CES Energy Solutions Corp.

Welcome to the CES Energy Solutions first quarter 2023 results conference call and webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Tony Alucino, Chief Financial Officer. Please go ahead.

Thank you, Operator. 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. which are summarized in our first quarter MD&A and press release dated May 11, 2023, and in our annual information form dated March 9, 2023. In addition, certain financial measures that we will refer to today are not recognized under current general accepted accounting policies, and for a description and definition of these, please see our first quarter MD&A. At this time, I'd like to turn the call over to Ken Zinger, our president and CEO.

Thank you, Tony. Welcome, everyone, and thank you for joining us for our Q1 2023 earnings call. On today's call, I will provide a brief summary on our strong financial results released yesterday, followed by our divisional updates for Canada and the U.S. I will then pass the call over to Tony to provide a detailed financial update. We'll take questions, and then we'll wrap up the call. I actually want to begin the call today by acknowledging the impact of the forest fires in central Canada and northwest regions of Alberta. Obviously, many people have been affected and some misplaced by these fires. Our thoughts and prayers go out to anyone displaced from their homes as well as to those who are working to fight the fires. From a financial perspective, the effect on our business has been muted, largely due to the fact that most of the rigs are shut down in Alberta because of spring breakup. So far, we have had three rigs shut down temporarily mid-well due to the proximity of the fires. None of our major facilities or equipment has been damaged or lost to date. In Q1 of 2023, our business continued to adapt to and overcome the ongoing challenges associated with supply chain and inflation. Our scientists, plant managers, field technicians, and procurement groups continued to provide solutions to complex problems for our customers in a timely manner. We continue to meet or exceed these challenges from industry through our culture of constant innovation, responsiveness, and of course, service. Some of the major financial accomplishments we were able to achieve through Q1 2023 included near record revenue of $558 million versus our old record set in the prior quarter of $563 million, near record EBITDA of $77.1 million versus our record level set in the prior quarter of $80.2 million, EBITDA margin of 13.8%, which was above our 2022 average of 13.4%, and within our targeted range of 13.5% to 14.5%. We reduced the debt to EBITDA ratio to 1.78 times from 2.97 times one year ago and 2.17 times at year end. We realized cash flow from operations of $73.2 million. The draw on our credit facility, which peaked at $221 million at the end of Q3 2022, was reduced to $167 million at the end of Q1 2023 and has been further reduced to $130 million today. Our working capital level moved slightly lower, marking the first quarter-over-quarter reduction in the last 10 quarters, and we continued to reduce cash conversion cycle days. Perhaps most importantly, as we announced a couple of weeks ago, we closed our amended and restated credit agreement, resulting in an increased credit facility size of $700 million. Tony will provide more details on this achievement during his portion of the call today. Finally, due to all these achievements and due to the credit facility being finalized and put in place, we have elected to raise our quarterly dividend once again by 25% to 2.5 cents per share. This implies a roughly 4.2% annualized yield based on yesterday's share price. We view this level as attractive, affordable, and sustainable. As predicted on prior calls, we are now clearly realizing the torque built into the business with our CapEx Lite, Asset Lite, high surplus free cash flow business model. Our outlook for industry in 2023 continues to predict a more stable environment and activity level. At CES, we continue to anticipate that oil prices will be likely somewhat range bound in the $70 to $90 levels throughout most of 2023, with prices likely edging to the higher side of this estimate in the second half of the year. We observe that producers continue to seek to improve drilling, completion, and production performance and efficiency through any means possible, including chemical additions and advancements. We have the people, facilities, and capabilities to help producers meet these challenges as we continue to grow and run a sustainable business so that we can provide long-term job security and prosperity for our employees, as well as consistent returns to shareholders. We continue to believe that the North American natural gas market will be a bumpy ride until the supply-demand balance improves and there is more takeaway capacity. At CES, we remain well-positioned to take advantage of natural gas-related activity as it evolves over the next few years. However, our current focus remains on the oil and liquids-producing basin throughout both countries, as natural gas represents only about 15% of our total business. Our current rig count in North America is 176 rigs out of the 838 running, or a 21% market share. This number compares to 19.4% from the same time last year. We continue to overcome challenges throughout the business and industry. Shortages of certain chemistries and services, inflation, customer pricing fatigue, and competitor pricing pressures all remain very present in the market. However, we have the right people, infrastructure, and technology to effectively address them and grow our business. I will now move on to summarize Q4 performance by division. The Canadian Drilling Fluids Division continues to be the number one drilling fluid supplier to the Western Canadian Sedimentary Basin by market share. Today, we are providing service to 34 of the 90 jobs underway in Canada for a market share of 37.8%. We anticipate that activity during the last three quarters of 2023 will look a lot like the last three quarters of 2022. Purechem, our Canadian production chemical business, saw our highest revenue quarter ever in Q1. We have continued to see growing contributions from our frack chemical, stimulation, and H2S scavenger groups as we further penetrate each of these end markets and gain market share while utilizing only our current infrastructure and supply chain to support it. These sectors of the Canadian oil field continue to be very active now and for the foreseeable future. And, of course, our primary business, production treating, continues to grow and evolve as well. In the United States, AES, our USA drilling fluids group, is providing chemistries and service to 142 of the 748 rigs in the USA for a 19% market share. This total is up from 119 rigs and 16.9% market share at this time last year. This includes a basin-leading 108 rigs out of the 356 listed working there by Baker, or a 30.3% market share in the Permian Basin. Our second baray grinding facility, which we are constructing in the Permian Basin, continues to be on budget and is anticipated to be grinding and supplying ore to our Permian operations early in Q3. Finally, JCAM Catalyst continues to grow market share in the Permian. Our manufacturing facility in Kansas continues to operate at a very comfortable output level of approximately 65% of what we believe to be the current maximum capacity. Recently, we have been winning more business in the region, and we believe our market share is continuing to grow in the Permian Basin and the Rockies. As some of our competitors appear to be shifting focus to international markets and or the Gulf of Mexico, it is creating opportunities for CES, which we are capitalizing on. I want to extend my appreciation to each and every one of our employees for their commitment to the business culture and success at CES. It is rewarding to note that due to the growth that we are experiencing, we have increased our total number of employees at CES from 2,122 on January 1st of 2023 to 2,155 today. This is an increase of 33 employees so far this year, or approximately 1%. Unlike last year, where we increased headcount in the company by 17% over the course of the year, we expect headcount to remain relatively flat going forward. In conclusion, I would like to note that the results in Q1 were once again not due to any one division or area excelling. This was a very balanced effort across the company in which every business unit contributed. It speaks once again to the quality of the people employed everywhere in every division here at CES Energy Solutions. As always, I want to sincerely thank all of our customers for their trust and commitment to CES in good times and in bad. With that, I will turn the call over to Tony for the financial update.