CES Energy Solutions achieves highest Q3 revenue of $623 million and record EBITDA of $103.3 million, positioning for continued growth in 2026.

Regina (Operator) - (00:00:00)

Thank you for standing by. My name is Regina and I will be your conference operator today. At this time I would like to welcome everyone to the CES Energy Solutions Corp. Third quarter 2025 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press Star then the number one on your telephone keypad. To withdraw your question, press Star one again. I'd now like to turn the conference over to Tony Alciano, Chief Financial Officer. Please go ahead.

Tony Alciano - (00:00:36)

Good morning everyone and thank you for attending today's call. I'd like to note that in our commentary today there will be forward looking financial information and that our actual results may differ materially from the expected results due to various risk factors and assumptions. These risk factors and assumptions are summarized in our third quarter MDA and press release dated November 13, 2025 and in our annual information form dated March 6, 2025. In addition, certain financial measures that we will refer to today are not recognized under current Generally Accepted Accounting Principles and for a description and definition of these, please see our third Quarter MDA. At this time I'd like to turn the call over to Ken Singer, our President and CEO.

Ken Singer - (00:01:27)

Thank you Tony. Welcome everyone and thank you for joining us for our third quarter 2025 earnings call. On today's call, I will provide a brief summary of our financial results released yesterday, followed by an update on capital allocation and then our divisional updates for Canada and the U.S. as well as our outlook for the remainder of 2025. I will then pass the call over to Tony to provide a detailed financial update. We will take questions and then we will wrap up the call. As always, I will start my comments today by highlighting some of the major financial accomplishments we achieved in Q3 of 2025. These highlights include our highest ever third quarter revenue and second highest quarterly revenue ever of $623 million. Our highest ever quarterly EBITDA of $103.3 million, which represented a 16.6% margin total debt to trailing 12 months. EBITDA was at 1.29 times at the end of Q3 2025, which was well within our targeted range of one to one and a half times cash conversion cycle days in Q3 of 110 days, right at the low end of our Targeted range of 110 to 115 days US revenue of $409.4 million, which was our second straight all time quarterly record Canadian revenue of $213.8 million, which was our third highest quarterly revenue ever. With regard to our capital allocation plans, I am pleased to report the following Consistent with our prior messaging, we intend to address the dividend once per year while reporting Q4 or Q1 of each year. We will continue to support the business with the necessary investments required to provide acceptable growth and returns. This includes anticipated CAPEX in 2026 of 85 to 90 million dollars. We will continue to research and execute on strategic tuck in acquisition opportunities into related business lines or geographies where we believe we can add value and grow returns. We intend to fully execute on our current NCIB allotment of 18.9 million shares prior to its expiry in July of 2026. We will continue to target a debt level in the 1 to 1.5 times debt to trailing twelve months EBITDA range. I'll now move on to summarize Q3 performance overall and by division. Today our rig count on North American land stands at 211 rigs out of the 716 listed as currently operating representing an industry leading and all time record North American land market share of 29.5%. This market share surpasses our prior record from last quarter of 28.4%. In Q2, 66% of CES Energy Solutions revenue was generated in the United States and 34% in Canada. As previously noted, this US revenue result for Q3 2025 set a new all time record as our highest US revenue quarter ever. In conjunction with this, our Canadian divisions had their best ever revenue for a third quarter as well as their third best quarterly revenue ever. As noted during the Q2 call and message throughout the first half of the year, we expected margins to be under pressure in H1 2025 as tariff concerns, the negative macro outlook and our overstaffing in preparation for some large RFPs all took a toll on margins in Q1 and Q2 as shown. With our Q3 performance and with the results of these new RFPs now known, we have been able to optimize metrics in order to begin to recover margins. There will also be a requirement for additional CapEx to support these business wins as indicated by our increased CAPEX estimate for 2026 of 85 to 90 million dollars. Although we will not be identifying exactly who the recent RFP wins were rewarded by nor the exact amount of each of them, I will note the following the new revenue will begin filtering into our Q4 2025 results with the majority showing up in Q1 and Q2 of 2026. We previously indicated that we expected these awards to help enable EBITDA growth in the low single digits up to 10% in 2026 over 2025. We now estimate more confidently that in the flat activity environment, the upper end of this range is the most likely outcome In Canada, the Canadian Drilling Fluids Division continues to lead the WCSB in market share. Today we are providing service to 73 of the 191 jobs listed as underway in Canada or a 38.2% market share. The overall active drilling rig count in Canada throughout Q3 and so far in Q4 has been trending consistently lower than 2024 by a little more than 10% year over year. In contrast to that, our current rig count is only down about 5% from 2024. Additionally, due to service intensity and the mix of well types being drilled, our overall revenue in Canada hit an all time record for a Q3. We remain very optimistic about the prospects for 2025 due to the completion and full startup of infrastructure projects and their associated takeaway capacity. We continue to view the WCSB as a basin which is in a great position to not only weather the macro pressure, but also to benefit significantly when those pressures subside. Curechem, Our Canadian production chemical business continued its run of very strong results in Q3. Curechem continued its impressive growth trajectory as well as all of the business lines continued to perform at extremely high levels. The revenue and earnings from our continued market penetration and market share growth continued to accelerate in Q3. Additionally, we have begun achieving access to the larger opportunities in the attractive heavy oil G D market. This is a market we have been focused on penetrating for the past 10 years. Although it is a long and complicated process to break into this market, we have persistently worked to find effective solutions. Over the past year or two. We have finally been able to achieve some wins in treating GD production for a couple of the smaller operators and plants in the region. This has now given us the data to demonstrate to the larger operators that not only do we have the capability to service the production reliably, but we can also provide superior results than the status quo. This is high volume, high revenue and very sticky business due to its complexity and cost of change. We liken this business to the offshore business in the usa. Different chemistry and problems but with large rewards if you can penetrate and execute on them. In the United States. AES, our US drilling fluids