SDY - 9.30.2019 MDA · 2019. 11. 7. · Title: SDY - 9.30.2019 MDA Created Date: 20191170955

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MANAGEMENT’S DISCUSSION AND ANALYSIS

The following Management’s Discussion and Analysis (“MD&A”) was prepared as of November 6, 2019, and is intended to assist the reader to understand the current financial position and operating results of Strad Inc. (“Strad” or the “Company”, formerly "Strad Energy Services Ltd."). This MD&A discusses the operating and financial results for the three and nine months ended September 30, 2019, and takes into consideration information available up to that date. This MD&A should be read in conjunction with the unaudited condensed consolidated interim financial statements of Strad for the three and nine months ended September 30, 2019, as well as the audited consolidated financial statements and MD&A for the year ended December 31, 2018. Strad's financial statements were prepared in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board. Strad’s shares trade on the Toronto Stock Exchange under the symbol “SDY”. All amounts are stated in Canadian Dollars unless otherwise noted.

Additional information relating to Strad for the three and nine months ended September 30, 2019, may be found under the Company's profile on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com.

THIRD QUARTER SELECTED FINANCIAL AND OPERATIONAL HIGHLIGHTS:

• Strad's total revenue increased 7% to $33.3 million as compared to $31.2 million for the same period in 2018;

• Strad reported EBITDA(1) of $10.2 million as compared to $6.5 million for the same period in 2018. EBITDA increased due to a $3.5 million improvement in Industrial Matting EBITDA inclusive of a $0.6 million impact from the adoption of IFRS 16 as noted in note 3 of the Unaudited Condensed Consolidated Interim Financial Statements for the three and nine months ended September 30, 2019. EBITDA further increased by a $0.5 million improvement in Equipment Rentals EBITDA;

• Net income for the third quarter increased to $1.7 million compared to net income of $0.9 million for the same period in 2018;

• Earnings per share for the three months ended September 30, 2019 improved to $0.03 as compared to earnings per share of $0.02 during the same period in 2018;

• Reduced funded debt(2) by 36% to $9.0 million at September 30, 2019, compared to $14.0 million at December 31, 2018. Funded debt(2) to covenant EBITDA(3) ratio was 0.3 : 1.0 at September 30, 2019;

• Capital additions totaled $11.9 million focused on growing the Company's matting fleet to over 138,000, an increase of 37% from a year ago; and

• Purchased and canceled 60,800 common shares at $1.61 in the third quarter under the Company's normal course issuer bid ("NCIB"). Subsequent to the quarter, the Company purchased an additional 1,686,224 common shares at $1.60 under the current NCIB for $2.7 million.

Notes:

(1) Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is not a recognized measure under IFRS, and, accordingly, Strad's use of such a term may not be comparable to similarly defined measures presented by other entities; see “Non-IFRS and Additional IFRS Measures and Reconciliations”.

(2) Funded debt includes bank indebtedness plus long-term debt less cash. (3) Covenant EBITDA, as defined in the Company's credit facility agreement, is based on trailing twelve month EBITDA plus share based payments, plus

additional one-time charges, less right of use asset amortization, less interest expense associated with leases.

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THIRD QUARTER FINANCIAL HIGHLIGHTS

($000's, except per share amounts) Three months ended September 30, Nine months ended September 30,

2019 2018 % Chg. 2019 2018 % Chg.

Revenue $ 33,298 $ 31,220 7% $ 90,854 $ 87,619 4 %

Net income 1,736 890 95% 1,593 4,354 (63)%

Per share ($), basic 0.03 0.02 50% 0.03 0.07 57 %

Per share ($), diluted 0.03 0.02 50% 0.03 0.07 57 %

EBITDA (1,2) 10,249 6,502 58% 25,228 16,595 52 %

EBITDA as a % of revenue 31% 21% 28% 19%

Per share ($), basic 0.18 0.11 64% 0.44 0.29 52 %


Cash flow from operating activities 10,657 7,448 43% 37,233 23,571 58%

Per share ($), basic 0.19 0.13 46% 0.66 0.41 61%

Per share ($), diluted 0.19 0.13 46% 0.65 0.40 63%

Funds from operations (3) 11,388 8,634 32% 30,564 22,214 38 %

Per share ($), basic 0.20 0.15 33% 0.54 0.38 42 %


Capital expenditures (4) 11,878 10,510 13% 29,106 21,555 35%

Total assets 179,782 172,707 4% 179,782 172,707 4 %

Long-term debt 6,498 6,414 1% 6,498 6,414 1 %

Total long-term liabilities 20,622 18,464 12% 20,622 18,464 12 %

Common shares - end of period ('000's) 56,621 57,244 56,621 57,244

Weighted average common shares ('000's)

Basic 56,650 57,271 56,761 58,195

Diluted 57,272 57,595 57,384 58,518

Notes: (1) Earnings before interest, taxes, depreciation and amortization (“ EBITDA”) is not a recognized measure under IFRS, and, accordingly, Strad's use of such term may

not be comparable to similarly defined measures presented by other entities; see “Non-IFRS and Additional IFRS Measures and Reconciliations”. (2) The current period results include impacts from the adoption of IFRS 16 "Leases", which was adopted by the Company on January 1, 2019. These impacts are

discussed in further detail as noted in note 3 of the Unaudited Condensed Consolidated Interim Financial Statements for the three and nine months ended September 30, 2019. Comparative information has not been restated, and therefore, may not be comparable.

(3) Funds from operations is cash flow from operating activities excluding changes in non-cash working capital. Funds from operations is not a recognized measure under IFRS, and, accordingly, Strad's use of such a term and method of calculation may not be comparable to similarly defined measures presented by other entities; see “Non-IFRS and Additional IFRS Measures and Reconciliations”.

(4) Includes purchases of intangible assets.

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OVERVIEW OF THE COMPANY

Strad specializes in industrial matting and equipment rentals for projects of any size, from a network of branches across Canada and the United States (“U.S.”). The Industrial Matting division includes a large fleet of environmental and access matting products and accompanying services. The Equipment Rentals division includes surface rentals, solids control and waste management, and EcoPond® (frac-water storage) products and related services. Geographically, the Company operates across western and central Canada and within key regions in the United States, namely Pennsylvania, and surrounding states as well as Texas, North Dakota and selected areas within the western United States Rockies region. Strad aims to serve customers in many industrial sectors, including Pipeline, Oil & Gas, Transmission & Distribution, as well as Construction. As of September 30, 2019, the Company has 24 operating locations throughout North America.

THIRD QUARTER RESULTS

Strad reported an increase in revenue of 7% and an increase in EBITDA of 58%, respectively during the three months ended September 30, 2019, compared to the same period in 2018. During the three months ended September 30, 2019, the Industrial Matting segment EBITDA improved by 64% to $9.0 million as compared to $5.5 million for the same period of 2018. Contributing to the improvement was $0.6 million from the adoption of IFRS 16. Equipment Rentals segment EBITDA for the three months ended September 30, 2019 improved by 32% to $2.1 million from $1.6 million. Equipment Rentals EBITDA included a $0.7 million benefit from the adoption of IFRS 16. During the three months ended September 30, 2019, Strad reported net income of $1.7 million compared to $0.9 million for the same period in 2018.

