CES Energy Solutions Corp.

Good morning, everyone, and welcome to the CES Energy Solutions First Quarter 2024 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 0. 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 first quarter MD&A and press release dated May 8, 2024, and in our annual information form dated February 29, 2024. 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 first quarter 2024 earnings call. On today's call, I will provide a brief summary of our incredible financial results released yesterday, followed by an update on capital allocation, and then 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 will take questions and then we will wrap up the call. I'll start my comments today by highlighting some of the major financial accomplishments we were able to achieve in Q1 of 2024. They include all-time record Q4 revenue of $588.6 million, our highest quarterly revenue ever, beating the prior record set in Q4 of 2022 by almost 5%. Our all-time highest quarterly EBITDA of $102 million, beating our prior all-time record level set last quarter of $84.6 million by over 20%. EBITDA margin of 17.3% versus 13.8% in Q1 of last year and 15.3% in the prior quarter. This result was the highest quarterly EBITDA margin achieved by CES in nine years as we continue to focus on returns. As predicted on the Q4 2023 earnings call, we have now exhausted purchasing all of the 18.7 million shares allowed under our prior NCIB plan from July of 2023. Free cash flow of $57.4 million during the quarter and the total debt to trailing 12 months EBITDA ratio dropped to a new low of 1.28 times from 1.49 times at December 31st of 2023. I now want to confirm that our capital allocation plans for 2024 remain the same as stated on the last call. We will continue to support the business with the necessary investments required to provide acceptable growth and returns. We will continue to look for tuck-in acquisition opportunities into related business lines or geographies where we believe we can add value and grow returns. We will continue to pay our quarterly dividend of $0.03 per share or approximately $28 million per year. We intend to renew our NCIB plan once we are able in July of 2024. We will once again maximize the number of shares available for repurchase under the NCIB at 10% of our float. We will continue to exercise the NCIB to its maximum until we see a share valuation more aligned to our financial performance. We will use the balance of our remaining free cash flow to continue reducing leverage to approximately one times total debt to trailing 12 months EBITDAG. I'll now provide a brief summary of Q4 performance by division. Today our rig count in the North American land market stands at 171 rigs out of the 723 listed as running, representing a market share of 23.6%. The Canadian Drilling Fluids Division continues to lead the WCSB in market share. Today we are providing service to 39 of the 118 jobs listed as underway in Canada. Drilling in activity in Canada so far in Q2 2024 is tracking a little higher year over year. However, rig counts at this time of year can be a little lumpy as rigs are shutting down daily due to spring breakup. The space remains highly competitive. However, our offering of competitive pricing along with high levels of service, employee expertise, and thousands of historical offsets almost everywhere in the WCSB provide us with a value proposition that is second to none. We remain excited about the prospects for 2024 and anticipate it will be a little stronger year overall due to the completion and impending startup of infrastructure projects and their associated takeaway capacity for our market. Purechem, our Canadian production chemical business, grew again in Q1. The vast majority of the lines within Purechem continue to grow as we have continued to take market share, win bids, optimize formulations, and fine-tune our supply chain. The revenue and earnings from our primary business, production treating, continues to accelerate in Canada as we continue to deliver superior products and service combined with competitive market pricing. Now for the