Badger Infrastructure Solutions Ltd.

Paul Vanderberg - President & CEO Jerry Schiefelbein - VP & CFO John Kelly - COO Alan Richter - Controller

Yuri Lynk - Canaccord Genuity Gavin Fairweather - Cormark Securities Luke Chellis - Coastland Capital Jim Gillespie - Morgan Stanley Smith Barney Jeff Fetterly - Peters and Co Brian Pow - Acumen Capital

Thank you, Chris, and good morning everyone. As you know, Badger released Q1 results today prior to the market open and I’ll introduce the team that’s here with me this morning, Jerry Schiefelbein, our CFO; John Kelly, Our COO, who is taking business calls right now and Alan Richter, our Controller.

Jerry before we start, maybe you should you go through the forward-looking statement language.

Certainly, Paul. So, the call today will contain forward-looking statements reflecting certain current forecast of certain aspects of the Company's future.

It's based on current information that management has assessed, but which by its nature is dynamic and subject to rapid and even of rough changes. Forward-looking statements may include but are not limited to statements regarding growth projections, capital expenditures, Badger Daylighting limited actual results could differ materially from those stated or implied by the forward-looking statements.

Within the call today due to risk and uncertainties associated with this business including but not limited to our dependence on our customers, our ability to attract and retain key personnel, competition in the business, Changes in profit margins due to pricing changes driven by market conditions, and the effect of general economic stuff. The forward-looking statements for this presentation and call should be considered in the context of these and other risks disclosed in our most recent filings included with the Canadian Securities Administrators.

All forward-looking statements made by us or on our behalf are also subject to these factors. We undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information future events or otherwise, except is required by law.

Paul, over to you.

Okay, we have that looked after. Thanks, Jerry.

We will comment first on the consolidated highlights and then go onto regional business activities then a little bit on the outlook and 2017 focus areas in the business and then we will go onto questions. For Q1 2017 revenue was a 101.8 million, up 15.4% from Q1 last year.

Q1 revenue was up 23.4% in the U.S. in U.S.

dollar terms and Canada revenue was up 9.5%. We continue to see good growth across our broad range of infrastructure, end use market segments in the quarter.

It's also positive to see revenue improvement in our oil and gas regions in both Canada and in the U.S. Q1 adjusted EBITDA was 19.9 million, up slightly from the 19.6 million last year.

Q1 adjusted EBITDA margin was lower than last year mainly due to higher direct cost that we experienced early in Q1. At March 31, 2017, total debt less cash was 41 million or 0.3 times trailing 12 months adjusted EBITDA.

For the quarter, the U.S. provided 66.5% of total revenue versus 33.5% for Canada.

Our U.S. operations in particular our non-oil and gas regions continue to grow in the quarter, while we remain cautious on increased business in oil and gas due to the number of competitors in these markets, it's very welcome to see market opportunities that getting to gain growth.

Q1 2017 revenue per truck was 24,747 versus 21,105 in Q1 last year. The operations team continues to focus on ways to improve our utilization and during the quarter we located 47 units, and relocation is considered the actual accounting transfer of depreciation from one of our operating areas to another.

Even though we continue to relocate units, we do see this process slowing down as our oil and gas market opportunity continues to recover. With the progress on revenue per truck continued, growth across the U.S.

and improving oil and gas activity we have increased our 2017 Badger build rate to a range between 100 and 160 units versus the previous range at year end of 70 to 100 units. We still expect to retire between 40 and 50 trucks this year and year-to-date of remove 16 units from the fleet.

But before we go on to some regional comments, let's stop for a minute and talk about our experience in Q1 with direct costs. It was a frustrating start to the year especially in Q1.

We had good revenue growth, but the earnings benefits at growth was offset by higher wages and benefits, vehicle repair and maintenance, and higher fuel cost. These three expenses comprised our largest share of direct cost that we managed across our de-centralized branch network.

On average, the increases and these expenses in the early part of the quarter drove the entire amount of our lower EBITDA margin in the quarter. We finished the quarter with a much better run rate on these three major expenses and that run rate was on par with what we experienced in the previous year in Q1.

Wages is the largest of these three expenses, a combination of winter weather in some markets, newer management and others, recruiting cost and training due to our expansion in growth in the U.S. cost and this is a cost to expand our operator base across a number of markets all these factors contributed to the increase.

In general, we saw results more consistent with our history in our older more established operations during the quarter. And as we talked about in our previous calls, our major initiatives thus on the human resources focus and as we get more tenured, we tend to have better operating performance across the Board.

