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Last One Out has to

Turn Out the Badger Daylight


1. BAD business

2. BAD accounting

3. BAD people

4. BAD investors

And it aint cheap: Either we do the job or the neighbor will do

> 30x EPS, > 2x sales, $1m per truck, it always overweight
- former BAD exec
> 3x Book Value, > 5x Replacement Cost
Hydrovacs are trucks with an industrial vacuum on the
back to suck out water and shoot it out into the dirt to
expose, or daylight things like pipelines and utility wires.
Little skill or education required.
BAD business
Tried and failed strategy (e.g. H2X, LLC)
No moat, anyone can compete or insource, buy out of bankruptcy
US oversaturated (market already grown > 20x, no longer novel)
Price pressured, public utilities cant afford to pay BADs prices
Overvalued, NYSE:CLH bought TSX.V:LSI for 1x sales on 5/11, $0.3m/truck
Strong competitor coming in at 20-30% lower cost than BADs cost to build

Real growth?
40% fleet idle? Many locations are empty lots, listing drivers cell #
Cannibalize the franchise (franchised was 90%, now 20%): liability > $170m
squeeze em out once market is proven and local relationships set
Franchisee bears the risk of overexpansion
BAD threatens to repo franchisees trucks if sales quotas missed
BAD accounting
Industry collapsing, why BADs numbers held up?
Is BAD recognizing revenue on uncollectible sales?
BAD invoices customers for franchisee and handles collection
Customers nonpayment paid by franchisee; Who has real credit risk?

Other Revenue, other questionable reserves?

Reference Reports and former employees say Benko division $5-10m smaller
than management implies; How big is Benko really?
Why are loans (e.g. to Benko customers?) called cash on balance sheet?

Is there anything off balance sheet (OBS)?

Historical disclosure stating no OBS no longer appears on financials
BAD people
Last one out has to turn out the Badger Daylight
Departures: CEO, CFO, VP of OPS (#3), AUDITOR, Member of Audit
Mass departure coincidence or did they all leave for a reason?
CFO Greg Kelly departs after 15 years despite no other job VP of Ops (#3 Exec in Co) Derek Dillon leaves. The same month, a
jury enters a US$13.7mn verdict in favor of a former franchisee in OK.
Accounting Manager Lynn Quiding, is fired a month
after her boss is no longer with company
CEO Tor Wilson announces plan to retire after 13 years,
Chairman George Watson departs and Midwest Director of Operations Dan Hutchison is
demoted and eventually leaves the company in November
Director (Audit Committee) 2016 to join Remax.
Richard Couillard departs
Credit & Collection Manager James Mink
Ernst & Young steps responsible for over $40mn BAD A/R portfolio,
down as auditor leaves to be a Golf Pro Shop assistant.
Jun 14 Mar 15 Mar 16
May 14 Nov 14 Apr 15 Jun 15 Jun 16

Who holds the bag?

Current CFOs last co. went bust, not an accountant, not a CPA
Current CEO admits I know very little about hydrovac
BAD investors
What was the purpose of BAD management meeting with investors
late March & early April?
BAD announced earnings 70% below expectations on May 12, 2017
Did BAD management mislead investors or did BAD management not have the internal
controls to know how business performing?

Turtle Creek Asset Management is No.1 holder (15%)

Turtle Creek is the largest (19%) holder of Home Capital Group (TSX:HCG)
Partners: Andrew Brenton, Jeff Cole, Jeff Hebel
At Feb 15 2017 annual meeting Brenton stated, First step is picking the right kind of company.
We are looking for honest companies Today we believe, give or take, all our companies pass
these tests. Jeff Hebel is partner on Badger.passed all our tests; now we are trimming
dont know where share price goes from herewe know what well do at $40 or in teens We
think a lot about tax
Blow the whistle!
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BAD wont explain margin compression because its competitive information?

Revenue +15%
Gross profit flat?

EBITDA 18,851 18,866 EBITDA down?

Jeff Fetterly, Analyst
A few rounded questions for you. In terms of the costs, whether it would be R&M fuel or some of the
wages, can you help us quantify like when you look at the 400 basis points of increased costs on
a year-over-year basis, how would each of those factors contributed in that?