U.S. AES, our U.S. drilling fluids group, is providing chemistries and service to 132 of the 605 active rigs listed as working in the USA land market today, representing a continued number one market share of U.S. land rigs at 21.8%. The number of rigs drilling in the USA was slightly down again quarter over quarter, but we do see this level as being at or near the bottom of the trough. We continue to enjoy a basin leading 104 rigs out of the 316 listed as working in the Permian Basin. Again, equating to our highest ever market share in this basin of 33.1%. I will note that although the USA land rig count is down since our last call, the rig count in the Permian is roughly flat. That said, service intensity continues to demonstrate its presence in our numbers for AES as our revenue per rig per day continues to rise with more footage being drilled each day along with more complicated chemical solutions and service being provided due to the complexity and length of the horizontal sections. This was evidenced in the continued strong financial performance by AES in spite of a rig count that was almost 20% lower than its peak last year at this time. We see this trend continuing for the foreseeable future on both sides of the border. Finally, JCAM Catalyst had its strongest financial performance ever in Q1. We continue the recent trend of winning more business in this division, and internal analysis has us concluding that we are comfortably the number one provider of production chemicals and the related service in the Permian Basin, even as we continue to grow. As with PureChem, JChem Catalyst continues to take market share and grow revenue, all while providing competitive market pricing. They are doing this through best-in-class service and responsiveness, diligent problem solving, and constantly optimized formulations and manufacturing. To summarize these operations reports, I want to emphasize that we continue to observe growth prospects directly in front of us, in the markets we already are participating and established in. We continue to anticipate growth in revenues and free cash flow during the upcoming year as we earn new business and grow our market share in each of our business segments. As well, I want to emphasize that we are a technology company with scientists and manufacturing infrastructure, as well as a strong connection to our customers and their challenges. This combination of strengths allows us to continue to fine tune our product offerings in order to find unique solutions to complicated problems. As was made obvious during this past quarter, when we find solutions that meet this criteria, we are able to provide it to our customers at outsized margins that can be extremely attractive to CES, but still in line with the value proposition required by our customers. Then we have been able to use these technologies to gain more market share by helping other customers achieve the results they strive for as well. As a secondary focus, we continue to look for opportunities to potentially enter strategic international markets in order to establish a foothold in these regions. which we have no exposure to currently. We are also spending significant time evaluating North American tuck-in acquisitions of similar businesses to ours, as well as potential opportunities to further improve our vertical integration. Finally, I would like to highlight that the recent consolidation in the space by SLB clearly demonstrated the value of capital-light, asset-light, high free cash flow businesses like ours. We believe that valuation markers such as this support our aggressive buyback philosophy at current and even higher share price levels. 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 CES. Once again, this quarter, we have increased our total number of employees at CES from 2,236 on January 1st of 2024 to 2,304 at the end of Q1. This is an increase of 68 employees so far this year, or approximately 3%. 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 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. With that, I'll turn the call over to Tony for the financial update.

