CES Energy Solutions Corp.

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 6, 2026, and in our annual information form dated March 10, 2026. In addition, certain financial measures that we will refer to today are not recognized under current generally accepted accounting principles. And for a description and definition of these, please see our second quarter MD&A and investor presentation posted on our website. At this time, I'd like to turn the call over to Ken Zinger, our president and CEO.

Thank you, Tony, and welcome, everyone. Thank you for joining us for our second quarter 2026 earnings call. As always, I will start my comments today by highlighting some of our major financial accomplishments that we achieved in Q2 of 2026. Our quarterly highlights include our third consecutive all-time record quarterly revenue of $714.1 million, which was an improvement of 24.4% over last year's Q2. It was also our highest quarterly EBITDA ever at $119.2 million, which marked a massive improvement of about 35% over last year's Q2. Q2 EBITDA margin of 16.7%, which was above our stated guidance range of 15.5% to 16.5%. Total debt to trailing 12 months EBITDA of 1.15 times. Our sixth consecutive quarter of record-setting U.S. quarterly revenue with $497 million. Our best ever Q2 Canadian quarterly revenue of $217.1 million. With regard to 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 while reporting Q4 or Q1 of each year. We will continue to support the business with the necessary investments required to provide acceptable growth and returns. This includes the updated CapEx plan for 2026 of $100 million spread equally between maintenance and growth. We will continue to research and execute on strategic acquisition opportunities which support vertical integration or interrelated business lines or geographies where we believe we can add value and grow returns. We will continue repurchasing shares while staying within our current debt to trailing 12 month EBITDA range of one to one and a half times as previously communicated. Now for a quick summary of our Q2 performance overall and by division. Today our rig count in North American land stands at 235 rigs out of the 791 currently listed as operating. This represents an industry-leading 29.7% market share. During Q2, 70% of CES revenue was generated in the United States and 30% in Canada, which is typical for a Q2 due to breakup in Canada. Cost pressures and supply chain challenges due to the fallout from the Iran conflict were felt across the business throughout Q2. As evidenced by our Q2 margins of 16.7%, our entire team has worked tirelessly along with our customers and suppliers to find common ground on pricing. This effort included procuring reliable replacements and redundant sources for all affected products and inputs. I cannot emphasize enough the tremendous job done by everyone in the company to achieve the current results. in light of all the pricing headwinds currently impacting our industry. We continue to not expect these fluctuations to cause meaningful or sustained margin erosion. We are actively managing the challenges as we have during previous cost escalation periods, and we do not expect any material impact to our margins going forward. We remain very confident in our stated margin guidance of 15.5% to 16.5%. In Canada, the Canadian Drilling Fluids Division continues to lead the WCSB in market share. Today, we are providing service to 89 of the 219 jobs listed as underway in Canada for a 40.6% market share. As everyone is aware, the overall active drilling rig count in Canada in Q2 was considerably higher year over year as commodity prices and industry optimism spiked due to the current Middle East situation. Now that we are through breakup in Canada and well into the summer drilling season, we remain very optimistic about WCSB activity levels. This is evidenced by the current WCSB rig count in August, which is at its highest level for this time of year since 2014. We anticipate these higher activity levels will continue throughout Q3, Q4, and Q1 2027 due to recently added takeaway capacity from infrastructure projects as well as vastly improved futures pricing for energy products due to the aforementioned Iran conflict and its associated fallout. Purechem, our Canadian production chemical division, continued its run of strong results in Q2. Purechem continues to grow as all of the business lines continued to perform at record levels. We anticipate experiencing further revenue and earnings growth at Pure Chem due to our consistent market penetration and higher activity levels that we expect to continue in the near future. The previously announced trial in the heavy oil sector of the market continued throughout Q2 and will progress well into the second half of 2026. In the United States, AES, our U.S. drilling fluids group, is currently providing chemistries and service to 146 of the 572 rigs listed as active in the USA land market today, including a basin leading 39.5% of the rigs in the Permian. This combines for a continued number one market share of U.S. land rigs at 25.5%. Our U.S. customers remain busy and our outlook is constructive for the remainder of 2026 and into 2027. At AES Completion Services, which is what we renamed our HydroLite acquisition, the revenue and market share continues to grow at a level exceeding expectations. This division is now operating at a very high level and has grown revenue by over five times since we acquired them in June of 2024. Finally, our U.S. Production Chemical Division, J-CAM Catalyst, continues a steady trend of growing market share and profitability. The division remains focused on further market penetration, in all the areas in which they operate on land in the United States, as well as in the offshore market. As a follow-up to the previously announced land-based RFP awards, I will confirm that we have now fully taken over all of the awarded locations associated with the large RFP referred to last year, and the business is now seamlessly operating at this much higher revenue run rate level. As well, progress continues in the offshore Gulf of America markets. As previously noted, this is a long and slow growth opportunity that we continue to make progress on. We believe our Q4, Q1, and Q2 results are indicative of the tremendous torque we have continually building in our business. We also believe that North American upstream activity will continue to accelerate throughout 2026 and 2027 based on current industry conditions and expected activity levels. We now believe that 2027 is looking stronger than previously anticipated for North America and for CES as the oil market has achieved economically attractive futures pricing and natural gas demand accelerates through the LNG and AI development. 