Paul Vanderberg, President and Chief Executive Officer

Yes, we probably won't -- probably won't get into that granularity Jeff, there is probably some
competitive information there. But those three factors, those were the big three that drove the costs
and that was -- those were the big three that drove the lower EBITDA margin. It's a pretty direct
relationship there for sure. 9
Interim MD&A certainly gives us some competitive information
While market opportunity is growing, we continue to see rate pressure in
these regions driven by lower hydrovac industry utilization.
Risk factors and other uncertainties that could cause actual
results to differ materially from those anticipated in such
forward-looking statements include industry competition.
In addition, direct costs as a percent of revenue was also higher
due to rate pressure in certain markets.
The Eastern Canada market continues to be very competitive
and rate pressures have resulted in Badger passing on some
business at low profitability. We expect the Eastern Canada
market will continue to be competitive, and we are positioning
the region to be as efficient as possible.
The decline is largely due to the increased cost of fuel as well as overall rate
pressure in Western Canada.
Wade will focus on improving the operational effectiveness and
efficiencies of Badgers Canadian operations which is important
given the level of competition across the Canadian market.
a competitive US market for commercial (CDL) licensed drivers. 10
BADs tried and failed strategy
Public utilities cant
afford the service
-former BAD

H2X is an
experienced player
in the US that
already went bust
in 2015 shortly
after the CEO
wrote this article.

Hydrovac is no
longer novel,
and is already
widely used outside
of oil and gas
(O&G). H2X and
many others also
thought they could
survive on US non-
O&G during the

Market is Oversaturated:
US has already seen over 20x market growth, and the result is
competitive pricing pressure. $265 an hour was what we charged
- keeping track, it is getting pretty competitive - down to $220 and 11
$235 today, says a former BAD franchisee.
BAD cash flow will suffer as BAD build/replace cost >> competitors and clients can buy

2014 2015 2016 2017 2018 2019 2020 2021

BOP Fleet Size 774 995 1,024 1,023 1,070 1,120 1,170 1,220
Retirements - (35) (56) (39) (45) (57) (72) (59)
Built 221 64 55 85 95 107 122 109
EOP Fleet Size 995 1,024 1,023 1,070 1,120 1,170 1,220 1,270

oGoing-concern need to replace fleet unanticipated by sell-side analysis: Analysts continue

to focus on short-term EBITDA, without consideration for Capex needs
oTruck replacement capex needs will ramp up starting 2019/2020 due to truck builds 10-12
years ago; will continue to burden free cash flow growth
oContinues to spend money to build new trucks despite opportunities to buy trucks at low
market values due to oversupply; $400-450k per new build
oFor example USA today writes, On the block at its Longmont auction Thursday were more
than dozen hydro excavator trucks, which use high-pressure water to clean drilling rigs and
probe for buried utility lines near wells. Many of those trucks came from Decatur, Texas.-based
H2X, which laid off 60 employees and shut down in February after oil companies stopped
calling them for work, said former CEO Mike Clark. Kluver, the hydro excavator buyer,
knows all that. He still laid down $142,000 to buy two of the trucks
oAnyone from the local utility to Kluver to any of the 395 competitors listed here can buy trucks to compete or insource.
$89 million of CUMULATIVE FCF last 11 years ---->>>>> vs. $1B market cap
q 06-10: Reasonable Growth (10% CAGR) and Positive Free Cash flow

q 11-14: Aggressive Growth (30% CAGR), Negative Free Cash Flow Each Year

q 15 16: Declining Sales & Profitability Due to Commoditization of Services & Overcapacity

Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16

Revenue 98 118 148 135 140 194 239 325 422 405 404

% Chg Y/Y 19.7% 26.1% (9.0%) 3.4% 39.1% 23.2% 35.7% 30.1% (4.2%) (0.1%)

EBITDA 29 33 41 35 35 53 64 94 120 108 105

% EBITDA Margin 29.2% 28.1% 27.6% 26.1% 24.8% 27.2% 26.7% 29.0% 28.5% 26.6% 25.9%