For the three months ended September 30, 2019, Strad's Industrial Matting segment reported an increase in revenue and EBITDA of 34% and 64% as compared to the same period in 2018. The increase in revenue was a result of multiple matting projects that occurred in Canada and the U.S. throughout the quarter, as well as significant growth in the overall matting fleet, as compared to the same period of 2018. Earnings before interest and taxes ("EBIT") from Industrial Matting slightly increased by 6% to $4.4 million in 2019 from $4.1 million in 2018. The increase in EBIT is primarily the result of the increase in EBITDA which was offset by increased depreciation of $0.5 million related to the adoption of IFRS 16.

Strad’s Equipment Rentals segment reported a decrease in revenue of 23% and an increase in EBITDA of 32% during the three months ended September 30, 2019, as compared to the same period in 2018. The decrease in revenue was driven by significantly lower rig activity and offset by slightly higher customer pricing in Canada. The decrease in revenue in 2019 was also driven in the U.S. by lower rig activity in the Bakken and Marcellus regions by 5% and 9%, respectively, as compared to the same period in 2018. This was offset by slightly higher rig activity in the Rockies regions and a 15% improvement in average customer pricing in the U.S. for the quarter. EBIT improved to a loss of $1.4 million in 2019 as compared to a loss of $2.4 million during the same period of 2018. The improvement in EBIT is primarily due to the increase in EBITDA.

For the three months ended September 30, 2019, capital expenditures were $11.7 million in Industrial Matting, of which $7.6 million of the expenditures were for the U.S., and $4.1 million of the expenditures were for Canada. Capital expenditures for Equipment Rentals amounted to $0.1 million. The majority of the capital additions were related to wood matting additions, which were acquired to prepare for and to support industrial matting projects that are planned for 2019.

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OUTLOOK

Heading into the fourth quarter of 2019, we are strongly positioned in the Industrial Matting market to continue our growth trajectory within this segment. Three projects of meaningful size, which began in the third quarter, will continue through the fourth quarter and have the potential to gain in scope. The LNG Canada project, and the associated Coastal GasLink project are underway and will continue to provide opportunity for Strad throughout the remainder of 2019 and into subsequent years. The Coastal GasLink project continues with site preparation and preliminary work across western Canada, with the expectation that mainline construction will take place between the years 2020 to 2022. Following the Canadian federal election that took place October 21, 2019, the minority Liberal government reaffirmed its commitment that the Trans Mountain pipeline expansion would continue as planned. We believe this expansion will continue to generate demand for our matting services for years to come once fall construction commences.

To support and enhance our matting services we have deployed $29.0 million of capital year-to-date in 2019, of which $13.4 million was committed towards opportunities in the U.S. This is consistent with our strategy to double the matting fleet to 180,000 by 2021. To date, the largest matting projects have been in Canada though we have experienced significant growth in the Industrial Matting segment in the US as a result of numerous smaller projects. Of the approved 2019 capital budget of $35.0 million in 2019, we expect approximately half of this capital program to be deployed in the U.S. market. With increasing environmental responsibility and regulation throughout North America, we expect the overall matting market to expand as we also look to increase our market share.

We continue to see challenging times ahead for the Equipment Rentals business throughout North America. Third quarter rig counts were down approximately 37% year-over-year in Canada and 3% year-over-year in the U.S. The Canadian rig forecast for the remainder of the year places 2019 estimates only marginally ahead of historic lows experienced in 2016. Beginning in the first quarter and continuing throughout the third quarter, we moved equipment from Canada to regions in the U.S. experiencing higher demand. Year to date, we have moved approximately $3.8 million net book value of equipment to the U.S. and will continue to be opportunistic with our equipment rentals fleet where possible. The outlook for the U.S. Equipment Rentals business remains stronger than in Canada, however with average rig counts forecasted to be lower in 2020, we expect to be operating in a more competitive environment with only a small exposure to the Permian basin.

On November 26, 2018, the Company obtained approval from the Toronto Stock Exchange to renew its normal course issuer bid until November 27, 2019, with the number of common shares the Company can buy back limited to a maximum of 4,067,205 common shares. Under the previous NCIB, which ended on September 9, 2018, the Company purchased and canceled 2,768,320 common shares. Since the inception of the renewed NCIB through the end of the third quarter of 2019, the Company has purchased 631,747 common shares. Subsequent to the quarter, the Company purchased an additional 1,686,224 common shares at $1.60 for $2.7 million.

While we remain committed to our objective of increasing our matting fleet, our strong cash flow generation and minimal debt balance continue to provide the flexibility to evaluate various alternatives to create shareholder value.

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SEGMENTED RESULTS

Three months ended September 30, 2019

IndustrialMatting

EquipmentRentals Corporate Total

($000's)

Revenue $ 21,880 $ 11,418 $ — $ 33,298

Operating expenses 11,295 7,182 — 18,477

Selling, general and administration 1,582 2,165 846 4,593

Share based payments 18 25 1 44

Gain on property, plant and equipment disposals (21) (44) — (65)

Loss (gain) on foreign exchange 8 12 (20) —

EBITDA(1,2) 8,998 2,078 (827) 10,249

Depreciation and amortization 4,648 3,443 154 8,245

EBIT(3) 4,350 (1,365) (981) 2,004

Interest expense 344 344

Income tax recovery (76) (76)

Net (loss) income (1,249) 1,736

Three months ended September 30, 2018

IndustrialMatting


($000's)

Revenue $ 16,368 $ 14,852 $ — $ 31,220


Selling, general and administration 1,337 1,764 532 3,633



(Gain) loss on foreign exchange (19) (14) 4 (29)

EBITDA(1,2) 5,474 1,580 (552) 6,502


EBIT(3) 4,106 (2,412) (636) 1,058


Income tax recovery (62) (62)

Net (loss) income (804) 890

Notes: (1) Earnings before interest, taxes, depreciation and amortization (“ EBITDA”) is not a recognized measure under IFRS, and, accordingly, Strad's use of such

term may not be comparable to similarly defined measures presented by other entities; see “Non-IFRS and Additional IFRS Measures and Reconciliations”.(2) The current period results include impacts from the adoption of IFRS 16 "Leases", which was adopted by the Company on January 1, 2019. These impacts

are discussed in further detail as noted in note 3 of the Unaudited Condensed Consolidated Interim Financial Statements for the three and nine months ended September 30, 2019. Comparative information has not been restated, and therefore, may not be comparable.

(3) Earnings (loss) before interest and tax (“EBIT”) is an additional measure under IFRS, see “Non-IFRS and Additional IFRS Measures and Reconciliations”.

