CES Energy Solutions Corp.

Good day and welcome to the CES Energy Solutions Corp fourth quarter 2024 results conference call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch tone phone. And to withdraw your question, please press star and then two. Please note that this event is being recorded. I would now like to turn the conference over to Mr. Tony Alagino, Chief Financial Officer. Please go ahead, sir.

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 annual information form, fourth quarter MD&A and press release dated March 6, 2025. 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 fourth 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 fourth quarter in year-end 24 earnings call. On today's call, I will provide a brief summary of our strong 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 back over to Tony to provide a detailed financial update. We will take questions, and then we'll wrap up the call. As always, I will start my comments today by highlighting some of the major financial accomplishments we achieved in Q4 of 2024. These highlights include our second best quarterly revenue ever of $605.4 million, which was 9.5% higher than Q4 of last year and just $1 million lower than our quarterly record from last quarter. All-time record quarterly EBITDA of $103.2 million, which was ahead of last year's Q4 by 22%. EBITDA margin of 17.1%, which was well ahead of the 15.3 in Q4 of 2023. By year end, we had repurchased 10.6 million shares of the 19.2 million shares allowed under our current NCIB plan at an average price of $7.90. This represents 55% of the current program in just over five months. Free cash flow of $34.6 million during the quarter and $186.9 million during 2024. Total net trailing 12 months EBITDA was at 1.12 times at the end of Q4 2024, well below the 1.49 times reported at the end of the year last year and at the lower end of our targeted range of one to one and a half times. Cash conversion cycle days came in as 111 days at the lower end of our targeted range of 110 to 115 days. By way of an update on our capital allocation plans, I am happy to report the following. Consistent with our prior messaging of addressing the dividend once per year in Q4 or Q1 of each year, and due to our confidence in the cash generating capability of CES, even in the current market environment, we will increase our quarterly dividend by 42.5% to 4.25 cents per share from 3 cents per share. At today's share count, this will increase our dividend spend by about $11 million per year. We will continue to support the business with the necessary investments required to provide acceptable growth and returns. This includes anticipated CapEx in 2025 of $80 million. This is a little higher than prior guidance due almost entirely to the unexpected increase in FX over the past four months and its mathematical effect on our U.S. CapEx. We will continue to look for strategic tuck-in acquisition opportunities into related business lines or geographies where we believe we can add value and grow returns. Based upon our current outlook versus the current share price, we intend to ramp up our NCID as soon as we are out of blackout next week. With the current share price of CEU, we plan to aggressively repurchase as many shares as possible under our NCID of 19.2 million shares. We will continue to target a debt level in the one to one and a half times debt to trailing 12 months EVADAC range. I'll now move on to summarize Q4 performance by division. Today, our rig counts in North America stands at 233 rigs out of the 840 listed as running, representing an industry-leading North American rig market share of over 27.7%. This is our highest market share ever in the North American land market. Due to the large number of rigs moving and firing up on both sides of the border after January 1st, we have noted noise in our numbers as a higher proportion of the rigs were drilling on non-specialty portions of the wells, namely surface holes and vertical sections at the same time. This led to some margin degradation in our January numbers from the drilling fluids divisions. We have noted this effect was transitory and we are moving back to more historical levels of profitability in February and are hoping for the same in March. We anticipate this phenomenon may present itself in slightly lower margins for Q1, but not revenue. This rather sudden 33 rig or 17% increase in our rig count since November combined with strategic purchasing in anticipation of tariffs has led to some working capital build within the business during the past few months. We expect all of this noise to level out back to historical levels in the coming months and quarters. In Canada, The Canadian Drilling Fluids Division continues to lead the WCSB in market share. Today, we are providing service to 92 of the 236 rigs listed as working in Canada, or a 40% market share. This is our highest market share by percentage in Canada since January of 2020. The active drilling rig count in Canada so far in Q1 of 2025 has been trending consistently higher by approximately 5% year over year. We remain optimistic about the prospects for 2025 due to the completion and full startup of infrastructure projects and their associated takeaway capacity. Although we are aware tariffs may impact profitability of our customers in Canada, we currently have seen no signs of a drastic slowdown in activity for 2025. Purechem, our Canadian production chemical business, had very strong results once again in Q4. Like JChem Catalyst, PureChem continues its outsized growth versus the general activity increases. All of the business lines within PureChem continue to grow significantly as we continue to take market share, win bids, and optimize formulations. The revenue and earnings from our primary business production trading continues to drive the growth in Canada as we consistently strive to deliver superior products and service, combined with competitive market pricing, We believe all these positive results make us the clear number one provider of production chemistry of the Canadian conventional market, and we are now participating in meaningful business in the heavy oil market as well. In the United States, AES, our U.S. Filling Fluids Group, is providing chemistries and service to 138 of the 593 rigs listed as active on USA land market today, for a continued