group is providing chemistries and service to 138 of the 525 rigs listed as active in the U land market today for continually widening number one market share of US land rigs at 26.3%. At AES we truly believe we have a unique structure within the drilling fluid space in North America. We believe we have superior technical capabilities, procurement teams as well as manufacturing and logistics people and facilities, all of which are focused on bringing value to our customers. The number of rigs drilling in the U is flat since we last reported in August, but down by about 7 and a half percent year over year. However, AES is actually up by 18 rigs year over year or 15%. Currently we enjoy a basin leading 93 rigs out of the 251 listed as working in the Permian basin or 37.1% of the market, very close to our highest market share ever in the Permian. I would also like to note that AES Completion Services, formerly Hydrolight, continues to make significant penetration into the cleanout drill out market in the Permian and South Texas regions. In partnership with AES, this business unit is delivering material revenue and EBITDA contributions significantly above pre acquisition levels as well. The Fossil Fluids group that we acquired in Oklahoma during Q2 of 2025 is already running at much higher levels than prior to our purchase. Fossil is an impressive niche drilling fluids company that we knew very well. Their specialization in the increasingly attractive Cherokee Shale hybrid oil and gas play provides us with exposure to another growing basin and with alignment to the strong trends currently being experienced in the North American land gas market. Finally, I will note that our market shares throughout the U land market continue to grow as natural gas production continues to garner attention. Two years ago during our November 2023 earnings call, I noted that we intended to begin putting an emphasis on getting back into the Haynesville play as gas was starting to become relevant again. Currently we are up to seven of the 40 rigs working in the Haynesville with two more moving in the next three weeks. This represents a market share of over 21% over the past year. We have constructed a blending plant and distribution facility strategically located within the basin while also developing some niche products and systems specifically for the high temperature high pressure challenges which Haynesville wells are notorious for. We anticipate further growth in this area as activity continues to ramp up in the coming months and years. One year ago there were 33 rigs working in the Haynesville. Today there are 40 which represents year over year activity growth of almost 20% as well. Today we are currently servicing 14 of the 37 rigs in the northeastern U and we have recently been awarded two more which will be moving in the next couple of weeks. This gives us close to a 40% market share in this gas rich region which includes the Marcellus and Utica Shale plays. All of these results speak to the quality of the business we are operating throughout North America. Our focus on executions of strategy service to customers, along with unmatched technical and logistical capabilities all explain why we now service almost 30% of all the rigs in North America. We have meaningful market shares in every basin which we are targeting. Finally, our US Production chemical division, JCAM Catalyst, continues its steady trend of growing market share and profitability. The division remains focused on further market penetration in all the areas in which they operate. As noted on the quarterly earnings call in August, JCAM Catalyst continued to invest in CapEx and personnel during the first half of 2025 in order to support not only its high activity levels but also to support several potential upcoming business opportunities. It is important to note that jcam's business, like Purecam's, is almost entirely leveraged to production related spending by EMPs and therefore the revenue and earnings are extremely durable through any cycle. As noted earlier in my comments, jchem Catalyst has now been awarded some of the major RFP wins we were preparing for during the first half. In the coming months we will transition into this new business as it is possible. This will be evidenced by the increased revenue EBITDA and CapEx that we previously discussed and forecasted for 2026. Also, as noted on the Q2 earnings call, JCHEM Catalyst has been optimizing manufacturing, developing products and hiring some technical specialists in order to become a relevant supplier in the Gulf of America. Our initial targets in this region are the 54 deep water platforms in the Gulf, meaning those that are that are in over 1,000ft of water. These types of platforms experience technically challenging conditions and require high volume treatment. These conditions allow for specialized chemical solutions which, although very different from land based chemistries, present opportunities for product development and solution differentiation. Although a long and steep learning curve, we are making progress as evidenced by the fact that we have recently been awarded a fourth platform and in the coming months we will take over providing the full suite of treatments for it. This now puts us on four of the 54 targeted deepwater platforms for a market share of approximately 7.5%. I want to reiterate the confidence I have and the resilience of our business model in the face of the current market uncertainty. Our business is countercyclical and requires minimal capex, especially during times of disruption in our industry. Noteworthy as well is that in spite of the pullback in upstream activity, we have consistently experienced revenue and opportunity growth throughout 2025. Therefore, our strategy remains the same, anchored by a cautious focus on maintaining relationships with existing clients while continuing to develop products and solutions which benefit them as well as opening doors with new clients and markets for us. We believe our Q3 results are an early indicator of the tremendous torque we have building in the business right now. We also believe that US upstream activity will inevitably accelerate more than likely during the second half of 2026. In the meantime, we continue to expect 2025 to be a year of growth and positioning for with 2026 looking even stronger in North America as the oil market seems headed towards a more positive structure and natural gas demand continues to grow. With regard to U tariffs and the suggested Canadian counter tariffs, these continue to have little to no direct effect on our business in the current state. However, we have made significant progress in restructuring our manufacturing and supply chains in order to minimize future exposures as much as possible. Where possible, we will manufacture products within the same country in which they are being sold. We will continue with this strategy until we have insulated the business as much as possible from future tariff risks. I will state again for clarity that as noted clearly on our first Q1 call, the impact from tariffs announced to date continues to be immaterial to our overall business. As always, I want to extend my appreciation to each and every one of our employees for their commitment to the business culture and success of cesar. Due to the growth we are still experiencing as well as anticipate experiencing, we have increased our total number of employees from 2,530 on January 1, 2025 to 2675 at the end of Q3. With that, I will pass the call to Tony for the financial update.