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Nine months ended September 30, 2019

IndustrialMatting


($000's)

Revenue $ 55,940 $ 34,914 $ — $ 90,854


Selling, general and administration 4,355 5,967 2,700 13,022



Gain on foreign exchange (10) (17) (20) (47)

EBITDA(1,2) 22,811 5,114 (2,697) 25,228


EBIT(3) 9,341 (5,364) (3,142) 835

Interest expense 1,005 1,005

Income tax recovery (1,763) (1,763)

Net (loss) income (2,384) 1,593

Nine months ended September 30, 2018

IndustrialMatting


($000's)

Revenue $ 41,970 $ 45,649 $ — $ 87,619


Selling, general and administration 3,775 5,025 2,382 11,182


Gain on property, plant and equipment disposals (239) (323) (8) (570)

Loss (gain) on foreign exchange 3 19 (6) 16

EBITDA(1,2) 13,196 5,813 (2,414) 16,595


EBIT(3) 9,203 (6,114) (2,610) 479


Income tax recovery (4,452) (4,452)

Net income 1,265 4,354

Notes: (1) Earnings before interest, taxes, depreciation and amortization (“ EBITDA”) is not a recognized measure under IFRS, and, accordingly, Strad's use of such

term may not be comparable to similarly defined measures presented by other entities; see “Non-IFRS and Additional IFRS Measures and Reconciliations”.(2) The current period results include impacts from the adoption of IFRS 16 "Leases", which was adopted by the Company on January 1, 2019. These impacts

are discussed in further detail as noted in note 3 of the Unaudited Condensed Consolidated Interim Financial Statements for the three and nine months ended September 30, 2019. Comparative information has not been restated, and therefore, may not be comparable.

(3) Earnings (loss) before interest and tax (“EBIT”) is an additional measure under IFRS, see “Non-IFRS and Additional IFRS Measures and Reconciliations”.

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RESULTS OF OPERATIONS

Industrial Matting

Three months ended September 30, Nine months ended September 30,

($000's) 2019 2018 % 2019 2018 %

Canadian revenue $ 14,452 $ 11,865 22% $ 37,887 $ 29,760 27%

U.S. revenue 7,428 4,503 65% 18,053 12,210 48%

Total Revenue 21,880 16,368 34% 55,940 41,970 33%

EBITDA (1,2) 8,998 5,474 64% 22,811 13,196 73%

EBITDA as a percentage of revenue 41% 33% 41% 31%

EBIT (3) 4,350 4,106 6% 9,341 9,203 1%

EBIT as a percentage of revenue 20% 25% 17% 22%

Capital expenditures (4) 11,703 10,059 16% 28,640 19,366 48%

Property, plant and equipment 76,096 56,245 35% 76,096 56,245 35%

Equipment Fleet:

Canadian matting fleet 96,260 77,610 24% 96,260 77,610 24%

U.S. matting fleet 42,000 23,600 78% 42,000 23,600 78%

Matting fleet at period end (5) 138,260 101,210 37% 138,260 101,210 37%

Canadian average matting fleet 94,660 62,390 52% 92,270 66,850 38%

U.S. average matting fleet 40,120 22,530 78% 33,060 19,550 69%

Average matting fleet (6) 134,780 84,920 59% 125,330 86,400 45%

Canadian average utilization 38% 36% 31% 30%

U.S. average utilization 39% 43% 38% 33%

Average utilization % (7) 38% 38% 35% 31%

Notes:

(1) Earnings before interest, taxes, depreciation and amortization (“ EBITDA”) is not a recognized measure under IFRS, and, accordingly, Strad's use of such term may not be comparable to similarly defined measures presented by other entities; see “Non-IFRS and Additional IFRS Measures and Reconciliations”.

(2) The current period results include impacts from the adoption of IFRS 16 "Leases", which was adopted by the Company on January 1, 2019. These impacts are discussed in further detail as noted in note 3 of the Unaudited Condensed Consolidated Interim Financial Statements for the three and nine months ended September 30, 2019. Comparative information has not been restated, and therefore, may not be comparable.

(3) Earnings (loss) before interest and tax (“EBIT”) is an additional measure under IFRS, see “Non-IFRS and Additional IFRS Measures and Reconciliations”. (4) Includes purchases of intangible assets. (5) Matting fleet balances are as at September 30, 2019 and 2018. (6) Matting fleet balances are averages for the three and nine months ended September 30, 2019 and 2018. (7) Utilization includes matting on rent only and is calculated using gross asset value.

Revenue for the three months ended September 30, 2019 increased 34% to $21.9 million compared to $16.4 million during the same period of 2018. Increased revenue was driven by the 65% increase in U.S. revenue and a 22% increase in Canadian revenue, as compared to the same quarter of 2018. The increase in the U.S. is due to the increase in average matting fleet by 78%, and an increase in average customer pricing by 38%. This was offset slightly by a decrease in average utilization to 39% for the three months ended September 30, 2019, from 43% for the same period in 2018. The increase in Canadian revenue was primarily due to three large matting projects that started midway through the quarter. Also contributing to increased Canadian revenue was an increase in average matting fleet by 52%, in conjunction with an increase in average utilization to 38% from 36% for the three months ended September 30, 2019, as compared for the same period in 2018. This was partially offset by a decrease in average Canadian pricing by 19%.

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For the three months ended September 30, 2019, Strad's average matting fleet increased by 59% to 134,780 mats compared to 84,920 mats for the same period of 2018, to meet the expected increase in customer demand as part of the Company's plan to double the matting fleet to 180,000 mats by late 2021.

EBITDA for the three months ended September 30, 2019, increased 64% to $9.0 million as compared to $5.5 million during the three months ended September 30, 2018. EBITDA as a percentage of revenue was 41% for the three months ended September 30, 2019, compared to 33% for the same period of 2018. The increase in EBITDA was driven primarily by increased U.S. and Canadian revenue and a $0.6 million reduction in operating expenses due to the adoption of IFRS 16.

For the three months ended September 30, 2019, EBIT improved to $4.4 million compared to $4.1 million during the same period of 2018. The primary driver for the increase in EBIT was due to the increase in EBITDA. This was offset by additional depreciation of $0.5 million related to the adoption of IFRS 16.

Revenue for the nine months ended September 30, 2019, increased 33% to $55.9 million from $42.0 million for the same period in 2018. Canadian revenue increased 27% to $37.9 million from $29.8 million year-over-year, due in part, to three large matting projects that started midway through the third quarter of 2019. Further contributing to the increase in Canadian revenue was an increase in the Canadian average matting fleet by 38% year-over-year, combined with a slight increase in Canadian utilization to 31% from 30% for the same period of 2018. Also positively impacting Canadian revenue was the timing of a large scale matting project which began in the fourth quarter of 2018 and carried through to the beginning of the second quarter of 2019. This was offset by an 8% decrease in average Canadian pricing year-over-year. In the U.S., revenue increased 48% to $18.1 million, compared to $12.2 million during the same period in 2018, which was driven by an increase in the U.S. average fleet by 69% and a 27% increase in average customer pricing. Further impacting U.S. revenue for the nine months ended September 30, 2019 was an increase in average utilization to 38% from 33% for the same period of 2018.