Thank you, Ken. CES's financial results for the first quarter set all-time high levels of revenue in adjusted EBITDA underscored by the continuation of strong free cash flow despite declining rate counts in the U.S., highlighting the unique resilience of CS's consumable chemicals business model and attractive performance aligned with the prevailing trend of high service intensity levels. The record quarter benefited from strong financial contributions from all parts of the business and was bolstered by favorable product mix, high levels of service intensity, and the adoption of innovative technologically advanced products. We continue to serve the evolving needs of our customers and realize attractive economics due to our vertically integrated business model and effective supply chain management. In Q1, CES generated record revenue and adjusted EBITDA of $589 million and $102 million respectively, representing a 17.3% margin. Q1 revenue of $588 million represents an annualized run rate level of approximately $2.4 billion and a 6% increase above both Q4 2023 and prior year of $553 million and $558 million respectively. Revenue generated in the U.S. was a record $388 million and represented 66% of total revenue. This revenue figure exceeded the 361 million in Q4 and 369 million a year ago. Revenue generated in Canada also set a record at 201 million in the quarter, up from 192 million in Q4 and 189 million in Q1 2023. U.S. and Canadian operations saw increased levels of service intensity and production chemical volumes driven by complex drilling programs. Customer emphasis on optimizing production through effective chemical treatments benefited both countries and countered declines in U.S. industry rig counts, showcasing the resilience of our business model. Adjusted EBITDA of $102 million set a record in Q1 and represented a 32% increase from $77.1 million in Q1 2023, and a sequential increase of 17.4 million or 21% from the 84.6 million generated in Q4. Adjusted EBITDA margin in the quarter increased to 17.3% compared to 15.3% in Q4 and 13.8% in Q1 2023 and was reflective of increased service intensity an attractive product mix, and continued adoption of innovative, technologically advanced products supported by proven cost structure and vertically integrated business model. During the quarter, CS generated $86 million in cash flow from operations, ahead of $39 million in Q4 and $73 million in Q1 2023. These improvements came from strong revenue levels, attractive margins, and sustained improvements in working capital management. Funds flow from operations, which excludes the impact of changes in working capital, with $74 million for Q1 representing a 9% increase over $68 million in Q4 and 18% over $63 million in Q1 2023. CES continued to maintain a prudent approach to capital spending through the quarter with CapEx spend net of disposal proceeds of $21 million. We will continue to adjust plans as required to support existing business and growth throughout our divisions. And for the full year 2024, we continue to expect cash capex to be approximately $70 million, split evenly between maintenance and expansion capital to support sustained revenue levels and accretive business development opportunities. During the quarter, we completed our NCIB program, purchasing 4.6 million common shares at an average price of $3.88 per share for a total of $17.8 million. In total, under the existing NCIB program, we repurchased the full 18.7 million common shares at an average price of $3.66 per share for a total of $68.6 million. As a reminder, Since inception of our NCIB programs in 2018, CES has repurchased approximately 23% of outstanding shares at an average price of $2.63 per share. We ended the quarter with 435 million in total debt, representing a decrease of 35 million from the prior quarter. Total debt is comprised primarily of the $250 million in Canadian term loan facility, which was used to settle the company's senior notes in November, a net draw on the senior facility of $105 million, and $71 million in lease obligations. Total debt to adjusted EBITDA improved to 1.28 times at the end of the quarter compared to 1.49 times. at December 31st, 2023, demonstrating our continued due leveraging trend. When you account for the $18 million spent on share repurchases and the $6 million on dividends, the reduction in total debt in Q1 could have otherwise been $60 million. However, we are very comfortable with our current debt level and leverage in the 1 to 1.5 times range. thereby facilitating strong return of capital to shareholders and prioritizing sustainable dividend and share buyback levels. Our consistent, prudent capital structure management and strong financial results were recognized recently by credit rating agencies and led to positive rating actions by DBRS to be high positive outlook and SMP to be flat positive outlook as well. I would also note that our working capital surplus of $637 million exceeded total debt of $435 million by $202 million and demonstrated continued improvement compared to both prior quarter and prior year. Continued focus on working capital optimization has led to improvements in cash conversion cycle to a record 106 days for the quarter from 112 days in Q4 2023 and 119 days in the prior year. This also translates to a reduction in operating working capital as a percentage of annualized quarterly revenue to 27% from 29% in Q4 2023 and 31% in the prior year. It should be noted that each percentage improvement at these revenue levels represents approximately $24 million on our balance sheet in incremental value realization. This very strong surplus-free cash flow trend is indicative of the cash flow generating characteristics of CES in this environment, and is further illustrated by our current net draw, which has declined by another $40 million to $65 million as at May 8th. We have dedicated our efforts to profitably growing market share, improving margins, and delivering consistent free cash flow at record-setting revenue levels underpinned by a prudent capital structure. Internally, we have spent the last few years implementing very specific return on average capital employed metrics at the divisional levels. This approach has led to a cultural adoption of key ROACE maximizing factors such as profitable growth, strong margins, working capital optimization, and prudent capital expenditures. I am proud to report that as a result of these efforts and this cultural shift, consolidated LTM ROACE is now sitting at a record-setting level of 23%. These record financial achievements have allowed CS to deliver on our commitment to returning capital to shareholders. During the quarter, we returned $24 million through $18 million in share buybacks and $6 million in dividends, representing 41% of free cash flow. At current levels of activity, market share, and service intensity, CS remains in a position of strength and flexibility supporting our capital allocation priorities as outlined by Ken. At this time, I'd like to turn the call back to the operator for questions.