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, over the last couple of years, we have taken significant steps to restructure our manufacturing and supply chains in order to minimize future exposures as much as possible. I will state once again that as clearly noted a year ago on our Q1 2025 earnings call, the impact from tariffs to date continues to be immaterial to our overall business. By way of update, I would now like to remind investors of our targeted growth opportunities for the business in the coming years. USA Production Chemicals. Based on third party reports and our own internal research, estimated USA land production chemical market is currently worth approximately four to four and a half billion dollars Canadian annually. According to the Kimberlite report from last fall, we are the second biggest production chemical company in USA land and we held approximately 21% of this market. We are waiting to see what they say about the market share in the USA production chemicals next month when the 2026 report is published. Our goal remains to expand this market share and become the dominant number one supplier in this space. Canadian heavy oil production treating. Third-party reports suggest that this segment of the Canadian market is approximately $800 million Canadian annually. Today, we have a very minor share of this business, and we have spent the last 10 years making slow, steady progress on penetrating this technical, sticky, high-margin profile market. We continue to make steady progress at the two smaller facilities we are servicing, which we have previously mentioned, as well as we have recently been awarded two additional small facilities, where we are also treating with a complete line of chemistries. As mentioned on the past couple of calls, we are continuing the live testing trials on one of the larger facilities in the province. In addition to this trial, we are now just starting trials with two more opportunities at larger heavy oil production facilities. Like the existing trials, these additional trials will be ongoing and complicated, and I want to note that timelines to successful award will be measured in months and years, not days and weeks. Our goal remains to attain a meaningful market share in this space over time, much like we have in the broader Canadian production chemical space. And recent progress suggests that successful penetration is starting to accelerate. Next up is offshore Gulf of American production chemicals. Third-party reports suggest that this market size is approximately 1 billion Canadian annually. We are in the very early innings of a very long cycle time to penetrate this business in a meaningful way. Today we are a very small player in the space. However, since buying Crowflow in 2022, we have been hiring experts, building out manufacturing capabilities, and we also recently built an offshore focused lab in the woodlands in Houston. We have been experiencing more and more trial opportunity flow due to these initiatives. We are focused on someday holding a meaningful market share in the Deepwater Gulf of America production chemicals market and have a focused team who are dedicated to and actively pursuing this result. Also, international markets. We continue to have very minimal exposure to these markets. Today, we generate a small amount of revenue and earnings from a minor presence in a half a dozen countries, which we have targeted specifically as having the characteristics best suited for us to compete. We also have participated in a couple of RFPs in the Middle East over the past year, which yielded very promising results. As can be appreciated, the issues around the Iran war have caused these opportunities to be delayed indefinitely. In spite of this setback, we are continuing undeterred in our efforts to expand geographically. And last but not least, North American macro growth. This is something that is obviously beyond our control, but as the past few months have shown, when the market gets busier, we are rewarded with significant growth and earnings. As a final thought, I want to extend 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 anticipated experiencing, we have increased our total number of employees at CES by 6.5% since the start of the year, from 2,707 employees on January 1st to 2,882 employees at the end of Q2. I will now pass the call to Tony for the financial update.

Thank you, Ken. The second quarter represented an important continuation of a steady march to achieving a record revenue run rate of approximately $2.9 billion bolstered by strong EBITDAQ margins above our 15.5% to 16.5% targeted range and record funds flow from operations collectively demonstrating the attractive financial attributes of our unique business model. These results underpin the resilience of CES's consumable chemicals business model and sustained profitable growth as our customers continue to adopt chemical-related improved efficiencies and require higher treatment levels for increasingly prolific wells. In Q2, CES generated record revenue of $714 million, representing an annualized run rate of approximately $2.9 billion and a 24% increase over the prior year's $574 million. I would also note that this is the third consecutive quarter that has generated an annualized revenue run rate of approximately 2.7 billion or greater, and the first quarter achieving the $2.9 billion range, demonstrating the impacts of market share gains, large new business wins, and prudent deployment of capital to realize attractive organic growth. Revenue generated in the U.S. set a new record at $497 million, representing 70% of total consolidated revenue. These results compare to revenue of $438 million in Q1 2026 and $406 million in Q2 2025. Revenue generated in Canada also set a new second quarter record at $217 million compared to $168 million in Q2 2025, and sequentially below the $244 million in Q1, 2026 as expected on a seasonal basis. Revenue levels benefited primarily from increased market shares and elevated service intensity and production chemical volumes driven by increasingly complex curling programs. Customer emphasis on optimizing production through effective chemical treatments benefited both countries and illustrated the resilience and attractiveness of our business model. Adjusted EBITDA in Q2 came in at $119.2 million compared to $111.7 million in Q1 and $88.3 million in Q2 2025. Q2's adjusted EBITDA margin of 16.7% came in just above the high end of our targeted 15.5% to 16.5% range. and compared to 16.4% in Q1 and 15.4% in Q2 2025. These results were primarily driven by record revenue levels combined with