During the nine months ended September 30, 2019, EBITDA increased 73% to $22.8 million compared to $13.2 million during the same period of 2018. The increase in EBITDA is primarily due to the increase in revenue year-over-year and a $1.6 million reduction of operating expenses due to the adoption of IFRS 16.

EBIT for the nine months ended September 30, 2019, slightly increased 1% to $9.3 million as compared to $9.2 million for the same period in 2018. The increase in EBIT is primarily driven by the increase in EBITDA, which was offset by the increase in depreciation due to growth in matting fleet and the accelerated depreciation of $2.6 million of capital assets with no remaining useful life, as well as depreciation of $1.6 million related to the adoption of IFRS 16, which did not occur in the same period of 2018.

Operating expenses for the three and nine months ended September 30, 2019, increased 18% and 14%, respectively, to $11.3 million and $28.8 million as compared to $9.6 million and $25.2 million during the same period of 2018. The increase in operating expenses for the three months ended September 30, 2019 was primarily due to non recoverable hauling costs of $1.6 million for various matting projects. This was offset with the adoption of IFRS 16 that resulted in decreased rent and lease payments of $0.6 million. The increase in operating expenses for the nine months ended September 30, 2019 was due to non recoverable hauling costs, service costs, and costs of goods sold related to underutilized mats sold to a customer during the second and third quarter, as compared to the same period in 2018. This was offset by the adoption of IFRS 16, resulting in decreased rent and lease related expenses of $1.6 million.

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Equipment Rentals


($000's) 2019 2018 % 2019 2018 %

Canadian revenue $ 5,139 $ 7,638 (33)% $ 17,032 $ 26,658 (36)%

U.S. revenue 6,279 7,214 (13)% 17,882 18,991 (6)%

Total Revenue 11,418 14,852 (23)% 34,914 45,649 (24%)

EBITDA(1,2) 2,078 1,580 32 % 5,114 5,813 (12)%

EBITDA as a percentage of revenue 18% 11% 15% 13%

EBIT (3) (1,365) (2,412) nm (5,364) (6,114) nm

EBIT as a percentage of revenue (12)% (16)% (15)% (13)%

Capital expenditures(4) 118 142 (17)% 302 1,074 (72)%

Property, plant and equipment 62,247 84,777 (27)% 62,247 84,777 (27)%

Equipment Fleet:

Canadian equipment fleet 3,800 4,220 (10)% 3,800 4,220 (10)%

U.S. equipment fleet 2,060 1,900 8% 2,060 1,900 8%

Equipment fleet at period end(5) 5,860 6,120 (4)% 5,860 6,120 (4)%

Canadian average equipment fleet 3,820 4,250 (10)% 3,870 4,200 (8)%

U.S. average equipment fleet 2,060 1,890 9% 2,030 1,910 6%

Average equipment fleet(6) 5,880 6,140 (4)% 5,900 6,110 (3)%

Canadian average utilization 32 % 32 % 31 % 32 %

U.S. average utilization 40 % 43 % 40 % 42 %

Average utilization %(7) 36% 36% 35% 36%

Rig Counts(8)

Western Canada 129 206 (37)% 131 193 (32)%

Bakken 52 55 (5)% 55 53 4%

Marcellus 69 76 (9)% 76 78 (3)%

Rockies 70 66 6% 72 67 7%

Notes: (1) Earnings before interest, taxes, depreciation and amortization (“ EBITDA”) is not a recognized measure under IFRS, and, accordingly, Strad's use of such term may

not be comparable to similarly defined measures presented by other entities; see “Non-IFRS and Additional IFRS Measures and Reconciliations”. (2) The current period results include impacts from the adoption of IFRS 16 "Leases", which was adopted by the Company on January 1, 2019. These impacts are discussed

in further detail as noted in note 3 of the Unaudited Condensed Consolidated Interim Financial Statements for the three and nine months ended September 30, 2019. Comparative information has not been restated, and therefore, may not be comparable.

(3) Earnings (loss) before interest and tax (“EBIT”) is an additional measure under IFRS, see “Non-IFRS and Additional IFRS Measures and Reconciliations”. (4) Includes purchases of intangible assets. (5) Equipment rentals fleet balances are as at September 30, 2019 and 2018. (6) Equipment rentals fleet balances are averages for the three and nine months ended September 30, 2019 and 2018. (7) Equipment utilization includes surface equipment on rent only and is calculated using gross asset value. (8) Source: Baker Hughes "North America Rotary Rig Count". Rig Counts are average rig counts for the period.

Revenue for the three months ended September 30, 2019, decreased 23% to $11.4 million from $14.9 million during the same period in 2018. The decrease in revenue was driven by a 33% decrease in Canadian revenue and a 13% decrease in U.S. revenue. The decrease in Canadian revenue was primarily due to a 37% decrease in rig counts in western Canada. For the three months ended September 30, 2019, Canadian utilization was comparable at 32% compared to the same period of 2018, as the Company transferred under-utilized Canadian rental equipment to the U.S., which offset the impact of the decreased rig activity. Canadian revenue also benefited from a slight increase in average customer pricing of 5% as compared to the same period of 2018 due to product mix. The decrease in U.S.

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revenue was driven by a decrease in rig counts in the Bakken and Marcellus regions by 5% and 9% respectively, which was offset by a 6% increase in rig counts in the Rockies. For the three months ended September 30, 2019, U.S. average utilization decreased to 40% from 43% for the same period in 2018. This was offset by a 15% increase in average customer pricing for the three months ended September 30, 2019, as compared to the same period in 2018.

For the three months ended September 30, 2019, EBITDA increased by 32% to $2.1 million from $1.6 million for the same period of 2018. EBITDA as a percentage of revenue increased to 18% during the three months ended September 30, 2019, compared to 11% for the same period of 2018. The increase in EBITDA was driven primarily by the decrease in operating expenses of $0.7 million due to the adoption of IFRS 16.

EBIT for the three months ended September 30, 2019, was a loss of $(1.4) million compared to a loss of $(2.4) million during the same period of 2018. The improvement in EBIT is driven primarily due to lower depreciation on the equipment fleet.

Revenue for the nine months ended September 30, 2019, decreased 24% to $34.9 million from $45.6 million for the same period in 2018. The decrease in revenue was driven primarily by lower Canadian revenue, which was driven by a 32% decrease in western Canadian rig activity. This resulted in a slight decrease in equipment rental utilization to 31% from 32% year-over-year, as well as a decrease of 4% in average Canadian customer pricing. For the nine months ended September 30, 2019, the rig counts for Bakken and the Rockies regions increased by 4% and 7%, respectively, which was offset by a slight decrease of 3% in rig counts for Marcellus. Overall, this led to decreased utilization in the U.S. to 40% from 42%. The decrease in utilization led to a 6% decrease in U.S. revenue for the nine months ended September 30, 2019 as compared to the same period of 2018. This was offset by an increase in average customer pricing by 22% as compared to the nine months ended September 30, 2018.

