term on their anniversary date and are recognized over their vesting period. PSUs, which meet the performance and other vesting criteria, will be settled in cash upon exercise.   In June 2016, the Corporation committed to matching shares purchased by the Chief Executive Officer (CEO) with an equivalent number of PSUs, up to an amount equal to the CEO’s annual base salary.  Purchases of common shares have to be made by the CEO prior to December 31, 2016.  These PSUs will be forfeited if the common shares purchased are sold prior to vesting of the corresponding PSUs.   The PSU Plan has been accounted for as a cash-settled plan. The compensation expense is based on the estimated fair value of the PSUs outstanding at the end of each quarter using a volume weighted average share price and recognized over the vesting period, with a corresponding credit to liabilities.   The liability for PSUs outstanding as at September 30, 2016 is $1,880 (December 31, 2015 - $342). There are no PSUs exercisable as at September 30, 2016 (December 31, 2015 – nil). Changes in the number of PSUs under the PSU plan were as follows:                                  Units At December 31, 2014                 - Granted 56,043 Redeemed                          - Forfeited - At December 31, 2015 56,043 Granted 134,427 Redeemed - Forfeited - At September 30, 2016 190,470 Exercisable at September 30, 2016 -   6      Earnings per share   Basic earnings per share (“EPS”) Basic EPS is calculated by dividing profit or loss attributable to ordinary equity holders (the numerator) by the weighted average number of ordinary shares outstanding (the denominator) during the period. The denominator is calculated by adjusting the shares in issue at the beginning of the period by the number of shares bought back or issued during the period, multiplied by a time-weighting factor.   The calculation of basic earnings per share for the nine months ended September 30, 2016, was based on the net profit available to common shareholders of $21,563 (2015 - $18,002), and a weighted average number of common shares outstanding of 37,100,681 (2015 – 37,045,997).   Diluted EPS Diluted EPS is calculated by adjusting the earnings and number of shares for the effects of any dilutive potential shares. The effects of anti-dilutive potential shares are ignored in calculating diluted EPS.   Weighted average number of common shares:     For the nine months ended For the three months ended   September  30, 2016 September 30, 2015 September  30, 2016 September  30, 2015 Issued common shares outstanding, beginning of period 37,100,681 37,097,537 37,100,681 37,033,893 Effect of shares issued on exercise of deferred share units   -   3,076 - 30,509 Basic and diluted weighted average number of common shares, end of period 37,100,681 37,100,613 37,100,681 37,064,402   7      Segment reporting   The Corporation operates in two geographic/reportable segments providing non-destructive excavating and related services in each of these segments. The following is selected information for the periods ended September 30, 2016 and 2015 based on these geographic segments.   For nine months ended: September 30, 2016 September 30, 2015   Canada U.S. Total Canada U.S. Total Revenues 100,646 192,660 293,306 118,182 185,374 303,556 Direct costs 74,873 131,118 205,991 85,822 125,260 211,082 Depreciation of property, plant and equipment 10,243 22,214 32,457 11,661 19,711 31,372 Amortization of intangible assets - - - 957 - 957 General and administrative 4,062 6,923 10,985 5,588 5,323 10,911 Share-based compensation 3,937 656 4,593 (324) - (324) Legal Provision - - - - 21,620 21,620 Profit before tax 3,371 29,556 32,927 11,548 13,400 24,948     For three months ended: September 30, 2016 September 30, 2015   Canada U.S. Total Canada U.S. Total Revenues 38,258 74,909 113,167 38,023 73,408 111,431 Direct costs 26,968 49,513 76,481 27,250 46,978 74,228 Depreciation of property, plant and equipment 3,373 7,275 10,648 3,831 6,970 10,801 Amortization of intangible assets - - - 319 - 319 General and administrative 1,266 1,903 3,169 1,511 1,949 3,460 Share-based compensation 2,832 622 3,454 (1,931) - (1,931) Profit before tax 2,427 15,595 18,022 5,815 17,476 23,291       Canada U.S. Total As at September 30, 2016       Property, plant and equipment 99,491 185,435 284,926 Intangible assets 9,106 - 9,106 Total assets 175,208 272,600 447,808         As at December 31, 2015       Property, plant and equipment 105,555 208,111 313,666 Intangible assets 9,106 - 9,106 Total assets 157,285 289,400 446,685   8      Purchase commitments   At September 30, 2016, the Corporation has commitments to purchase approximately $2.2 million (December 31, 2015: $1.2 million) worth of capital assets and various parts and materials.  There are no set terms for remitting payment for these financial obligations. To view this press release as a PDF file, click onto the following link: public://news_release_pdf/badger11142016.pdf Source: Badger Daylighting Ltd. (TSX:BAD) To follow Badger Daylighting Ltd. on your favorite social media platform or financial websites, please click on the icons below.   Maximum News Dissemination by FSCwire. http://www.fscwire.com   Copyright  ©  2016 Filing Services Canada Inc.

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