strong margins, continued increased service intensity and a single short-term project. Funds flow from operations, which isolates the effect of working capital fluctuations and is a key barometer of the cash flow generating capability of the company. was a record $97 million in Q2 compared to $62 million in Q1 and $77 million in Q2 2025. CS generated $60 million in cash flow from operations compared to $69 million in Q1 and $66 million in Q2 2025. The decreases in cash flow from operations relative to comparable periods were driven primarily by significant strategic working capital investments to support record revenue levels. Free cash flow was $25 million in Q2 compared to $33 million in Q1 and $35 million in Q2 2025. As measured by a free cash flow to adjusted EBITDA conversion rate, this equates to approximately 21% in the current quarter and 37% for the trailing 12 months. including the impact of changes in working capital. These figures would have been 51% and 46% respectively. CES maintained a prudent approach to capital spending through the quarter with CapEx spend net of disposals of $24 million, representing 4% of revenue. We will continue to adjust plans as required to support existing business and attractive growth throughout our divisions. For 2026, we expect cash capex to be approximately $100 million, split evenly between maintenance and expansion capital. The modest increase in estimated 2026 capex spend is earmarked to support incremental accretive business development opportunities and current record revenue levels. During the quarter, the company continued with its measured pace for share buyback. thanks to consistently strong current and projected free cash flow. This shift reflects a disciplined response to increased volatility on the macro front and targeted acceleration of buybacks as opportunities present themselves. While remaining committed to its NCIB, CS is ensuring that repurchases are executed strategically to maximize long-term shareholder value. Consequently, during Q2, we repurchased 780,000 common shares at an average price of $17 per share for a total investment of $13.3 million, representing 0.4% of the shares outstanding as of April 1st, 2026. Subsequent to the quarter, we have already purchased 735,000 shares at an average price of $16.60 per share for a total of $12.2 million, representing an acceleration from Q2 repurchase levels. On July 22nd, 2026, we renewed the previous NCIB to repurchase for cancellation up to 18.1 million shares, representing 10% of the public float at the time of the renewal. Since inception of the NCIB program in 2018, TES has purchased 89 million shares representing 33% of the outstanding shares at that time at an average price of $4.70 per share. On June 15th, 2026, the company completed the private placement of $300 million of five and five-eighths senior unsecured notes due on June 15th, 2033. The company used the proceeds from the issuance to repay the existing 275 million of six and seven eight senior unsecured notes due on May 24th, 2029, and partially repay amounts outstanding on the senior credit facility. The refinancing decreases CS's annual interest costs by approximately $2 million per year, extends our debt maturity profile to 2033, and provides additional financing flexibility. The resulting total debt at the end of the quarter was $513 million, representing an increase of 21 million from March 31st, 2026. Total debt was primarily comprised of the new $300 million in senior notes and that new draw on the senior facility of $98 million and $96 million in lease obligations. total debt to adjusted EBITDA of 1.15 times at the end of the quarter compared to 1.18 times at March 31st, 2026, demonstrating our continued commitment to maintaining prudent leverage levels in the one to one and a half times range. This prudent and flexible capital structure is further illustrated by our current net draw of approximately 172 million, which has increased by 74 million from the end of the quarter, driven by the settlement of the company's quarterly dividend and CIB share repurchases and the timing of annual PSU-related compensation payments. We are very comfortable with our current debt level, maturity schedule, and leverage in the one to one and a half times range, thereby enabling strong return of capital to shareholders and prioritizing a sustainable dividend and share buybacks, in addition to strategic tuck-in acquisition opportunities. Elevated activity levels combined with our continued focus on working capital optimization has led to improvements in cash conversion cycle, which ended the quarter at 95 days compared to 112 days in Q2 2025. This translates to an operating working capital as a percentage of annualized quarterly revenue of 26%. compared to our historical range of 30 to 35%. Each percentage improvement at these revenue levels represents approximately $29 million on our balance sheet. We continue to remain focused on profitable growth, acceptable margins, working capital optimization, improving capital expenditures, which drive our key metric of return on capital employed, This approach has led to a cultural adoption of these key factors allowing us to maintain a strong trailing 12-month return on average capital employed of 22% and a return on invested capital of 18% and well above our internal weighted average cost of capital. The business model continues to demonstrate its cash compounding characteristics through a combination of high return metrics, low capex levels, Thank you for joining us today. and CapEx projects that deliver IRRs above our internal hurdle rates. We remain very comfortable with our dividend, which represents a yield of approximately 1.3% at our current share price and is supported by a very prudent payout ratio of 15%, well within our target range of 10 to 20%. Through the year, we continue to plan to buy back at least enough shares to offset are modest equity compensation related dilution, be in the market on a consistent basis and consider opportunistic purchases in the context of surplus free cashflow generation, implied valuation levels and adherence to our one to one and a half times target leverage range. In the context of these guardrails and current market conditions, we intend to continue our accelerated buyback activity levels as illustrated during the last two months. We continue to explore prudence acquisitions with a continued focus on accretive opportunities that provide complimentary products, markets, geographies, and leadership in support of our strategic priorities and that can benefit from our platform to realize attractive growth. At this time, I'd like to turn the call back to the operator to allow for questions.