Thank you. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. The first question comes from Aaron McNeil with TD Comm. Please go ahead.

Hey, morning. Appreciate the time for a few questions. I wanted to sort of look at capacity from a couple different angles. What would you say are current pinch points, if any, in manufacturing, blending, distribution, or other areas in the business? And if it's applicable, I'm sort of wondering what the remediation steps might be. I know there's some growth capital this year. And if it's not the case, I'd like to understand what sort of revenue growth do you think you could sustain without a significant capital investment?

Sure, I'll take that one, Aaron. Thanks. As far as capacity goes, we constantly are able to manipulate our capacity. So at the plants, at Cielco and in Kansas, and even the blending plants in Toronto, in Carlisle and Midland, we're able to just add blend vessels or add reactor vessels as we need them. So it's a constantly, it's part of our capex annually. We anticipate our revenues, we anticipate our volumes, and if we need more capacity, we just simply add little pieces of infrastructure like that. It's not building buildings or changing how we do things in any way. So it's been That's been something that's been going on as we've grown from sort of the 1.3 billion, 1.2 billion in revenue that we used to do to the current 2.4. It's a constantly adapting thing. The one pinch point that we identified last year when, you know, early 22 or sorry, early 23 was the bare eye grinding facility. That one took having either we had to buy it somewhere else because you can only grind so much bare right when you're running 24 hours a day with the mills we had. And that was the driver for us building the Pecos facility. But that's now done operational and we have plenty of capacity there as well. So currently there is none and I think the only limitation would be our suppliers capacity. But I mean, after everything we went through in early 22 with the supply chain constrictions, we've learned a lot about the playing field for basic molecules and I don't see any way that we would run into a shortage situation.

I would add that over the last year, and we have this in our investor deck where we actually illustrate different areas where we spent capex on to do things like de-bottlenecking. And another one was expansion in the Permian. Our divisional presidents at AES and JCAM Catalyst over the last couple of years had the foresight to overbuy and actually buy more property and space. And that wasn't because we were limited by machines and reactors, et cetera. It's those investments that were done over the last year, so we'll probably do a few small ones this year as well, give us more space in the areas that we're very busy at to allow our operational folks to streamline flows and production and logistics and work very closely with procurement and operation to meet these increasing volume demands.

Gotcha. And then maybe just sticking with this theme of capacity, you know, obviously in corporate takeovers, there's inevitably going to be people who don't want to stick around. I mean, you mentioned that you've already added people year to date. Does the SLB acquisition of ChampionX create an opportunity for you to bring on some strong sales or operational people to either JChem Catalyst or PureChem to sort of increase the size of the pie and you know, do you want or need these people assuming they can bring a client list? And, you know, I can appreciate that there's some sensitivities whenever people are involved, but I'd be interested in hearing anything you could share from that perspective.

Yeah, for sure. I mean, I think in any time there's a people like that, where there's a change in control at a company, there's going to be people that are dissatisfied and our door is always open. We've been, we've had our eye on quite a few of our competitors, people for a long time. And If they happen to become available, for sure, we'll talk to them.

Great. Thanks, guys. We'll turn it over.

The next question comes from Cole Pereira with Stifo. Please go ahead.

Hi. Good morning, all. Maybe sticking with a similar theme, how do you think about Schlumberger's acquisition of ChampionX in terms of how it's going to impact competition or maybe opportunities for CEU?

I think Slumber J is a great company. They do a lot of good business internationally. And I think that they're challenged by corporate structure a little bit to be as responsive as we are. And responsive means a lot of things, but it goes right down the list to manufacturing special products coming up with new solutions. So I think that gives us an edge, but we'll see how it plays out. You never know how it's going to play out. Champion X has been a great competitor for a long time. And if they continue to do the things they've always done, it's going to continue to be a tough playing field.

Got it. You talked a little bit about, you know, potentially entering new geographies. I mean, is this kind of a longer term scenario where, you know, could you, could you do something like that short term, you know, which areas do you think would be the most likely and, and, do you think you could get into it organically or would you have to sort of acquire your way in?