Vehicle repair and maintenance is the second largest expense. The seasonally lower activity moving into the New Year in some of our northern markets and lower activity at times due to weather provided an opportunity for a number of our branches to get caught up on maintenance.

Fuels our third largest expense and while we did not keep up with passing along higher fuel prices, we are working very diligently on that and are currently evaluating range of ways to offset these increased cost on both the procurement and the field surcharge sides. Now, on to some regional comments, the Eastern U.S.

continues to grow, we struggled bit here with wage expense early in the quarter as we are hiring operators to support our growth there and these operators require a training time prior to being qualified to operate Badger. We have an extensive mentor comp and training process that we use where we have mentors team up with new operators and it really doubles the expense of labor on trucks when we are doing through that training period.

Again, this is to support our growth. In our more established markets, we saw more consistent cost management versus prior year, which reinforces for us the benefit of reducing employee turnover and building our management tenure across the business as I mentioned a minute ago.

The Western U.S. are renewed growth in the oil and gas markets, it's great to see.

We did struggle across the waste on direct cost that we haven't had that increase in growth for a while and when it hit, we did have some struggles with that. We also struggled on our specific coast operations due to management turnover that we experienced in late 2016; in early April, where we completed the hiring a new regional VP who joined us with a very good experience and there is a little bit of background on Kevin in the MD&A.

In Eastern Canada, Q1 revenue was lower than last year. The market is very competitive because lots of hydrovacs there, and we have focused on utilization and focused on improving our profitability.

We passed on some business that we did not believe is financially sustainable given local labor and fuel cost and the coming impact of changing transportation regulations in Ontario. Our Canadian management team is very focused on improving all aspects of Eastern Canada business especially operational efficiencies to improve service and cut operating cost.

With pressure on rates, we are focused on cutting our cost and we believe there are very good opportunities, and we are actually operating and pursuing those as we get into Q2. In Western Canada, we saw renewed growth.

Market rates continue to be pressured. There is still a lot of equipment in this market also.

We struggled a little with the waste and the waste on direct cost, but overall we experienced and tenured team there did a good job at managing margins. For 2017 focus areas, we made good progress during the quarter and in April in building out our management team.

We finalized recruiting a new VP at Human Resources, identified an experienced Badger Manager to lead our sales and business development function, established a leader for the Canadian business who brings a lot of operational improvement experience, recruited a leader for our central U.S. region who comes to us as a very experienced operations manager and recruited a leader as I mentioned for the Pacific region, who joins us bringing good people and operation experience to build the organization there.

These managers along with the rest of the Badger team will be key in capturing the growth potential that’s out there in the market. This is the growth that John Kelly and the operations team have proven.

They can capture in the past and are on the job today. Badger is always managed for the long-term and we continue to work to improve our sales efforts, our operational efficiency and overall business processes to ensure that the growth we're experiencing is sustainable and that structure is there to not only achieve our objectives which are doubling of the U.S.

business and EBITDA over the next three to five years. I’ll now turn the call over to the moderator for questions.

Paul, can you talk about the comparative environment, any major changes there or even minor, talk about the rate pressure that you mentioned in the MD&A in your prepared remarks? Is that incremental?

Is it new? Or is it just a continuation of what we have seen?

On the overall competitive environment, we do have some regions where the equipments that was previously in the oil and gas markets have migrated too. Most of the rest rig pressure we are seeing is in the oil and gas areas in Western U.S.

and Western Canada. And as I went on the call on those, there is quite a few hydrovac in Ontario and that’s where we are really seeing rate pressure, but there is really nothing new in this.

It's been that throughout my tenure and way before my tenure and also we don’t really see anything incrementally happening on the rate side. There was a very positive industry structure development that was announced this week with our largest competitor LoneStar being acquired by Clean Harbors.

We see this as a very positive industry structure change and ownership by a low run company and a respected company like Clean Harbors of these hydrovac assets, we view as very positive. And we fully expect that Clean Harbors will look to earn a good return for their shareholders on these assets, and we will operate the business accordingly.

So, we are very encouraged by that. And this consolidation I think is the big improvement from what we have seen over the last couple of years.

So, I don’t know if that addressees your questions, but that was a very nice development yesterday.

You answered my question and you answered my second question without me asking it, so that was pretty efficient. I am going to go for third before I turn it over.

Obviously, some material share price weakness this morning as we speak, so you have got a very, very strong balance sheet, good cash flows. Does it make sense or what's the thinking about buying back stock at these levels given where your share price is?

