Taiga Building Products : 2023 Quarterly Report – Q1

Management's Discussion and Analysis

For the three months ended March 31, 2023 and 2022

This Management's Discussion and Analysis ("MD&A") of Taiga Building Products Ltd. ("Taiga" or the "Company") has been prepared based on information available as at May 5, 2023 and should be read in conjunction with the unaudited condensed interim consolidated financial statements and the corresponding notes thereto for the three months ended March 31, 2023 and 2022. This discussion and analysis provides an overview of significant developments that have affected Taiga's performance during the three months ended March 31, 2023.

The financial information reported herein has been prepared in accordance with International Financial Reporting Standards ("IFRS"), which is the required reporting framework for Canadian publicly accountable enterprises, and is expressed in Canadian dollars.

Taiga's consolidated financial statements and the accompanying notes included within this report include the accounts of Taiga and its subsidiaries. Unless otherwise noted, all references in this MD&A to "dollars" or "$" are to Canadian dollars.

Unless otherwise noted, there are no material changes to the Company's contractual obligations and risks and uncertainties as described in its management's discussion and analysis for the year ended December 31, 2022.

Additional information relating to the Company including the Company's Annual Information Form dated February 24, 2023 can be found on SEDAR at www.sedar.com.

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Forward-Looking Information:

This MD&A contains certain forward-looking information relating, but not limited, to future events or performance and strategies and expectations of Taiga. Forward-looking information typically contains statements with words such as "consider", "anticipate", "believe", "expect", "plan", "intend", "likely", "may", "will", "should", "predict", "potential", "continue" or similar words suggesting future outcomes or statements regarding expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. Examples of such forward- looking information within this document include statements relating to: the Company's perception of the building products industry and markets in which it participates and anticipated trends in such markets in any of the countries in which the Company does business; the Company's anticipated business operations, inventory levels and ability to meet order demand; the Company's anticipated ability to procure products and its relationship with suppliers; sufficiency of cash flows; and the anticipated outcome of legal and regulatory proceedings. Readers should be aware that these statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking information. Forward-looking information reflects management's current expectations or beliefs and is based on information currently available to Taiga and although Taiga believes it has a reasonable basis for providing the forward-looking information included in this document, readers are cautioned not to place undue reliance on such forward-looking information. By its nature, the forward-looking information of Taiga involves numerous assumptions and inherent risks and uncertainties, both general and specific that contribute to the possibility that the predictions, forecasts and other forward-looking information will not occur. These factors include, but are not limited to: changes in business strategies; the effects of legal or regulatory proceedings, competition and pricing pressures; changes in operational costs; changes in laws and regulations, including tax, environmental, employment, competition, anti-terrorism and trade laws and Taiga's anticipation of and success in managing the risks associated with the foregoing; and other risks detailed in this MD&A and Taiga's filings with the Canadian securities regulatory authorities available at www.sedar.com. Forward- looking information speaks only as of the date of this discussion and analysis. Taiga does not undertake, and specifically disclaims, any obligation to update or revise any forward-looking information, whether as a result of new information, future developments or otherwise, except as required by applicable law.

Non-IFRS Financial Measure:

In this MD&A, reference is made to EBITDA, which represents earnings before interest, taxes, and amortization. As there is no generally accepted method of calculating EBITDA, the measure as calculated by Taiga might not be comparable to similarly titled measures reported by other issuers. EBITDA is presented as management believes it is a useful indicator of the Company's ability to meet debt service and capital expenditure requirements and because management interprets trends in EBITDA as an indicator of relative operating performance. EBITDA should not be considered by an investor as an alternative to net income or cash flows as determined in accordance with IFRS. Reconciliations of EBITDA to net earnings reported in accordance with IFRS are included in this MD&A.

Market and Industry Data:

Unless otherwise indicated, the market and industry data contained in this MD&A is based upon information of independent industry and government publications and management's knowledge of, and experience in, the markets in which the Company operates. While management believes this data to be reliable, market and industry data is subject to variation and cannot be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey. The Company has not independently verified any of the data from third party sources referred to in this MD&A and no representation is given as to the accuracy of any of the data referred to in this MD&A obtained from third party sources.

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1. Business Overview

Taiga is the largest independent wholesale distributor of building products in Canada. Taiga distributes building products in Canada, the United States and overseas. As a wholesale distributor, Taiga maintains substantial inventories of building products at fifteen strategically located distribution centres throughout Canada and two distribution centres in California and one in Washington. In addition, Taiga regularly distributes through the use of third party reload centres. Taiga also owns and operates four wood preservation plants that produce pressure- treated wood products. Factors that affect Taiga's year-over-year profitability include, among others, sales levels, price fluctuations and product mix.