number one market share of USA land rigs at 23.2%. This marks the highest ever market share by AES of the U.S. land market. The number of rigs drilling in the USA is up by about 6% since we reported in November. We continue to anticipate a slow but steady uptick in rig count in the USA for the remainder of 2025, and we look forward to focusing on turning that into a higher rig count and market share for AES. We're also currently enjoying a basin leading 100 rigs out of the 316 listed as working in the Permian Basin, or 31.6%. The Permian industry rig count is up slightly quarter over quarter by approximately 4%. As well, service intensity continues to demonstrate its presence in our numbers for drilling fluids throughout North America. Finally, the integration of our recent acquisition, Hydrolite, into AES completion services is now fully complete and utilizing the full AES team and infrastructure to support the business in every possible way. Last but definitely not least, The JCAM Catalyst division continues its trend of strong growth throughout 2024 and into 2025. We are consistently winning more business, growing revenue, and taking market share at JCAM Catalyst. We remain confident that we are not only the number one provider by market share in the Permian Basin, but also have strong presence in the Rockies, the Bakken, South Texas, and to a lesser degree, Gulf of America. We are focused on growth in the division, and that means everywhere in the U.S., Our eyes are keenly focused on becoming the number one production chemical company in the United States as well as North America. I would like to now reiterate the resilience of our business model in the current tariff environment and touch on implications from associated exchange rate pressure on the Canadian dollar. Our current outlook does not anticipate a meaningful impact on our business from tariffs. The most immediate impact we can clearly identify revolves around exchange rate and the depressed Canadian dollar. In our Canadian businesses, starting with currency, the roughly 8% decline over the past few months in the value of Canadian dollar versus the US dollar is causing us to have to revisit pricing with customers on certain product lines. These are for products sourced in the US and abroad in US dollars due to the increased cost of goods. However, our view is that this pressure is not unique to CES and that all of our competitors in Canada are feeling the same pressure. Therefore, we have been adjusting pricing as is possible since this became an issue a few months ago. Like in 2022, the impact lies primarily during Q1 due to the timing lag from requesting increases to implementing increases. Unlike in 2022, the overall increases are much smaller and less widespread by comparison. I will also note that Canada accounts for approximately a third of our overall corporate revenue. With regard to Canadian counter tariffs, I will just broadly state that so far of the counter tariffs imposed by the Canadian government on March 4th, the impact was insignificant. Based on our early assessment of the phase two list scheduled for March 25th, the tariff exposure to CES would be higher than the phase one impact, but still insignificant. Regardless, we and our peers will provide the Canadian government with input in order to attempt to support the exclusion of some of these items. If certain items remain on the list, price increases will have to be implemented by ourselves and our competitors to the operators in order to counter the effect. I will also state that we believe we will have an advantage should this take place because we do have reacting and production capabilities at Sealco in Vancouver that none of our competitors in Canada have. We are currently looking at switching more production of products for Canadian consumption from the US to Canada as it is possible. I will note that this is not a flip the switch type transition though. It is complicated and will take time. Now for our U.S. businesses. Since we report in Canadian dollars, the obvious currency impact we anticipate would be slightly elevated financial reporting, including CapEx spending in Canadian dollars on the U.S. businesses. When it comes to exchange rates on products going from Canada to the USA, insignificant volumes are currently bought or manufactured in Canada for U.S. consumption. Therefore, we currently see this risk as almost zero. With regard to USA tariffs, these may have a small effect on a handful of specialty chemicals which we produce in Vancouver for use in the USA. We are currently rearranging some production schedules in order to free up some Kansas reactors to take over this production due to the USA tariffs already announced. But I will state again, the impact is expected to be insignificant. Throughout this explanation of tariff challenges, I have consistently used the word insignificant when describing the impact on our revenues and profitability. To make my definition of insignificant clear to you all, this means less than half a percent of revenue in exposure total. However, we can reduce this exposure to zero as we are able to adjust our manufacturing schedules to producing as much as possible for consumption within the same country as it is manufactured. Once again, the risk on this correction is simply the timing lag. I would like to reiterate that our business has never been stronger or healthier than it is today. and that we are uniquely positioned to not only weather this tariff environment, but potentially benefit from it. We are extremely confident in our teams across North America as we believe all our best in class and battle hardened from challenges the industry has faced over the past dozen years. We will strategically navigate this latest challenge and use this opportunity to our advantage to continue to reorganize supply chains, grow the business, take market share, and reward shareholders. 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. It is rewarding to note that due to the growth that we are experiencing and anticipating in all parts of our business, we have increased our total number of employees at CES from 2,236 on January 1st of 2024 to 2,530 at the end of 2024. This represents an annual increase of 294 employees or approximately 13%. With that, I'll pass the call to Tony for the financial update. Thank you, Ken.