FCF 6 (0) 1 26 10 (4) (8) (33) (14) 54 51

How Does Badger Keep Margins Up While Entire Industry De-Levers Massively?

q Overcapacity & Deterioration in Oil & Gas End Markets Leads to Productivity Headwinds

q Despite These Challenges, Badgers EBITDA Margins Remain Unexpectedly Stable

Dec-13 Dec-14 Dec-15 Dec-16

Total Hy drovacs (EOP) 791 998 1,018 1,024
% Chg Y/Y 26% 26% 2% 1%

Rev / Truck / Mos. 34,600 32,169 25,721 24,815 FALLING

% Chg Y/Y 5% (7%) (20%) (4%) ECONOMICS

Revenues 325 422 405 404

% Chg Y/Y 36% 30% (4%) (0%)

EBITDA 94 120 108 105

% Chg Y/Y 48% 28% (10%) (3%)
% EBITDA Margin 29% 28% 27% 26% MARGINS?
Accounting Methodologies Help Explain Badgers Higher EBITDA Margins


(EOP) ($Cmn) ($Cmn) Margin % Capex) Margin %

1,028 $394 $101 26% $51 13%

153 $45 $2 5% $6 14%

q2 Differences Between Badger & Lone Stars Operating Models Dont Fully Explain in Margins
20% of Badgers Trucks are Franchised, Likely ~35% EBITDA Margin Revenue Stream
Badger Assembles its Hydrovacs in Red Deer, AB and Lone Star Buys its Trucks from 3rd Parties

qWith Avg. Invoice of ~$2,000, This is a Localized Business That Lacks Significant Scale Advantages / Moats

qCapitalization of Costs & Aging A/R Help Explain Badgers Higher EBITDA Margins
Most recent transaction comp demonstrates BAD extreme overvaluation


(EOP) ($Cmn) ($Cmn) Margin % Capex) Margin %

1,031 $394 $101 26% $51 13%

$1m/truck >2x sales

300%+ premium 200%+ premium
to LSI to LSI

153 $45 $2 5% $6 14%

$0.3m/truck 1x sales

qOn May 11, 2017, Lonestar West (TSX.V: LSI), BADs biggest public competitor, was acquired by Clean Harbors

qCLH paid CAD$44.1m in cash, an 82.2% premium over the weighted average trading price of [LSI] for the 20 trading days

qIs there anything that matters in this business besides the trucks and the price you pay for them?

qBAD now faces a strong competitor coming in at the cost

Are Operating Expenses being Reported as Growth Capital Expenditures?

Growth Capital Expenditure Analysis

2014 2015
(in CAD millions)
Cap ex spent on new trucks (growth) $77 $16
Cap ex spent on new trucks (maintenance*) 8 14
Total Cap ex on new trucks $85 $30

New Hydrovacs built 221 64

Cost per Hydrovac built 384,615 468,750

Cost of Hydrovac 350,000 350,000

Excess spend per Hydrovac 34,615 118,750
Potential "over-reporting" of growth cap ex (in CAD milions) $8 $8

EBIT reported 64 61
Potential "over-reporting" of growth cap ex / EBIT 12% 12%

* Badger includes in maintenance cap ex spending on new trucks to keep fleet count flat.
This analysis cannot be done for 2016 because Badger stopped breaking out capital expenditures into growth and maintenance in Q3 2016.
Is Badger Under-Reporting Maintenance Capital Expenditures?
Or is the fleet in terrible shape and in need of major maintenance spending?