Good questions. All of them things we've been thinking about. I think it could happen. I think it's going to be opportunity based because I think to go organically, we would go with a customer. So if a customer suddenly had some work they were doing somewhere where they wanted to drag us along, we would respond to that. And also the opportunities to buy companies that are small in those places to get a foothold. don't come along every day. So it'll just, if something popped up that caught our attention, that fit the bill for what we're looking for at the price we're looking to pay, then obviously we would take a close look at jumping on that, but we're not looking for anything big. It's more just to get some people and footprint on the ground somewhere. Cause that would definitely make, we've tried, we've spent some time in the middle East prior working with customers without a foothold there or employees there and building it out. And it's, it's a tough slide. They'd be much more comfortable to just buy an existing business with an existing revenue stream.

Got it. And you talked about, you know, maybe opportunities to add something by vertical integration as well. Can you just add some details on what that might look like?

Yeah. I mean, I don't want to disclose sort of the things that we're looking at or that are important to us, but I mean, we buy products from other companies and, Some of them, a lot of what we buy is already basic chemistry, but there is some that we have to buy from a manufacturer that reacts it in a way that we like or that they have a patented process around. So if there was something unique like that that could actually improve our supply chain and improve our costs and make us more basic, that's sort of what we're talking about, but don't want to get into exactly what those chemistries are.

Yeah, fair enough. That's all for me. Thanks. I'll turn it back.

Thanks, Cole.

The next question comes from Tim Monticello with ATB Capital Markets. Please go ahead.

Hey, good morning, guys.

Morning, Tim.

I just wanted to touch on the margins here. I mean, it's been pretty impressive. Call it 220 basis point of margin improvement quarter over quarter. A lot more year over year. What changed in Q1 that was able to, or that drove those margins higher, and how much of that do you view as sustainable?

I'll take a shot at that from a financial perspective. Like, we were very deliberate in our words. It was a combination of attractive product mix, the few divisions really benefiting from the higher levels of service intensity, as evidenced by third-party work that has demonstrated that continued trend in higher number of seed drill per given day. Those are bringing on more prolific wells that have higher initial production rates. And then there was the introduction and adoption of a few products that were beneficial for two reasons. Number one, They created incremental market demand and incremental revenue. And as Ken outlined, the secret sauce, or one of them here, is our ability to vertically integrate and provide those at levels that are appropriate for the customer to meet their needs in terms of responsible pricing. And if we're able to control that supply chain and manufacturing internally, we can have reasonable economics as well. One of the unique factors about this quarter, though, is the fact that we strung together three consecutive months where even before those trends, all of the divisions were firing on all cylinders. So what we look for, we're going into Q2 that always is a little bit seasonally slower than Q1. And in terms of sustainability of 17.3%, I think that's a big, big expectation. and it's going to be difficult to gauge over the next few months, but we'll come up for air probably in August when we're reporting Q2 and have a pretty good feel for where things are going. We've always talked about 14 to 15 percent target range. We're going to have to think about increasing that, and I don't think you'll hear 17 in that range, but stay tuned and we'll probably revisit that recommended range next time we report.

Yeah, and to give a little bit of color on sort of how we achieved that, it's the specialty products we're talking about. It's the stringing the months together that was very important. We've had big months before. We've just never had a big everything come three in a row aligned with a quarter. But if you look back to Q1 of 2023, when we were at 13.8% margins, it's been kind of a steady tick up since then. And what's been happening in that time is we've just been reformulating and revisiting supply chain at every level. As our volumes have gone up, our purchasing power has got a little better. I want to make it clear that we're not charging more for products. We're in line with the market. And the wins that we're finding are all internal.

Got it. A few of those things are kind of on a continuum, like rising service intensity and and efficiencies that you guys have been putting into the business. Margins were a step change, so I can appreciate that the, you know, strong three months in a row was probably a major factor. But a couple of things that kind of stand out to me are what the Barrick grinding facility and some new technologies you're talking about. How significant were those in the quarter?