Yes, I don’t think any of us would have expected the type of share price activity that we have seen already this morning. So, this is something we will obviously talk about.

And what we have seen is that the shares go up and shares go down, unless we get together with the Board and talk about that and change our strategy, which is really focused on putting cash toward building more Badgers and putting them to work for our shareholders where we have very, very good pretax IRR over the life of the FX. We will certainly get back to the market on that.

But our focus is really on operating the business and putting up the numbers. We continue to think there is some great market opportunities out there and as I mentioned in the prepared remarks, John Kelly and the ops teams has done a phenomenal job at driving growth, and that’s exactly what we are focused on.

Just curious if you could provide some additional color to the changes that you made as Q1 let alone that allowed margins to recover as you move through the quarter?

What we really experienced early in the quarter and we just had a really rough start in January, and we probably had a little bit carryover and repair and maintenance from December. We did finish 2016 fairly strong across the broad range of our regional operations.

So some of their repair and maintenance I think was delayed there. Fuel is fuel.

The whole industry is based they experience in the same increases and the fact of the matter is we were little slow off the mark on passing that along. And I can assure you that is in full feather and we are very aggressively following up on that.

And then on wages, a lot of it was driven in our newer areas where we are growing, can't make any apologize for that because it's all the support of growth in a lot of new areas. These are not areas where there is big pool of experience hydrovac operators.

So, we are basically hiring CDL which is in the U.S. commercial driver license drivers and then training them to be operators, and this can be a three to four month process.

So, given the rate of growth and giving the training it’s a drag on the short-term, but once that additional Badgers out there working, and we get the benefit of that very quickly. So, that trend is going to be there in those markets.

I think the R&M is beyond behind us we are addressing the fuel. And we manage our wages each and every week as we review our experience there.

But as we said in prepared remarks and in the MD&A, our run rate coming out of the quarter was at a very similar rate and very significantly better than we had going into the quarter. So we had a rough start and we worked away through it.

Just secondly on the build rate, a big increase during the quarter, just curious for a sense of the data points that you have being seeing that gave you the confident to thing reset build right there?

We evaluate the build rate constantly. We work with our folks in Red Deer and John and his team and what we have seen is the improvement in our RPT, obviously we would have good year-over-year growth, continuing growth from the last several quarters and that continued in Q1.

And we are taking a look at our ability to move trucks and as our oil and gas markets have continued to recover, we have had less and less trucks that are attracted to move. So, we have the opportunities coming in our oil and gas markets where most of the trucks have come from.

And those -- actually the opportunity to work and the momentum is there. And also there is very long lead times to get chassis the chassis lead time is expanded, it's out in the five months range now.

And when I would have started back last summer, it would have been in the five week range. So we have to plan ahead and it really forces us to think ahead.

So all those factors are harder but it's all about growth and it's pretty exciting from my perspective to see this.

And then just lastly on the CapEx in the quarter, was a little bit higher than what I was expecting given 23 trucks that were produced and so FX was a piece of that, curious whether you have been kind of stocking out on some of those chassis, just to an anticipation of build or whether there is other factors that play there?

Yes, Jerry, do you want to jump in here on when we capitalized, when we buy chassis or when we actually get the truck on the road?

So, the chassis go into work in process. So, you shouldn’t see that in the capital spend.

And then -- I think you are just seeing the increase in the truck build, there mostly. I can't tell you though that our current truck is a little bit higher cost than it historically been.

We are now building our generation four truck and it's in any construction project we start out with the first one, crossing a few more than you work your way down the experience, and we are starting that now. So how many the gen fours have we built?

20.

About 30.

About 30, so new generation of truck coming out, big improvements over the old generation, but a little bit more expensive right now.

And as the production increases, we would expect the cost to come down.

Yes, that’s right. Yes just in the less capitalized overhead each truck, that’s right.

I was just wondering about again the Clean Harbors acquisition. Is that a well run company, well respected company?

And you said it's good for the market, but I was wondering, is it good for Badger when well run or well respected company comes in, what I calculated under 300,000 per truck, which I think is below, or you said a cost you guys to build in that’s your competitive advantage? So just wonder if you can talk us to that?

Sure, Luke. I think market structure is going to be a big improvement and we talked about price pressure and rate pressure in Eastern and Western Canada especially.

I think a lot of that was driven by the company that green harbor is acquiring. So we will have to take a look at how they want to operate those assets, but they have been very good at looking after shareholder's interest.

So we would expect the same. So I think that’s a really plus.