Maintenance Capital Expenditure Analysis 2016

2012 2013 2014 2015 Q1-Q3* Q4*
(in CAD millions)
Total Capital Expenditures $54 $70 $99 $39 $18 $6
Growth Capital Expenditures 50 62 89 24 4
Maintenance Capital Expenditures $4 $8 $10 $15 $14

Hydrovacs (BOP) 504 630 791 998 1,018

Maintenance cost per Hydrovac
(BOP) 7,937 12,698 12,642 15,030

Cost of Hydrovac 350,000 350,000 350,000 350,000

Annual Depreciation at 10 year life 35,000 35,000 35,000 35,000

Potential under reporting of maintenance costs per Hydrovac 27,063 22,302 22,358 19,970
Potential under reporting of maintenance costs (in CAD milions) $14 $14 $18 $20

* Badger stopped breaking out capital expenditures into growth and maintenance in Q3 2016.
Real growth?
q Industry sources say, I think 40% of fleet are idled. Many corroborate. How many trucks are idled?

q Truck count does not appear in audited financial statements and may or not be accurate. Hard to verify, and one former BAD exec states,
There aren't 1,000 truck even including water and vacuum that can run.

q Many locations were found to be empty lots, listed office # is a mobile # of driver, sometimes the land is for sale and BAD doesnt own it?

Questionable Business Practices
q Removing 2nd Operator From Truck to Cut Labor Costs Despite Safety Issues; Misinforming Investors by Saying Safer?

q Burdening U.S. operations with added costs to avoid paying variable comp & reduce tax bill; leads to ~50% Turnover in Field?

q Driving Overweight to avoid impairing profitability by making two trips or sending additional truck to jobsite?

q Watch videos of examples:



Cannibalize the franchise
q One former BAD exec says, Badgers whole focus was to put in franchise and see if there was a potential market

q Another former BAD exec explains, Franchisees have been very good for badger and in early days it was a good way to grow. Hard part
was finding the guy - we wanted local guy with network in oil and gas or utility market When a franchise got 5 trucks and decide don't
want to grow anymore and could be 20 truck market so we'd suggest you have to keep growing; eventually would say time to move on if
don't want to grow

q One franchisee says, In my opinion what they really did is got guys like me to open up franchise and develop area and squeeze them out
and take over the territory - the way did with me was insurance - also open corporate offices

q BAD was sued by former franchisee Brad Hewitt in OK and settled for $14m.

q This former exec says he tape recorded former BAD exec telling Brad Hewitt he would destroy him and put in corporate offices

q BAD business model was originally 90% franchised and has fallen to 20%

q In US alone, BAD converted 65 franchisees and 100 trucks = potential >$170m liability in the US alone following the math of the OK

q A former BAD exec states, There have been others [who have] come forward - so costly. [The] reason Brad did it was his attorney took
on contingency

Profitless Franchisees May Account for 20% of Badgers Profits!
q After squeezing out profitable franchisees, remaining franchisees operate ~17% of Badgers hydrovacs
q Franchisee take home burdened by: 40% of gross trucks revenues paid to Badger, annual truck rental costs of $8k p.a., upfront $70-90k
investment in truck (20% of new build cost)
q Franchisees May Have Gone from Low to No Profits Over The Last Several Years Suggesting an Unsustainable Income Stream for Badger
q Franchisee trucks may be significantly less profitable than corporate trucks, but Franchisee trucks contribute a higher gross profit margin
than corporate run trucks and has lifted overall gross corporate margins
Dec-13 Dec-14 Dec-15 Dec-16
Fees Paid to Operating Partner 50 67 49 36
% of Revs to Franchisee 60% 60% 60% 60%
Implied Franchisee Sales 84 111 82 60
# of Franchised Trucks (EOP) 203 225 205 174

Est. Franchisee Truck Economics

Implied Franchisee Rev / Truck / Mos. 33,643 43,175 31,721 26,247
Implied Annual Rev enue Per Franchisee Truck 403,712 518,100 380,651 314,969

(-) Franchise Fees to Badger (161,485) (207,240) (152,260) (125,988)

% of Revenues to Franchisor 40.0% 40.0% 40.0% 40.0%

(-) COGS (235,279) (322,452) (237,890) (195,678)

% of Revs (Assumes Badger's Rate Minus 1,000bps For Public Co., Labor & Other) 58.3% 62.2% 62.5% 62.1%

(+) Repair & Maintenance 11,177 14,949 11,745 10,251

% of Revs (Assumes 50% of Badger's R&M Rate Rebated from Franchisor) 2.8% 2.9% 3.1% 3.3%