The Barrick grinding facility, not very much, like maybe nothing, I would say. We're still not running at full capacity there yet, so we're only buying a little bit. And then with the rig slowdown over the past year, our demand is, you know, we need that facility to be able to run a shift, but it doesn't need to run 24 hours a day. So it wasn't a huge impact. But, yeah, some new technologies that we have that are unique that provide the customers solutions to problems they were having, those things contributed for sure. They always do. It's just in these three months, they were bigger portions of it, right? But it was just the mix.

Are those technologies in any specific business line or across all?

They're everywhere. Like there's not one, there's not a single thing that's causing this. It's a whole bunch of stuff coming together and then just having the right mix for a quarter.

Okay, thanks a lot. Unbelievable for this.

Thanks, next question.

The next question comes from John Gibson with BMO Capital Markets. Please go ahead.

Good morning and congrats again on the strong quarter here. I want to shift gears a little bit. Free cash flow conversion remains very strong and above some of the competitor comps we've seen out there. What's been driving this and all things being equal to be expected to continue?

So the answer is yes, we do expect it to continue. And by it, it'll vary, especially depending on what happens with working capital any given quarter, if that's the metric that you're referring to. But it's been an evolution, just like the cash conversion cycle and the ROACE and the margins. It's a wide cultural adoption of staying true to our CapEx light asset light business model, maximizing margins where we can, minimizing cash burn after EBITDA. And yeah, we do expect to continue to be industry leaders in cash conversion rate.

And last one for me, on the capital return program you've outlined, does this plan maybe change at all, given where your shares are trading at now and trending with the strong quarters here? maybe towards more of a dividend and less towards buyback?

Yeah, you know, we've been pretty steadfast in what's driving, what drives our buyback philosophy. Number one, do we have the liquidity and the capital to do what we need to do to support the business? So we check that box, we absolutely do. And the next one is if we think our shares are undervalued. I expect analyst estimates for a full year 2024 and 2025 to increase based on what we reported yesterday. We already started seeing that last night. So yeah, the share price is up whenever it's up today, but the multiple is still in the five times range, just maybe slightly above five times. And I put it out, well, we put it out to investors and we own five and a half percent of the company as well, management and certain board members. And this is a cash on cash yield still of, mid-teens and with the best cash conversion cycle in the industry and one of the best ROACEs in the industry. It should not be trading in the fives. So when we're trading at a much higher multiple, we'll have that conversation, but we're not going to bat an eyelash in the sixes for sure.

Fair enough. I'll turn it back. Congrats on the quarter.

The next question comes from Han Gagman Heron with Kosher Bank. Please go ahead.

Hi, this is Han Gagman Heron calling in for Jonathan Goldie. Thanks for taking my questions, guys. One for Ken. It's another strong quarter for share gains in the U.S. drilling fluids business. I know you don't break it out, but are you seeing a similar trend in your production chemicals business?

Yeah, we don't break it out, but I mean, generally speaking, that's exactly what's happening. The Canadian drilling fluids business is a little more mature. We've been kind of in this number one spot for 10 years plus, so we ebb and flow a little bit. But the other three main divisions, the two production chemical divisions and the drilling fluids division in the U.S., yeah, they're all in grow mode still, and they still have plenty of run room.

Gotcha. Perfect. And another on the U.S. drilling fluids business, can you discuss what's underpinning that growth, and is there a ceiling to share gains in the U.S.? ?

There's no ceiling to share gain. I mean, I guess competition-wise, operators like to have choices. So I would guess that like Canada, when you get to that 35, 40% market share, there's probably a roadblock you hit. But as far as opportunity, there's tons of opportunity. And what's driving it, it's service, it's our people, it's attention to detail, it's security of supply, it's infrastructure in the right places. It's costs that are as good or better than anybody else can provide. I mean, it's just a wide bucket, and our people are really good at all those things. And it's not just the drilling fluids group in the U.S. That's how we run the business in every division.