I haven't done quite the same numbers that you have but I would have a little higher number from what I have done in the past Luke on a per truck basis. But I don’t know how you did your numbers, but I am sure on this call would I would have a little higher number in my head that little closer to 400 and 300, but are you doing U.S.

dollars or Canadian?

I am doing Canadian.

Okay, then my comment would stand then. So, it is the mix of equipment in their fleet, not just hydrovacs.

Quick question for you, Paul, Any response to [Mark Hodus] cumulating a short position in your firm?

Well, we have had a short position in Badger for some time with a number of players, Ian. And my focus on that is really not to focus on it, and the team's focus is not to focus on it.

Our job is to run the business and put up the numbers. I would tell you I don’t agree with the theses.

We have a great business model. This is a growth oriented true organic growth company, which I think at least in my experience is quite unique.

And we can actually build our own trucks. We are vertically integrated and put them to work and the market opportunity is really not yet defined.

We don’t know how big this market is going to and we are finding -- we ourselves and others in the industry are finding more and more usage for hydrovac technology overtime. And the others thing that I really like about the business model which is why I got involved Badger is that there is the chance to expand not only end use market wise and the use of hydrovac, but also expand geographically.

And I think you are seeing that opportunity reflected in our top line. And I see that trend continuing.

And to the extent there is another big corporate operator doing similar things. I think that would only expand the overall market quicker and expand the usage of hydrovac in the overall excavation sector of the U.S.

and candaian constructing markets quickly. So I see really, really positive future and it's up to us to execute on it and put up the numbers for you guys.

Thank you. I missed the comment on the delay in the chassis, you said its five months, is that getting better or the narrow body chassis?

We saw that the lead time on chassis go out last fall and we have had adjust their ordering process just to accommodate that. I think it’s a statement on the strength of U.S.

economy as much as anything. And we managed that.

We have had that before back when things were busy in '12, '13, '14 and we have it now. We are managing that with our suppliers and we are in good shape on all that.

But it was in the five six week range and it's gone out to more toward to five month range.

In terms of the cost whether it'd be R&M fuel or some other wages. Can you help us quantify like when you look at the 400 basis points on increased cost on the year-over-year basis, how would each of those factors contributed in that?

We probably won't get into that granularity, Jeff, as probably some competitive information there. But those three factors those were the big three that drove the cost and those were the big three that drove the lower EBITDA margin.

That’s pretty direct relationship there for sure.

In the R&M side where all those expense capital are expensed or were they or any of it capitalized?

Those are all expensed, Jeff. We don’t capitalize very aggressively in fact is un-aggressively.

Yes, and it’s a very conservative of accounting treatment especially on the engine rebuilds and things like that which I understand other companies in the industry have across the process of capitalizing.

For the increase in your build rates what do you expect on the monthly basis the rate to get through this year?

If you take a look at that and if you ask me to point to point figure in the range but we are seeing really very good increase. And I think we will see higher rate during the middle of the year and then tailing down toward the year end which is traditionally the way we have operated.

And you will see us be a little more conservative as we get into Q4 into the winter months we typically have the most demand in our regions for new trucks as the spring digging season hits especially in the U.S. And I think that trend will continue.

But we think as far as what we will get done during this calendar year that range will cover what we are going to do.

Type of the shape to shape of the build program will be added to peak through the middle of summer and then curtailing?

That's right. We just want to be a little conservative and not have too much on defense as we get into the winter because there is some seasonality in there.

Okay. In terms of the build program and the overturn expectations, historically 30,000 RPT has been a trigger point for Badger, your incentive compensation is obviously triggered off of 30,000 RPT as well, how do you think about the returns on those incremental units and accelerating the build program now versus at some point in future when you get towards 30,000?

Well, I mean we are obviously looking ahead a little bit on the historical reported RPT as we work our build rate and we talked about some of the lead times on chassis and those type of factors that have to figure in. But I think it would be a safe take away to say expenditures are fairly optimistic about our build rate and our ability to put into work at good monthly revenue figures with improve figures from what we have seen historically.

Do you think a 30,000 RPT is achievable in coming quarters?

Well, I don’t want to provide too much granularity there, but we do see improvements and a potential for improvements, otherwise we would be putting the trucks on the road.

Last question, the relocation, you mentioned earlier that’s likely to start to curtail. Do you have sense magnitude wise of what additional relocations might look like?

Yes, it's a great question, Jeff. And we -- John and team moved 47 trucks this last quarter and that's down from over 200 in the previous calendar year.

We will always look at this, I mean that’s a just a part of Badger's D&A. And we have the ebb and flow of business in individual branches and individual areas.