(-) Initial Lease Fee Amortized Ov er 10 Yrs. (6,000) (6,000) (6,000) (6,000)

Implied Gross Profit for Franchisees' Bizs 12,125 (2,643) (3,754) (2,445) PROFITS
% Gross Margin 3.0% (0.5%) (1.0%) (0.8%) FOR
What Does Benko Contribute in Revenue & Profit to Badger?
q Benko Provides Sewer Maintenance Services in Ontario; Badger Acquired in April 2007 for $4mn (1x 2006 FY Sales of $4mn)

q We Believe Louis Bertoia, Tor Wilsons College Roommate, was an Investor in Benko.

q In Investor Meetings in April 17, Jerry Schiefelbein said Benko and Fieldek are 80-90% of Badgers Other Revenue

Other Revenue in 2016 was $35mn, 85% of that is $30mn, or Jerrys Proclaimed Revenue for Benko & Fieldtek

In 2015 Per Filings, Fieldtek, a Oil Tank Cleaner, had $15mn of Revenue; We Assume 2016 was Flat at Best, or $15mn for Fieldtek

This Implies At Least $15mn of Revenue at Benko in 2016

q However, Former Badger Executives, Franchisees & Sewer Cleaning Competitors in Ontario Suggest Benkos Annual Revenue is $5-$10mn

q Reference Reports Show Benkos London, ON Location Generated $5.9mn in Sales and its Burlington, ON Satellite Office Added $1.9mn

Mgmt. Has Used Benko to Explain Gaps in Analyst Expectations & Results Before

q An August 2014 Canaccord Research Report Highlights Benkos Contribution to Growth and to Explain the Analysts Delta Between
Forecasted & Actual Revenue Despite No Mention of Benko in Any of The Quarterly Filings for That 2Q:14 Result
A cash drawer full of IOUs?
q Loans and receivables can be counted as cash? How much of the cash on the balance sheet/cash flow statement are just IOUs?

Is BAD being honest about who has credit risk?
Excerpts from Franchise Agreement:

The franchisor collects customer

payments on behalf of the
franchisee. The franchisee must pay
Badger for uncollected debts.
Therefore isnt it the franchisee who
takes on the significant credit risk?
Wouldnt that mean BAD is making
a false and misleading statement
when it says, the Corporation is
ultimately responsible for the
provision of services, it holds the
contracts with customers, bills and
collects all revenue and therefore
bears credit risk and the Corporation
retains ownership of all service

Is BAD booking bogus revenue?
q No money no problem? BADs revenue recognition policy allows it to book sales they know they cant collect?

q The company has excessive past due trade receivables (62%), but very low allowance for bad debts (2.6%) despite its large exposure to the
struggling oil & gas industry. Surprisingly, BAD has also been able to substantially reduce its trade receivables despite very tough industry
conditions. This reduction may reflect undisclosed factoring and/or forcing franchisees to carry the cost of past due/delinquent accounts.

q One former franchisee states he was always fighting about what receivables hadn't been collected which were then deducted from next
statement... I was a minor league baseball player cut by Brewers so I didn't know any better. Every day was I got paid $81,000 when due
$107,000 and Tor just said I don't care, f*!k em and take trucks back...

q BAD Annual Information Form gives the mechanism by which franchisees could be incentivized to go along with, and pay for, BAD
booking uncollectible sales: Badger has the right to terminate a Marketing Agreement or Franchise Agreement if the operator thereunder does
not meet specified sales, safety and maintenance requirements

q Administrative duties such as billing, invoicing, and collecting of revenues are performed by Badger giving BAD a lot of power to potentially
book bogus uncollectible revenue for the franchisee.

q One former franchisee testifies, Their back office is complete disaster - 2 full time staff managing back and forth with Badger corporate on
billing, same number of staff in 2001 as 2013...archaic, they were running acpac in offices on spreadsheets, paying franchisees improperly and

q One former BAD exec says, Lynn [Quiding] she was kind of like controller. Rest of girls didn't even know what they were doing just processing

Are There Any Off Balance Sheet Arrangements at Badger Daylighting?