Awesome. And one final one from me. Is there any update on your entry into the Hainesville?

No, it continues as talked about. As I've mentioned in the past, we have one rig working there still. We're working on some special projects for a couple of operators that we don't currently work for there to see if we can come up with some technical solutions for them for some problems they have. And if we do, then we'll probably pick up some rigs sooner. If we don't, then we're just kind of getting some offsets and getting some history so that when that rig count actually starts taking up because LNG starts picking up, we'll be there to grab on to some rigs.

Perfect. Congrats on the quarter, and I'll turn it over.

Thank you. Thank you.

Once again, if you have a question, please press star, then 1. The next question comes from Keith Mackey with RBC Capital Markets. Please go ahead.

Yeah, thanks, and good morning. Just wanted to start with a question or revisit a question that we've discussed before. We've historically thought of the drilling fluids and production chemicals businesses as roughly equal in size in terms of revenue. Tony, Ken, is there any update to that number or are they still, you know, about 50-50?

Yeah. We started We started at that 50-50 when we started disclosing it, and then as it evolved, we did continue to see production chemicals grow a little bit in relative contribution, and it's in that 50-55 range for production chemicals and 45-50 for drilling fluids.

Okay, thanks. That's helpful, and... If we just think about the margins for kind of the segments broadly, I know you're not going to want to get too granular there, but there's historically been sort of a target of 15% for each of the main operating divisions. How would all of the divisions rank today without maybe asking for specific numbers? How would all the divisions rank today in terms of margins versus each other and versus that 15%?

Yeah, we can't rank them, but you did just give us an opportunity to help you guys out a little bit. So we're happy to say that every single division was north of 15% this past quarter.

Perfect. Okay. And just finally for me, Tony, you've certainly done a lot of work on the balance sheet over the last few years, both in terms of getting the debt level down and optimizing the debt mechanisms and maturities. Notice you made a point of calling out some of the ratings agency upgrades there. Can you just talk about how you see the debt stack and mechanisms going forward relative to what you've got today? Sorry, what do you mean, Keith? Yeah, do you have any opportunity, I guess, to think about your debt instruments in terms of optimizing rates and then ultimately optimizing the structure of your debt as you think out the next, you know, one, two, three years?

Yeah, no, for sure. So we have our term loan A in our credit facility that are currently in place. In hindsight, we did the right thing last year by putting in a $250 million term loan A that's now fully drawn. And we have our $450 million credit facility that we only have $65 million drawn on right now. It was $105 million at the end of Q1. We put that TLA in place last year for a very specific reason. It was because we were starting to put up the numbers and not everybody was acknowledging them. And we continued acknowledging. to believe that we would be improving those numbers. And by not everybody, I mean, that investors, rating agencies, equity investors. And we did our part. Over the year, we grew to the numbers that you saw over the last year, including this past quarter, number one. And the other reason we did that was we didn't want to refinance that bond in a market that had high interest rates last year. and was not very receptive to new bond deals last year. And then we kept doing our part. The macro has obviously improved from a rate perspective. If you use S&P and DBRS as positive actions as a barometer, obviously even the debt side of the investor house has acknowledged and is acknowledging the very strong credit worthiness and cash flow generation capability of this business. So I continue to say we will access the bond market when it makes sense at the right price and the right terms. And we will definitely do that before the TLA goes current next April. And we'll be opportunistic if we get the right terms in the right market window.

Okay, that's great, Keller. Thanks very much. I'll turn it back.

This concludes the question and answer session. I would like to turn the conference back over to Ken Zinger for any closing remarks. Please go ahead.

Thank you. Well, with that, I'm going to wrap up this call by saying thank you to everyone who took the time to join us here today. We continue to be very optimistic about the future here at CES Energy Solutions. We will be hosting our virtual AGM on June 18th, and we look forward to speaking with you all again on our Q2 update in August. Thank you for your time today.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.