Tony Alciano - (00:15:42)

Thank you Ken. CES's third quarter delivered record Q3 revenue and record adjusted EBITDA demonstrating a continuation of strong revenue margin expansion funds flow from operations and high quality earnings despite lower rig counts and WTI price related end market volatility. These results underpin the unique resilience of CES consumable chemicals business model and sustained profitable growth as our customers continue to adopt chemical related improved efficiencies and require higher treatment levels for increasingly prolific wells. CES continued to effectively deploy strong surplus cash flow to return capital to shareholders while investing in strategic capex and working capital levels to support our current revenue run rate and position the company for identified growth opportunities in Q3, CES generated revenue of $623 million, representing an annualized run rate of approximately 2.5 billion and a 3% increase over the prior year's $607 million. Revenue generated in the US set a new record at $409 million, representing 66% of total consolidated revenue. These results compared to revenue of 406 million in Q2 and 403 million in Q3 2024. Revenue generated in Canada set a third quarter record at $214 million compared to 168 million in Q2 and was 5% ahead of the 204 million generated a year ago. Revenue levels benefited from recent acquisition contributions and elevated service intensity and production chemical volumes driven by increasingly complex drilling programs. Customer emphasis on optimizing production through effective chemical treatments benefited. Both countries encountered declines in industry rig counts, illustrating the resilience and attractiveness of our business model. Adjusted EBITDA in Q3 came in at $103.3 million compared to 88.3 million in Q2 and $102.5 million in Q3 2024. Q3's adjusted EBITDA margin of 16.6% came in at the high end of our targeted 15.5 to 16.5% range versus 15.4% in Q2 and 16.9% in Q3 2024. This improving margin trend reflects the onset of growing into a cost structure supporting higher revenue levels, strong contributions from accretive tuck in acquisitions, and an attractive product mix. CES generated $52 million in cash flow from operations in the quarter compared to 66 million in Q2 and 73 million in Q3 2024 the decrease in cash flow from operations was driven by increases in working capital requirements to support record revenue levels offset by strong funds flow from operations. Funds flow from operations, which isolates the effect of working capital fluctuations, was $86 million in Q3 compared to 77 million in Q2 and just below the record $89 million set in Q3 2024. Free cash flow was 27 million in Q3 compared to 35 million in Q2 and 40 million in Q3 2024 and as measured by a free cash flow to adjusted EBITDA conversion rate. This equates to approximately 26% in the current quarter and 30% year to date. Excluding investments in working capital, CES realized a conversion rate of 59% for the quarter and 52% year to date. CES maintained a prudent approach to capital spending through the quarter with CAPEX spend net of disposal proceeds of $13 million, representing 2% of revenue. We will continue to adjust plans as required to support existing business and attractive growth throughout our divisions. For 2025, we still expect cash CapEx to be approximately $80 million weighted towards expansion capital to support higher activity levels and business development opportunities. For 2026, we are currently expecting a range of 85 to 90 million dollars, and CES maintains the flexibility to alter spending levels commensurate with changes in end markets and required support levels. During the quarter, we continue to be active in our NCIB program, purchasing 4.4 million common shares at an average price of $8.09 per share for a total cash outlay of $35.4 million, representing 2% of outstanding shares as at July 1, 2025.