Off Balance Sheet Disclosure

Badger Historically Disclosed Whether The Company Had O Balance Sheet 2016 MD&A
Arrangements in its MD&A But No Longer Provides Any Disclosure on The NO MENTION
2015 MD&A
InteresGngly, in 2012, the Company Changed its Disclosure from No O Balance
Sheet Arrangements to No Material O Balance Sheet Arrangements. 2015 MD&A

What were the Non-Material O Balance Sheet Arrangements in 2012 and 2014 MD&A
2013 and Are There Any O Balance Sheet Arrangements Today? NO MENTION

2013 MD&A
At December 31, 2013 and 2012, the Company had no material off-balance-sheet arrangements.

2012 MD&A
At December 31, 2012 and 2011, the Company had no material off-balance-sheet arrangements.

2011 MD&A
At December 31, 2011 and 2010, the Company had no off-balance-sheet arrangements.

2010 MD&A
At December 31, 2010 and 2009, the Company had no off-balance-sheet arrangements.
Check Out The Management, Directors & Auditor Departures!

q May 2014 : CFO Greg Kelly departs after 15 years at Badger despite not having another job

q June 2014: Accounting Manager, Lynn Quiding, is fired a month after her boss is no longer with company

q November 2014: Chairman George Watson departs

q March 2015: Director (and Audit Committee Member) Richard Couillard chooses not to stand for re-election

q April 2015: Ernst & Young steps down as Badgers Auditor

q June 2015: VP of Ops (#3 Exec in Co) Derek Dillon leaves. The same month, a jury enters a US$13.7mn verdict in favor of a former
franchisee in Oklahoma.

q March 2016: CEO Tor Wilson announces plan to retire after 13 years at company (last day is August 2016) due to health reasons yet
maintains aggressive workouts?

q March 2016: Midwest Director of Operations Dan Hutchison, who helped operate and build Badgers U.S. finance and operations, is
demoted and eventually leaves the company in November 2016 to join Remax.

q June 2016: Credit & Collection Manager James Mink, a former colleague of Dan Hutchison responsible for over $40mn A/R portfolio
at Badger, leaves to become an assistant at a golf pro shop in Florida.
So Who is in Charge?
MEET Paul Vanderberg, CEO, Motto: I know nothing about Hydrovac

Paul Vanderberg, CEO of Badger since July 2016 here is what he had to say on his first conference call:

2Q:16 Earnings Call - Paul Vanderberg, Chief Executive OfficerI've been in the construction business for 35 years and very
involved in commercial construction activity, not as much on the infrastructure side, but a lot of things are related. And I know very
little about hydrovac.

Paul Vanderberg was employed as Director of Operations from January 18, 2016 to June 20, 2016 at Gypsum Gator, a subsidiary of
GMS Inc.. We werent familiar with his bio included in release so reached out to his former company, Gypsum Gator, for background
checks and got the following responses:

From GMS (Parent of Gypsum Gator) Investor Relations: We had a discussion with the GMS and the local team today. This is
a complete non-event. (He) joined a local subsidiary of GMS earlier this year in a training capacity with no direct reports. He
was far removed from GMS corporate, reporting to the local Vice President.

The Badger press release doesnt include dates to show the ~6 mos. stint at Gator Gypsum and has the wrong title. In addition, it shows
he was President of Winroc SPI from 2000 to 2014, but not providing dates avoids showing there is a gap from November 2014 to
January 2016 in his CV (the time he left Winroc SPI to pursue other interests until he started to train to be a VP of operations for
Florida subsidiary of GMS).
So Who is in Charge?
MEET Jerry Schielfbein, CFO, Motto: Dont mind my background

Jerry Schiefelbein, CFO of Badger since June 2014

Appointed CFO of Ivanhoe Energy Nov 13, 2009

Resigned May 16, 2014

On February 20th 2015, Ivanhoe Energy filed a Notice of Intention to make a proposal under the Bankruptcy and Insolvency Act Canada

Not an accountant. Not a CPA.