CES Energy Solutions Corp.

Good day and welcome to the CES Energy Solutions second quarter 2025 results conference call and webcast. As a reminder, all participants are in a 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 to join the conference call, you may signal your operator by pressing star, then 0. I would now like to turn the conference over to Tony Alucino, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

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 ND&A and press release dated August 7th, 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 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.

And welcome, everyone. And thank you for joining us on the second 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 the 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 Q2 of 2025. These highlights include quarterly revenue of $574 million, which was 3.5% higher than Q2 of 2024. Quarterly EBITDA of $88.3 million, which represented a 15.4% margin. Total debt to Charlie 12 months EBITDA was at 1.25 times at the end of Q2 2025, which was exactly at the midpoint of our targeted range of 1 to 1.5 times. Cash conversion cycle days in Q2 of 112 days, also midpoint of our targeted range of 110 to 115 days. All-time record quarterly U.S. revenue of $405.6 million. Record revenue for our Q2 in Canada of $168.4 million. I am pleased to report that as of July 18, 2025, CES completed its stated goal of repurchasing the entire 19.2 million shares allowed under our prior NCIB. For 2025-2026, CES has once again renewed our NCID for the full 10% of the public float, or 18.9 million shares. By way of updating 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 in Q4 or Q1 of each year, as evidenced by the recent 42.5% increase in dividend per share announced in March of 2025. 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. 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 once again intend to fully execute on our current NCID 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 12 months EBITDA range. I will now move on to summarize Q2 performance overall and by division. Today, our rig count on North American land stands at 198 rigs out of the 702 listed as running currently, representing an industry-leading North American market share of over 28.2%. I want to highlight that this is our highest market share ever. In Q2, 71% of CES revenue was generated in the United States and 29% in Canada. As previously noted, I will highlight again that our U.S. revenue for Q2 2025 set a new all-time record as our highest U.S. revenue quarter ever. In conjunction with this, our Canadian divisions set a new all-time record revenue for our second quarter. We are very proud of this accomplishment, especially in light of the slowing activity throughout the year to date. As we have been referencing for the past few months, margins in the first half of 2025 were expected to be adversely affected by a variety of headwinds, the most notable being persistent tariff and counter-tariff uncertainty, which has caused significant restructuring of our supply chain as we attempt to purchase and manufacture as much as possible within the same country as it is being sold. Margins are also being affected by our current staffing versus revenue levels as we have been aggressively hiring throughout our production chemical businesses in North American land as well as offshore. These costs are showing sure staffing and supply capabilities should we win some of the larger tenders that we are currently in the final stages of selection. We have been told to expect the results of these tenders over the next few months. Then we will get to work to optimize head counts as soon as we have certainty on the outcomes. We would expect the financial impact of these opportunities to begin showing up in late Q3 and into Q4, should we be awarded this business. We will provide an update on these opportunities when we report in November. The Canadian Drilling Fluids Division continues to lead the WCSB in market share. Today, we are providing service to 67 of the 177 jobs listed as underway in Canada or a 37.8% market share. After a good start in Q1, the active drilling rate count in Canada throughout Q2 and so far in Q3 has been trending consistently lower than in 2024 by approximately 20% year over year. I will also note that our current rate count is only down by about 10% from 2024 versus 20% by the industry. Additionally, due to service intensity and the mix of well types being drilled, our overall Q2 revenue in Canada hit an all-time record for Q2. We remain very optimistic about the prospects for 2025 due to the completion and startup of infrastructure projects and their associated takeaway capacity. Although not immune from low oil prices, the WCSB is still in a very good position to weather any storm should it materialize. And of course, the basin is currently in a great position when it comes to natural gas. Pure Chem continued its impressive growth trajectory as all of the business lines continued to perform at a high level. The revenue and earnings from our primary business, production treating, continues to drive growth in Canada as we consistently strive to deliver superior products and service combined with competitive market pricing. Although we believe there may be a pullback in completion activity in Canada during the second half of 2025, I will point out again that fracking remains an important but small contributor to our overall