Taiga's primary market is Canada. Taiga expects the Canadian housing market in calendar year 2023 to worsen compared to calendar year 2022. Taiga's secondary market, the United States, is expected to worsen in 2023 compared to calendar year 2022. See Item 9 "Outlook".

2. Results of Operations

Sales

The Company's consolidated net sales for the quarter ended March 31, 2023 were $408.5 million compared to $612.7 million over the same period last year. The decrease in sales by $204.2 million or 33% was largely due to decreased selling prices for commodity products.

Sales by segments are as follows:

For the quarter ended March 31, 2023, export sales totalled $42.4 million compared to $89.5 million in the same quarter in the previous year. These export sales were primarily to the United States and Asia and are included as part of the Canadian segment in the table above.

The Company's sales of dimension lumber and panel, as a percentage of total sales, was 53.6% for the quarter ended March 31, 2023 and 61.6% over the same period last year. Allied, engineered and treated wood product sales, as a percentage of total sales, was 46.4% for 2022 and 38.4% over the same period last year.

Gross Margin

Gross margin for the quarter ended March 31, 2023 decreased to $47.1 million from $108.9 million over the same period last year. The decrease in gross margin was primarily due to lower commodity prices in the current quarter compared to the same quarter last year.

Expenses

Distribution expense for the quarter ended March 31, 2023 increased to $8.0 million compared to $7.3 million over the same period last year primarily due to increased depreciation, warehousing expenses and wages.

Selling and administration expense for the quarter ended March 31, 2023 decreased to $19.6 million compared to $45.8 million over the same period last year primarily due to lower compensation costs.

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Finance expense for the quarter ended March 31, 2023 was $1.1 million compared to $1.9 million over the same period last year. The decrease was primarily due to lower borrowing levels leading to lower interest costs.

Other expenses for the quarter ended March 31, 2023 was $0.01 compared to other income of $0.05 million over the same period last year.

Net Earnings

Net earnings for the quarter ended March 31, 2023 decreased to $13.5 million from $39.5 million for the same period last year primarily due to decreased gross margin.

EBITDA

EBITDA for the quarter ended March 31, 2023 was $22.5 million compared to $58.6 million for the same period last year.

Reconciliation of net earnings to EBITDA:

3. Cash Flows

Operating Activities

Cash flows from operating activities used cash of $77.7 million for the quarter ended March 31, 2023 compared to $150.4 million for the same period last year. Changes between the comparative periods were primarily due to changes in non-cash working capital primarily due to a decrease in accounts receivable and a decrease in accounts payable.

Investing Activities

Investing activities used cash of $10.5 million for the quarter ended March 31, 2023 compared to $0.6 million over the same period last year. The increase was primarily due to a $9.6 million long term investment the Company made during the quarter.

Financing Activities

Financing activities used cash of $1.5 million for the quarter ended March 31, 2023 compared to generating $81.4 million for the same period last year. The difference was caused primarily by decreased borrowing from the credit facility.

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4. Summary of Quarterly Results

Notes:

1. The amounts are identical on a basic and fully diluted per share basis. Earnings per share is calculated using the weighted-average number of shares.

Seasonality

Taiga's sales are subject to seasonal variances that fluctuate in accordance with the normal home building season. Taiga generally experiences higher sales in the quarters ended June 30 and September 30 and reduced sales in the late fall and winter during its quarters ended December 31 and March 31 of each fiscal year.

5. Liquidity and Capital Resources

Revolving Credit Facility

On December 21, 2022, the Company entered into a new $250 million senior secured revolving credit facility (the "Facility") with a syndicate of lenders led by the Bank of Montreal and including Scotiabank, Bank of America, TD Bank and CIBC. The Facility bears interest at variable rates plus variable margin, is secured by a first perfected security interest in all real and personal property of the Company and certain of its subsidiaries, and matures on December 20, 2027. Taiga's ability to borrow under the Facility is based upon a defined percentage of accounts receivable and inventories. The terms, conditions, and covenants of the Facility have been met as at March 31, 2023.

Taiga expects to meet its future cash requirements through a combination of cash generated from operations and its credit facilities. However, any severe weakening of the Canadian housing market driving reduced product demand or a significant increase in bad debts in accounts receivable could adversely impact the Company's liquidity in the short term.

Working Capital

Working capital as at March 31, 2023 increased to $316.3 million from $310.6 million as at December 31, 2022 due to decreased liabilities. Taiga believes that current levels are adequate to meet its working capital requirements.

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