You have a big project and you have to bring a few trucks in and then the project ends, and there might be a project somewhere else. That’s not a huge part of Badger's business because our strategy is to locate and operate locally and build a local broad base customer portfolio.

But there is certain going to be some of that, might we have two, three dozen a quarter, just from normal day-to-day, month-to-month, quarter-to-quarter fluctuations, yes, that could be pretty reasonable.

And with that number fall under the definition, you mentioned earlier about the depreciation actually changing locations?

Yes, the way we actually track relocation is that’s where we actually do book accounting transfer of where the appreciation is charged. And all of our area managers and our regional managers incentives are based on pre-tax earnings after a charge for depreciation and corporate expense like computer and all that sort of thing.

So this is something keenly watched. And our entire culture is very focused on making a return on those trucks and making a return on that depreciation.

So, that’s a very important factor in all this decision making.

Good morning, this is Brian Pow here. Thanks for taking my question.

I just wanted to talk to with the build rate you are looking at revised upwards, maybe you can just speak to your hiring of drivers and sort of what you are seeing there and what you think your ability is going forward to sort of meet the new trucks, you going to have out?

Well, Brian, welcome to our ops review meetings because that’s one of our biggest focus areas especially in some of our droving regions. Drivers are big challenge, I mean our model is best operator, best truck and we want to make sure that anyone that’s out on a Badger unit is well trained to operate safety and efficiently and provide good customer service.

So it's a big focus of ours and has been a driver of some of the higher expenses especially in Q1. But this is an ongoing challenge.

We are establishing a formal HR function, bringing a VP of HR which was very excited about, she starts June 1st, and we are very excited about that. But just in the last six months, we have initiated a number of processes to improve our hiring, we are working more with temporary agencies to build the funnel, have a broader funnel of potential drivers and that has ripped a lot of promise, and we are also looking at some cross boarder immigration and bringing Canadian experience drivers into the U.S.

on L1B visas and we are just in very early days on that, but we think that has a lot of potential too. So, we are turning over all the rocks, we have added to our recruiting team.

We let gone from one to three in the U.S. on operator recruiting over the last six months.

And these initiatives while they take a while to get momentum are all expected to help us and I think we are going to continue to do better in that. It’s a big management focus for us.

And you will hear us continue to talk about it. And we will continue to provide updates as our new VP of HR gets her feet on the ground and we continue to drive these programs.

It’s an important one. It’s a key to driving our organic growth, and it's just job number one across the organization.

So when I look at your change in build rate and just here me out here for a second -- your previously midpoint was 85 and you have now gone to 130, so just that differential there as about 45 trucks on average. If you are going to need to hire 45 additional drivers then you'd have originally anticipated.

Can we expect to see duplication of wages for most of the year then in a number of these wages?

We will certainly have that in some of these regions and we actually would probably hire more than 45 drivers in that scenario. We will probably hire more like 60 or 70.

And we are never there, but John loves to have about one and half operators per unit because you have vacation, you have downtime, you have doctor's appointments and all those sort of things. So, we will continue to driver more than that.

And this is just a part of the business and one thing you can take a look at it as a negative, I take a look at it as a positive because it's driving our organic growth. And it’s a very exciting part of that.

Our challenge and our task is the management team is to manage this properly get ahead of the curve on training and it’s a combatant on us to make sure we have an experienced operator when that truck shows up in the local market. So we can put these units to work for the shareholders.

So that again to just your comments that the quarter was impacted by those three buckets you mentioned but is there fair to assume that your wages and benefits will be higher than normal for this year?

It's probably well in some of our regions, but I wouldn’t extrapolate that across the business. In some of our older more established areas, we had continued very good cost management in the wage and benefit areas.

So, it’s a bit of a mix, but as I mentioned earlier we really started out the quarter in a rough shape on the expense side. But as we exited the quarter, our expense run rates were back in line with what we saw in the previous year.

So I don’t want to declare it totally behind us but I do agree with your question that in some of areas we are going to have a little bit higher expense rate. But again it's all about putting new badgers on the road and that’s what really going to driver our top line and its our challenge to make sure we convert the top line into the bottom line.

And then I just wanted to clarify some comments just on your CapEx. If we do simple math of the 23 added in Q1 and you declared in your MD&A that you spent just under 15 million.

That sort of works out 650 trucks, so Jerry had said that didn’t include your chassis, but your comment -- it does include your chassis then?

That includes chassis.

Okay. Well, thank you, Chris.

As always, we appreciate everyone's interest in Badger and Chris thank you.