During the nine months ended September 30, 2019, EBITDA decreased 12% to $5.1 million from $5.8 million during the same period in 2018. EBITDA as a percentage of revenue was slightly improved to 15% for the nine months ended September 30, 2019, compared to 13% for the same period in 2018. The decrease in EBITDA was driven primarily by the decrease in revenue and an increase in non recoverable hauling costs of $0.9 million related to the transfer of equipment from Canada to the U.S. This was offset by a $2.2 million decrease in operating expenses year-over-year due to the adoption of IFRS 16.

EBIT for the nine months ended September 30, 2019, was a loss of $(5.4) million compared to a loss of $(6.1) million during the same period in 2018. EBIT improved during the nine months ended September 30, 2019, primarily by the decrease in depreciation expense on the equipment fleet.

Operating expenses for the three and nine months ended September 30, 2019, decreased by 38% and 32% respectively, to $7.2 million and $23.9 million as compared to $11.5 million and $35.0 million during the same period of 2018. The decrease in operating expenses for the three months ended September 30, 2019, is the combination of the adoption of IFRS 16 that resulted in decreased rent and lease payments of $0.7 million and lower activity levels. The decrease in operating expenses for the nine months ended September 30, 2019 was a combination of the adoption of IFRS 16 which led to changes in lease accounting, resulting in decreased rent and lease related expense by $2.2 million and lower activity levels. This was offset by the increase of $0.9 million in non recoverable transportation costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") are comprised of sales and marketing costs associated with each segment, along with corporate costs which consist of head office infrastructure and general corporate costs.

SG&A expenses for the three months ended September 30, 2019 were $4.6 million as compared to $3.6 million during the same period of 2018. The increase in SG&A expenses was primarily due to an increase in performance bonuses, IT costs, and incentive award expenses. As a percentage of revenue for the three months ended September 30, 2019, SG&A expenses increased slightly to 14% as compared to 12% for the same period in 2018.

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SG&A expenses for the nine months ended September 30, 2019 were $13.0 million as compared to $11.2 million during the same period of 2018. The increase in SG&A expenses was primarily driven by the increase in incentive award expenses, IT costs, travel costs, and performance bonuses. As a percentage of revenue for the nine months ended September 30, 2019, SG&A expenses increased slightly to 14% as compared to 13% for the same period in 2018.

Depreciation and Amortization

Depreciation and amortization related to property, plant and equipment, intangible assets, and right of use ("ROU") assets increased to $8.2 million and $24.4 million for the three and nine months ended September 30, 2019, compared to $5.4 million and $16.1 million for the same period in 2018. Depreciation expense increased for the three months ended September 30, 2019, primarily due to the increase in matting fleet year-over-year as well as the depreciation of ROU assets of $1.3 million. For the nine months ended September 30, 2019, the increase in depreciation expense was primarily driven by the depreciation of ROU assets for $4.0 million. Under the new lease accounting standards, an ROU asset was created and incurs monthly depreciation charges. Further impacting depreciation was the accelerated depreciation of capital assets with no remaining useful lives for $2.6 million during the second quarter.

Interest Expense

Interest expense totaled $0.3 million and $1.0 million for the three and nine months ended September 30, 2019, compared to $0.2 million and $0.6 million for the same period in 2018. Interest expense increased for three and nine months ended September 30, 2019 primarily due to the adoption of IFRS 16, which resulted in an additional $0.2 million and $0.5 million in total interest, respectively.

(Gain) loss on Foreign Exchange

The (gain) loss on foreign exchange for the three and nine months ended September 30, 2019, was $nil which was comparable for the same periods in 2018. The Company is exposed to foreign currency fluctuations as certain balances within working capital may vary due to changing Canada/U.S. exchange rates. The Company has exposure to U.S. dollars since a portion of the Company’s customers and vendors transact in USD and the Company reports in CAD. The Canadian dollar has weakened by 2% against the U.S. dollar over the past year (1 CAD = 0.7551 USD as at September 30, 2019, compared to 1 CAD = 0.7725 USD as at September 30, 2018).

Income Taxes

For the nine months ended September 30, 2019, the Company recorded a loss before income taxes of $0.2 million and recognized deferred income tax recovery of $1.8 million, compared to a deferred income tax recovery of $4.5 million for the same period in 2018. On May 28, 2019, the Government of Alberta substantively enacted a reduction in the provincial corporate tax rate from 12% to 8% over four years. As a result, the Company recognized $1.3 million of deferred tax recovery related to the rate changes. For the nine months ended September 30, 2019, the Company's income taxes payable was $0.1 million compared to $nil for the same period in 2018.

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SUMMARY OF QUARTERLY RESULTS

Three months ended

($000's, except per share amounts) Sep 30, 2019 Jun 30, 2019 Mar 31, 2019 Dec 31, 2018

Revenue $ 33,298 $ 26,676 $ 30,880 $ 32,303

EBITDA (1) 10,249 5,783 9,199 10,599

Net (loss) income 1,736 (1,704) 1,566 (5,371)

Per share ($), basic 0.03 (0.03) 0.03 (0.09)

Per share ($), diluted 0.03 (0.03) 0.03 (0.09)

Notes:(1) Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is not a recognized measure under IFRS, and, accordingly, Strad's use of such a term may

not be comparable to similarly defined measures presented by other entities; see “Non-IFRS and Additional IFRS Measures and Reconciliations”. During the second quarter of 2018, the Company changed the method of calculation for EBITDA by no longer adjusting for gains or losses resulting from foreign exchange or the disposal of property, plant and equipment during the normal course of business.

Three months ended

($000's, except per share amounts) Sep 30, 2018 Jun 30, 2018 Mar 31, 2018 Dec 31, 2017

Revenue $ 31,220 $ 28,035 $ 28,364 $ 27,522

EBITDA(1) 6,502 4,830 5,263 5,059

Net income (loss) 890 3,861 (397) (3,364)

Per share ($), basic 0.02 0.07 (0.01) (0.06)

Per share ($), diluted 0.02 0.07 (0.01) (0.06)

Notes:(1) Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is not a recognized measure under IFRS, and, accordingly, Strad's use of such a term may

not be comparable to similarly defined measures presented by other entities; see “Non-IFRS and Additional IFRS Measures and Reconciliations”. During the second quarter of 2018, the Company changed the method of calculation for EBITDA by no longer adjusting for gains or losses resulting from foreign exchange or the disposal of property, plant and equipment during the normal course of business.

Strad’s quarterly performance has historically been affected by seasonal variations in the Western Canadian Sedimentary Basin ("WCSB"). At September 30, 2019 the Company had geographically diversified its operations where approximately 10% of the net book value of Strad’s capital assets are located in the U.S. Most regions in the U.S. do not normally experience the same seasonal reduction in drilling activity that the WCSB does in the second quarter. Strad’s product diversity helps further mitigate seasonal variations. In Canada, the demand for industrial matting products is typically minimal during the first quarter, much stronger in the second and third quarter, and then decreases through the end of the year. However, pipeline, power transmission and construction related projects have the potential to create more demand for matting during non-peak seasons as these segments continue to grow but is largely dependent on project timing. Demand for equipment rentals is typically strong in the first quarter, decreases in the second quarter, and then increases over the next two quarters.