pure chem revenue. In the United States, AES, our U.S. drilling fluids group, is providing chemistries and service to 131 of the 525 rigs listed as active in the USA land market today for a continually widening number one market share of US land rigs at 25%. At AES, we truly believe we have a unique structure within the drilling fluid space in North America. We believe we have a superior technical capabilities, procurement teams, as well as manufacturing and distribution people and facilities, all of which are laser focused on bringing value to our customers. The number of rigs drilling in the United States is down by 7.5% since we last reported in May, and also by 7.5% year-over-year. However, AES is actually up by four rigs year-over-year, or 3%. Currently, we enjoy a basin leading 97 rigs out of the 259 listed as working in the Permian Basin, or 37.5% of the market, our highest share in this basin ever. I would also like to note that AES Completion Services, formerly Hydrolite, continues to operate at a much higher level than when we acquired them. On June 1st, CES Energy Solutions closed a small deal to acquire Fossil Fluids in Oklahoma. 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 plate provides us with exposure to yet another growing basin. with alignment to the strong trends in the current natural gas environment. We are very happy to welcome owner Martin Kelly and all the employees of Fossil Fluids to our team here at CES Energy Solutions. Finally, our J-CAN Catalyst Division continues its trend of growth during the past few years and into 2025. The division is focused on further market penetration in all areas in which they operate. J-Chem Catalyst has continued to invest in CapEx and personnel during the first half of the year in order to support its high activity levels and also to support upcoming business opportunities. It is important to note that J-Chem's business, like PureChem's, is almost entirely leveraged to production-related spending by EMPs and is therefore not as sensitive to the same activity-related uncertainty that upstream revenues can face. Recent and potential future RFP opportunities, along with some recent consolidation in the North American production chemical space, have us extremely optimistic about continuing our march toward being the number one provider of production chemistry and service to the entire United States land market. As previously noted, we are already the number one production chemical provider to the Permian Basin, and we are now taking steps and hiring specialists in order to become a relevant supplier in the Gulf of America as well. At this time, I would like to reiterate the confidence we have in the resilience of our business model in the face of the current market uncertainty. Our business is counter-cyclical 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 are still experiencing revenue and opportunity growth in 2025. Therefore, our current strategy is a cautious focus on maintaining relationships with current clients and continuing to pursue potential new clients and markets. Our goal is to exit this short-term activity pullback in an even stronger position than when we entered it. And as history has shown, we have a solid record of achieving this stated goal, even through some of the worst financial times for our industry like 2009, 2015, and 2020. Obviously, the somewhat sluggish market we are currently experiencing is no comparison to those years named. However, we believe we have tremendous torque in the business right now, and whenever U.S. upstream activity inevitably accelerates, we are in a strong position to once again benefit from this recovery. In the meantime, we continue to expect 2025 to be a year of growth, with 2026 looking even stronger as the oil market seems headed towards a more positive structure and natural gas demand continues to grow. With regard to USA tariffs and the suggested Canadian counter-tariffs, These continue to have little to no direct effect on our business in their current state. However, we remain committed to the goal of 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. Although this is a long and complicated process, significant progress has already been made. 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 Q1 call, the impact from tariffs announced to date are not material to our overall business. Finally, I want to comment that our business has never been stronger or healthier than it is today, and that we are uniquely positioned to not only weather these current market headwinds, but also to benefit from it as we have in the past. We intend to accomplish this by utilizing our NCIB to strategically repurchase and cancel shares at what we believe is currently an attractive multiple. At the same time, we will also be supporting our current business and customers while keeping a watchful eye out for more tuck-in type consolidation wherever we see value. 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. Due to the growth we are still experiencing as well as the growth we anticipate experiencing, we have increased our total number of employees at CES from 2,530 on January 1st of this year to to 2,692 at the end of Q2. Although there may be more uncertainty in the markets today, we continue to position ourselves to provide the same industry-leading support to our customers for the business we currently have direct line of sight on. With that, I'll pass the call to Tony for the financial update.