CES Energy Solutions Corp.

Welcome to the CES Energy Solutions second 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. These risk factors and assumptions are summarized in our second quarter MD&A and press release dated August 10th, 2023 and in our annual information form dated March 9th, 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 second 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 Q2 2023 earnings call. On today's call, I will provide a brief summary of our strong financial results released yesterday, followed by our divisional updates for Canada and the U.S., as well as an update on our capital allocation strategy. I will then pass the call over to Tony to provide a detailed financial update. We will take questions and then we'll wrap up the call. As highlighted in our press release from yesterday, some of the major financial accomplishments we were able to achieve through Q2 2023 included record Q2 revenue of $515.8 million versus our prior record level set in Q2 last year of $433.7 million, an improvement of 19%. Record Q2 EBITDA of $73.9 million versus our prior record level set in Q2 last year of $61 million, an improvement of 21%. EBITDA margin of 14.3% versus 14.1% in Q2 of 2022 and 13.8% in the prior quarter. This result was once again within our stated targeted range of 13.5% to 14.5%. We once again reduced the total debt to TTM ratio this time to 1.57 times from 2.7 times a year ago and from 2.17 times at year end. We realized free cash flow in the quarter of $66.7 million. The draw on our credit facility, which peaked at $221 million at the end of Q3 2022 and was reduced to $167 million at the end of Q1 2023, declined again to $120 million at the end of Q2 2022. This represents a reduction in excess of $100 million over the past three quarters in spite of our NCIB activity and dividend payments. We utilized our NCIB to purchase 2.91 million shares through Q2. Then subsequent to June 30th, we have purchased an additional 4.53 million shares with 1.6 million of those being purchased under our new NCIB. For the first time, I will start this quarter summary by providing some general guidance on our capital allocation strategy for the upcoming year. We will continue to support the business with the necessary investments required to provide acceptable growth and returns. We intend to fully utilize our NCID expiring in July of 2024 to repurchase the full 10% of outstanding shares allowed under the approved program. We will continue to pay our dividend of 10 cents per share per year or approximately $25 million per year. We may choose to adjust this level from time to time as cash flows and forecasts allow. We will use the balance of the remaining free cash flow to continue paying down debt towards a target of one times debt to TTM. Our outlook for industry activity in 2023 remains the same as discussed on the last couple of calls. We continue to experience a more stable environment and activity levels. At CES, we continue to anticipate that oil prices will likely be somewhat range-bound in the $70 to $90 levels throughout most of 2023, with prices likely edging up to the higher side of this estimate in the second half of the year. We continue to observe that producers are aggressively pursuing improvements in drilling completion and production performance and efficiency through any means possible, including chemical additions and advancements. We continue to be well positioned to contribute to this outcome. We believe 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 is on the oil and liquids-producing basins throughout both countries, as natural gas continues to represent approximately 15% of our overall business. We continue to overcome challenges throughout the business and the industry. Although inflation in our current product lines has now largely abated, the costs have generally remained at the highs. However, now that international shipping costs and shipping efficiencies have corrected back to historical norms, It is allowing us to begin to evaluate diversifying our supply chain internationally with a few select product lines. However, we are cautious of overstepping here as we are well aware of the importance and reliability of our North American partners. We do not expect a big change here at the current time, more just educational. And if big opportunities appear with the appropriate risk profile, we may be opportunistic. I will now move on to summarize Q4 performance by division. I'll start by sharing that our current rig count in North America is at 196 rigs out of the 845 running or a 23.2% market share. This number compares to 22.3% from the same time last year. The Canadian Drilling Fluids Division continues to lead the WCSB in market share. Today we are providing service to 64 of the 186 jobs listed as underway in Canada. The forest fires in Canada during Q2 caused delays on a few projects starting as well as challenges due to evacuations of towns and facilities. At the end of the day, no assets were lost and the situation has now normalized. Business is now largely moving back towards normal in spite of several fires still burning in the province. Purechem, our Canadian production chemical business, saw our third highest revenue quarter ever in Q2 in spite of Q2 being historically slow in Canada. We have continued to see growing contributions from our frack chemicals, 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 them. And of course, our primary business, production treating, continues to grow as well. In the United States, AAS, our U.S. drilling fluids group, is providing chemistries and service to 132 of the 659 rigs in the USA today. for a 20% market share today. The number of rigs is down slightly from 136 last year, but ahead on market share from the 17.8% reported at this time last year. This includes a basin leading 99 rigs out of the 329 listed working in the Permian, equating to a 30% market share in that basin. Our second barite 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 operations during the third quarter. Finally, JCAM Catalyst continues to grow market share and revenue 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. We have continued the recent trend of winning more business in the region, and we believe our market share is continuing to grow in the Permian and the Rockies as a result. This has led to an increase in CAPEX requirements by $5 million in 2023, specifically assigned to purchasing equipment to service the added revenue which we expect to materialize as the year progresses. Lead times for the equipment, primarily delivery trucks, is approximately six months, so investments are being made now to support what we foresee as growth in the business on the come. As always, I want to extend my appreciation to each and every one of our employees for their commitment to the business and culture, of CES. It is rewarding to note that due to the growth we are experiencing, we have increased our total number of employees at CES from 2,122 on January 1st of this year to 2,216 today. This is an increase of 94 employees so far this year or approximately 4.4%. Unlike last year where we increased headcount in the company by 17% over the course of the year, we expect headcount growth to be relatively muted 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. It was a balanced effort across the company in which every business unit contributed. It speaks once again to the quality of people employed everywhere in every division here at CES. 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'll turn the call over to Tony for the financial update.