The decrease in revenue for the second quarter of 2019 was due to lower activity levels in the WCSB as a result seasonal reduction in drilling. Further impacting the decrease in revenue was the timing of completion of a large matting project during the second quarter of 2019.

The increase in revenue for the fourth quarter of 2018 was due to a significant matting project that started late in the third quarter of 2018 and continued for the entire fourth quarter of 2018, leading to higher margins and therefore increased net income. This was offset by an impairment charge of $10.9 million to the Equipment Rentals CGU assets that was incurred during that quarter.

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LIQUIDITY AND CAPITAL RESOURCES

($000's) September 30, 2019 December 31, 2018

Current assets $ 28,100 $ 36,625

Current liabilities 23,939 17,292

Working capital(1) 4,161 19,333

Banking facilities

Operating facility 2,480 762

Syndicated revolving facility 6,498 12,934

Total facility borrowings 8,978 13,696

Total credit facilities(2) 48,500 48,500

Unused credit capacity 39,522 34,804

Notes: (1) Working capital is a Non-IFRS measure and calculated by Strad as current assets less current liabilities, as derived from the Company's consolidated statement of

financial position; see “Non-IFRS and Additional IFRS Measures and Reconciliations”. (2) Facilities are subject to certain limitations on accounts receivable, inventory, and net book value of fixed assets and are secured by a general security agreement over

all of the Company's assets. As at September 30, 2019, Strad had access to $48.5 million of credit facilities.

As at September 30, 2019, working capital was $4.2 million compared to $19.3 million at December 31, 2018. The change in current assets was a result of an 18% decrease in accounts receivable to $26.3 million for the third quarterof 2019 compared to $32.0 million for the fourth quarter of 2018. The decrease in accounts receivable was primarily due to the collection of a large balance outstanding during the third quarter of 2019, in addition to the timing of smaller collections made in the quarter compared to the fourth quarter of 2018. Inventory and prepaids decreased by 78% and 54% to $0.4 million and $1.0 million at September 30, 2019, respectively from $1.8 million and $2.1 million at December 31, 2018 respectively. The decrease in inventory was due to mats held in inventory at December 31, 2018, which were sold in the first quarter of 2019 and the decrease in prepaids was due to a large deposit made in the fourth quarter of 2018 that was cleared out in the first quarter of 2019.

The increase in current liabilities is primarily the result of an increase in bank indebtedness to $2.5 million at September 30, 2019 as compared to $0.8 million at December 31, 2018. This was also driven by an increase in current lease liabilities of $5.2 million as a result of the adoption of IFRS 16.

Cash flow from operating activities for the nine months ended September 30, 2019, increased to $37.2 million compared to $23.6 million for the nine months ended September 30, 2018, due to increased depreciation expense from the adoption of IFRS 16 resulting in a new depreciable asset in 2019 and an increase in non-cash working capital. Funds from operations for the nine months ended September 30, 2019, increased to $30.6 million compared to $22.2 million for the nine months ended September 30, 2018. Capital expenditures totaled $29.1 million for the nine months ended September 30, 2019. Management monitors funds from operations and the timing of capital additions to ensure adequate capital resources are available to fund Strad’s capital program.

As at September 30, 2019, the Company’s syndicated banking facility consists of an operating facility with a maximum principal amount of $7.0 million CAD and $5.0 million USD, and a $36.5 million CAD syndicated revolving facility, both of which are subject to certain limitations on accounts receivable, inventory, and net book value of fixed assets and are secured by a general security agreement over all of the Company’s assets. As at September 30, 2019, the Company had access to the maximum credit facilities. The syndicated banking facility will mature on September 29, 2021. The syndicated banking facility bears interest at bank prime plus a variable rate, which is dependent on the Company’s funded debt to covenant EBITDA ratio.

Based on the Company's funded debt to covenant EBITDA ratio, the interest rate on the syndicated credit facility is bank prime plus 0.50% on prime rate advances and at the prevailing rate plus a stamping fee of 1.50% on bankers' acceptances. For the nine months ended September 30, 2019, the overall effective rates on the operating facility and

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revolving facility were 3.93% and 3.85%, respectively. As of September 30, 2019, $2.5 million was drawn on the operating facility and $6.5 million was drawn on the revolving facility. Required payments on the revolving facility are interest only.

As at September 30, 2019, the Company was in compliance with all of the financial covenants under its credit facilities.

The relevant definitions related to the financial debt covenant ratio terms as set forth in the Company's syndicated banking facility are as follows:

• Funded debt includes bank indebtedness plus long-term debt less cash. • Covenant EBITDA is based on trailing twelve months adjusted EBITDA plus share based payments, plus

additional one-time charges, less right of use asset amortization, less interest expense associated with leases. • Interest expense ratio is calculated as the ratio of trailing twelve month EBITDA plus share based payments

to trailing twelve month interest expense on loans and borrowings.

The above noted definitions are not recognized under IFRS and are provided strictly for the purposes of the financial covenant calculation.

Financial Debt CovenantsAs at September 30,

2019As at December 31,

2018Funded debt to EBITDA ratio (not to exceed 3.0:1)

Funded debt $ 8,978 $ 14,009

Covenant EBITDA 31,405 26,877

Ratio 0.3 0.5

EBITDA to interest coverage ratio (no less than 3.0:1)

Covenant EBITDA $ 31,405 $ 26,877

Covenant interest expense 946 812

Ratio 33.2 33.1

OUTSTANDING COMPANY SHARE DATA

As of November 6, 2019

Common shares 54,869,649

Options 2,258,000

Fully diluted common shares 57,127,649

OFF BALANCE SHEET ARRANGEMENTS

As at September 30, 2019, the Company had no off-balance sheet arrangements.

TRANSACTIONS WITH RELATED PARTIES

Key management includes the Company’s members of the Executive Management Team.

For the period ended

September 30, 2019 December 31, 2018

Opening balance $ 691 $ 691

Repayment of share purchase loan (73) —

618 691

Certain key management personnel and directors have loans outstanding totaling $0.6 million from the Company. Proceeds of the loans were used to purchase common shares in the Company. The loan balances are non-interest bearing for the first three years the loan balances are outstanding unless further extensions are approved by the Board

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of Directors. During the first quarter of 2018, an extension of the non-interest bearing period for the loans was approved by the Board of Directors. After the interest free period, the notes bear interest at the prime lending rate per annum established by the Company's bank, plus 1% interest. The loans are required to be repaid in full on the maturity date, being 10 years from the date of issuance unless extensions are approved by the Board of Directors.

For the period ended September 30, 2019, there were loan advances of $nil made to key management (year-ended December 31, 2018 - $nil) and $0.1 million of shareholder loans were repaid (year-ended December 31, 2018 – $nil).

For the period ended September 30, 2019, interest of $nil was charged by the Company on loans to key management (year-ended December 31, 2018 - $nil) and interest repayments of $nil were received (year-ended December 31, 2018– $nil).

The Company has entered into a consulting services agreement and lease agreements with an entity wholly owned by Lyle Wood, a member of the Company’s Board of Directors. The Company makes payments of $56,500 per month to Mr. Wood for advisory services related to ongoing business development activities and for rent related to yard and office space in Fort St. John, B.C. For the nine months ended September 30, 2019, the total amount paid for these services was $0.5 million (December 31, 2018 - $0.7 million) with $0.1 million owing at September 30, 2019 (year-ended December 31, 2018 - $nil).

CRITICAL ACCOUNTING ESTIMATES

Management is required to make judgments, assumptions and estimates in applying its accounting policies and practices which have a significant impact on the financial results of the Company. The following discussion outlines the accounting policies and practices involving the use of estimates that are critical to determining Strad’s financial results.

Amounts recorded for depreciation and amortization are based on the estimated useful lives and residual values of the underlying assets. Useful lives and residual values are based on Management's best estimate using knowledge of past transactions and experience and industry practice, and as such are subject to measurement uncertainty. The estimates are reviewed at least annually and are updated if expectations change as a result of physical wear and tear and legal or other limits to use.

The Company used the Black-Scholes model to determine the fair value of certain share-based payments. The inputs to these models are based on various estimates such as volatility, dividend yield, interest rates and the expected term. The Company uses historical informational trends to determine the best estimates to use. Management reviews these estimates for each new award granted.

Inventory is to be carried at the lower of cost and net realizable value. Management regularly reviews the estimates associated with net realizable value, which is the selling price prevailing in the market, less any costs to sell. Significant changes in economic and business conditions could impact the timing and magnitude of impairment charges in inventory.

The Company makes estimates of the fair value of assets and liabilities assumed in a business combination, which includes estimates of the fair value of property, plant and equipment, working capital, debt, and obligations under capital leases.

The Company makes estimates when determining the recoverable amount of assets subject to impairment testing. The recoverable amount of assets are determined using the greater of fair value less costs of disposal and value-in-use. Fair value less costs of disposal and value-in-use calculations require the use of estimates, assumptions, and judgments. Value-in-use calculations require management estimates regarding projected future sales, earnings, capital investment and, discount rates. Fair value less costs of disposal requires management to make estimates of future sales, earnings and capital investment, and discount rates, as well as estimations of costs to sell. The estimates are reviewed each time an impairment calculation is required.

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Deferred tax assets and liabilities contain estimates about the nature and timing of future permanent and temporary differences. Tax interpretations, regulations, and legislation in the various jurisdictions in which the Company and its subsidiaries operate are subject to change. Deferred income tax assets are assessed by Management at the end of the reporting period to determine the likelihood that they will be realized from future taxable earnings. Management reviews current and potential changes to tax law and bases estimates on the most relevant information available.

When there is objective evidence that the full collection of accounts receivable is unlikely, Management will estimate the most likely amount to be recovered. Amounts estimated are based on the best available information at the time the estimate is made.

NEW ACCOUNTING STANDARDS

On January 1, 2019, the Company adopted IFRS 16 - “Leases” (“IFRS 16”). Additional information regarding the adoption of the standard and the impact can be found in note 3 of the Unaudited Condensed Consolidated Interim Financial Statements for the three and nine months ended September 30, 2019.

DISCLOSURE CONTROLS AND PROCEDURES

The Company's Chief Executive Officer and Chief Financial Officer have designed, or have caused to be designed under their supervision, disclosure controls and procedures to provide reasonable assurances that (i) material information relating to the Company is made known to the Company's Chief Executive Officer and Chief Financial Officer by others, particularly during the period of time in which the annual and interim filings are being prepared; and (ii) the information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in the securities legislation. They are assisted in this responsibility by the Company’s Management team. These disclosure controls and procedures include controls and procedures which have been designed to ensure that the information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is accumulated and communicated to the Company’s Management to allow timely decisions regarding required disclosure.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

The Chief Executive Officer and Chief Financial Officer of the Company are responsible for designing, establishing, and maintaining internal controls over financial reporting; as such term is defined in National Instrument 52-109 - Certification of Disclosure in Issuers’ Annual and Interim Filings. The Chief Executive Officer and Chief Financial Officer of the Company certify on a quarterly and annual basis that senior management has designed such internal controls over financial reporting (“ICFR”), or caused them to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.

The Company’s internal controls over financial reporting may not prevent or detect all errors, misstatements, and fraud. The design of internal controls must also take into account resource constraints. A control system, including the Company’s internal controls over financial reporting, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

During the nine months ended September 30, 2019, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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RISKS AND UNCERTAINTIES

The operations of Strad face a number of risks and uncertainties in the normal course of business that may be beyond its control, but which could have a material adverse effect on the Company’s financial condition and results of operations. These risks and uncertainties have not materially changed from those described in detail in Strad's most recent Annual Information Form, filed March 25, 2019, which is available on SEDAR at www.sedar.com.

RESPONSIBILITY OF MANAGEMENT AND THE BOARD OF DIRECTORS

The Company’s management is responsible for the information disclosed in this MD&A and the accompanying unaudited condensed interim consolidated financial statements, and has in place appropriate information systems, procedures and controls to ensure that information used internally by management and disclosed externally is materially complete and reliable. In addition, the Audit Committee, on behalf of the Board of Directors, provides an oversight role with respect to all public financial disclosures made by the Company, and has reviewed and approved this MD&A and the related unaudited condensed interim consolidated financial statements.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS

Certain statements and information contained in this MD&A constitute forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words “expect”, “plan”, “continue”, “estimate”, “anticipate”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe”, “may”, “predict”, or “will” and similar expressions are intended to identify forward-looking information or statements. More particularly, this MD&A contains forward-looking statements concerning future capital expenditures of the Company, including its 2019 capital program and possible alterations thereto, planned allocations of capital expenditures, possible further repurchases under our NCIB, and funding thereof, by way of cash flow, anticipated cash flow, debt, anticipated growing demand for the Company’s products and services in 2019 and beyond, and anticipated revenue allocations amongst our service offerings, drilling activity in North America, pricing of the Company’s products and services, and expectations for 2019 and potential for improved profitability, and the potential for growth and expansion of certain components of the Company's business, including further capital being allocated to increase our matting fleet, expanding our matting offerings in the U.S., our strategy to grow our matting fleet to 180,000 by 2021, anticipated benefits from cost reductions and timing thereof, manufacturing capacity to meet anticipated demand for the Company’s products, and expected exploration and production industry activity including the effects of industry trends, including the anticipated completion and potential impact of LNG infrastructure, and pipeline expansions on demand for the Company's products. These statements relate to future events or to the Company’s future financial performance and involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results, levels of activity, performance or achievements to be materially different from future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements.

Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking statements throughout this MD&A. The forward-looking information and statements included in this MD&A are not guarantees of future performance and should not be unduly relied upon. Forward-looking statements are based on current expectations, estimates, and projections that involve a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated and described in the forward-looking statements. Such information and statements 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 information or statements. In addition to other material factors, expectations, and assumptions which may be identified in this MD&A and other continuous disclosure documents of the Company referenced herein, assumptions have been made in respect of such forward-looking statements and information regarding, among other things: the Company will continue to conduct its operations in a manner consistent with past operations; the general continuance of current industry conditions; anticipated financial performance, business prospects, impact of competition, strategies, the general stability of the economic and political environment in which the Company operates; exchange and interest rates; tax laws; the sufficiency of budgeted capital expenditures in carrying out planned activities; the availability and cost of labour and services and the adequacy of cash flow; debt and ability to obtain financing on acceptable terms to fund its planned expenditures, which are subject to change based on commodity prices; market conditions and future oil and natural

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gas prices; and potential timing delays. Although Management considers these material factors, expectations, and assumptions to be reasonable based on information currently available to it, no assurance can be given that they will prove to be correct.

Readers are cautioned that the foregoing lists of factors are not exhaustive. Additional information on these and other factors that could affect the Company's operations and financial results are included in reports on file with the Canadian Securities Regulatory Authorities 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 AND ADDITIONAL IFRS MEASURES AND RECONCILIATIONS

Certain supplementary measures in this MD&A do not have any standardized meaning as prescribed under IFRS and, therefore, are considered non-IFRS measures. These measures are described and presented in order to provide shareholders and potential investors with additional information regarding the Company’s financial results, liquidity and its ability to generate funds to finance its operations. These measures are identified and presented, where appropriate, together with reconciliations to the equivalent IFRS measure. However, they should not be construed as alternative measures to IFRS measures, and as they do not have standardized meanings or standardized methods of calculation, the may not be consistent with or comparable to similar measures presented by other companies. These measures are further explained below.

Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is not a recognized measure under IFRS. Management believes that in addition to net income (loss), EBITDA is a useful supplemental measure as it provides an indication of the results generated by the Company’s principal business activities prior to consideration of how those activities are financed and taxed. EBITDA is now calculated as net income (loss) before interest, taxes, and depreciation and amortization. Segmented EBITDA is based upon the same calculation for defined business segments, which are comprised of Industrial Matting and Equipment Rentals. The Company’s method of calculating EBITDA may differ from that of other organizations and, accordingly, its EBITDA may not be comparable to that of other companies.

Earnings (loss) before interest and taxes (“EBIT”) is an additional measure under IFRS. Management believes that in addition to net income (loss), EBIT is a useful supplemental measure as it provides an indication of the results generated by the Company’s principal business activities prior to consideration of how those activities are financed and taxed.

Funds from operations are cash flow from operating activities excluding changes in non-cash working capital. Funds from operations is a non-IFRS measure commonly used in industrial services industries, such as Pipeline, Oil & Gas, Transmission & Distribution and construction, to assist in measuring a company's ability to finance its capital programs, debt repayments and other financial obligations. Funds from operations is not intended to represent net cash generated from operating activities or other measures of financial performance in accordance with IFRS. It is a supplemental measure to gauge performance of the Company before non-cash items. The Company’s method of calculating funds from operations may differ from that of other organizations and, accordingly, its funds from operations may not be comparable to that of other companies.

Working capital is calculated as current assets minus current liabilities, as derived from the Company's consolidated statement of financial position. Working capital, cash forecasting, and banking facilities are used by Management to ensure funds are available to finance growth opportunities. Funded debt is a measure used in calculating our bank financial covenants. Funded debt is calculated as bank indebtedness plus long-term debt less cash from syndicate institutions.

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Reconciliation of Funds from Operations

($000's)


2019 2018 2019 2018

Net cash generated from operating activities $ 10,657 $ 7,448 $ 37,233 $ 23,571

Less:

Changes in non-cash working capital (731) (1,186) 6,669 1,357

Funds from Operations 11,388 8,634 30,564 22,214

Reconciliation of EBITDA and EBIT

($'000's)


2019 2018 2019 2018

Net income: $ 1,736 $ 890 $ 1,593 $ 4,354

Add (deduct):

Depreciation and amortization 8,245 5,444 24,393 16,116

Income tax recovery (76) (62) (1,763) (4,452)

Interest expense 344 230 1,005 577

EBITDA(1) 10,249 6,502 25,228 16,595

(Deduct):

Depreciation and amortization (8,245) (5,444) (24,393) (16,116)

EBIT 2,004 1,058 835 479(1)

The current period results include impacts from the adoption of IFRS 16 "Leases", which was adopted by the Company on January 1, 2019. These impacts are discussed in further detail as noted in note 3 of the Unaudited Condensed Consolidated Interim Financial Statements for the three and nine months ended September 30, 2019. Comparative information has not been restated, and therefore, may not be comparable.

Reconciliation of quarterly non-IFRS and additional IFRS measures($'000's)

Three months ended

Sep 30, 2019 Jun 30, 2019 Mar 31, 2019 Dec 31, 2018

Net income (loss): $ 1,736 $ (1,704) $ 1,566 $ (5,371)

Add (deduct):

Depreciation and amortization(1) 8,245 8,997 7,150 18,253

Income tax (recovery) expense (76) (1,820) 132 (2,518)

Interest expense 344 310 351 235

EBITDA(2)(3) 10,249 5,783 9,199 10,599

(Deduct):


EBIT 2,004 (3,214) 2,049 (7,654)(1)

Included in depreciation and amortization for the three months ended December 31, 2018, are impairment charges of $10.9 million related to the impairmentof Equipment Rentals assets during the fourth quarter of 2018. (2) During the second quarter of 2018, the Company changed the method of calculation for EBITDA by no longer adjusting for gains or losses resulting from foreign exchange or the disposal of property, plant and equipment during the normal course of business. These changes have been updated for prior period balances.(3)


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Three months ended

Sep 30, 2018 Jun 30, 2018 Mar 31, 2018 Dec 31, 2017

Net income (loss): $ 890 $ 3,861 $ (397) $ (3,364)

Add (deduct):

Depreciation and amortization 5,444 5,240 5,432 8,918

Income tax (recovery) expense (62) (4,428) 38 (653)

Interest expense 230 157 190 158

EBITDA(1)(2) 6,502 4,830 5,263 5,059

(Deduct):


EBIT 1,058 (410) (169) (3,859)(1) During the second quarter of 2018, the Company changed the method of calculation for EBITDA by no longer adjusting for gains or losses resulting from foreign exchange or the disposal of property, plant and equipment during the normal course of business. These changes have been updated for prior period balances.(2)


Reconciliation of funded debt($'000's)

As at September 30,2019

As at December 31,2018

Bank indebtedness at syndicate banks $ 2,480 $ 762

Long term debt 6,498 12,934

Lease liabilities — 313

Funded Debt 8,978 14,009

Documents

SDY - 9.30.2019 MDA · 2019. 11. 7. · Title: SDY - 9.30.2019 MDA Created Date: 20191170955