Total Energy Services Inc.

Thank you for standing by. This is the conference operator. Welcome to Total Energy's second 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 the opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. I would now like to turn the conference over to Daniel Halleck, President and CEO of Total Energy Services, Inc. Please go ahead.

Thank you. Good morning and welcome to Total's second quarter 2024 conference call. Present with me is Yulia Gorbache, our Vice President, Finance, and CFO. We will review with you Total's financial and operating highlights for the three months ended June 30, 2024. We will then provide an outlook for our business and open up the phone lines for any questions. Yulia, please go ahead.

Thank you, Dan. During the course of this conference call, information may be provided containing forward-looking information concerning total projected operating results, anticipated capital expenditure trends, and projected activity in the oil and gas industry. Actual events or results may differ materially from those reflected in Total's forward-looking statements due to a number of risks, uncertainties, and other factors affecting Total's businesses and the oil and gas industry in general. These risks, uncertainties, and other factors are described under the heading Risk Factors and elsewhere in Total's most recently filed annual information form and other documents filed on Canadian oil provincial securities authorities that are available to the public at www.siraplus.ca. Our discussions during this conference call are qualified with reference to the notes to the financial highlights contained in the news release issued yesterday. Unless otherwise indicated, all financial information in this conference call is presented in Canadian dollars. Total energy's financial results for the three months ended June 30, 2024, represent record second quarter financial results. Relatively stable industry conditions in Canada and Australia, continued strong demand in North America for compression and process equipment, and the acquisition of Saxon Energy Services in March, more than offset a year-over-year decline in U.S. drilling and completion activity. Consolidated revenue for the second quarter of 2024 was 2% higher compared to Q2 2023. The addition of Saxon Australia increased compression rental revenue in the CPS segment following the addition of new rental units in the first quarter, and effective cost management contributed to a 24% increase in second quarter EBITDA as compared to 2023. Geographically, 46% of second quarter revenue was generated in the United States, 36% in Canada, and 18% in Australia as compared to second quarter of 2023 when 47% of consolidated revenue was generated in the United States, 40% in Canada, and 13% in Australia. By business segment, the CPS segment contributed 51% of second quarter consolidated revenue followed by the drilling segment at 32%, well-servicing at 9%, and the RTS segment at 8%. In comparison, for the second quarter of 2023, the CPS segment generated 54% of second quarter consolidated revenue, followed by contract drilling services at 26%, and each of well-servicing, rentals, and transportation services contributing 10%. Second quarter consolidated margin was 23% as compared to 19% for the prior year. Margin improvement in CDS and CPF segments more than offset a decrease in the wealth servicing segment. As compared to 2023, the CDS segment saw second quarter revenue increase by 25% and EBITDA by 47%. Underpinning this improvement was stable industry conditions in Canada cost management in the United States, and the acquisition of Saxon on March 7, 2024 in Australia. Canadian drilling activity and financial results for the second quarter of 2024 were consistent with 2023. In the United States, efficient operational and cost management more than offset the 39% year-over-year decrease in second quarter operating days, such that second quarter operating income increased by 9% as compared to 2023. In Australia, second quarter operating days more than doubled following the acquisition of Saxon on March 7, 2024. The addition of Saxon's deeper rig fleet resulted in a 32% year-over-year increase in Australian Q2 revenue per operating day, which was also the primary reason for a 19% year-over-year increase in the second quarter consolidated CDF segment revenue per operating day. Revenue in the RTF segment decreased compared to Q2 of 2023 as a result of lower industry activity in the U.S. A modest increase in revenue per utilized piece of rental equipment mitigated the negative impact of lower equipment utilization in the segment CBTA, given this segment's relatively high fixed cost structure. Second quarter revenue in total CPS segment decreased slightly as compared to 2023 due to increased demand for rental equipment in the United States. The deployment of newly constructed rental units late in the first quarter and into the second quarter resulted in a 15% increase in rental fleet utilization in the United States. This increased rental activity combined with improved fabrication sales margins and increased parts and service businesses resulted in a 42% year-over-year increase in second quarter CPA segment EBITDA and a 508 basis point increase in EBITDA margin. The quarter-end fabrication sales backlog increased to $204.6 million compared to $185.6 million backlog at June 30, 2023. Sequentially, the quarter-end sales backlog increased by $18.9 million during the second quarter of 2024. Second quarter wall servicing segment utilization decreased 20% compared to prior year quarter. due to lower activity in all jurisdictions, particularly in the United States, as a result of lower industry activity that was due in part to a significant customer consolidation. Price increases in Australia following completion of RIG upgrades more than offset weaker pricing in the United States, resulting in a 5% increase in a segment's revenue per operating hour. However, this increase was not enough. to have set the decrease in service hours such that segment revenue decreased by 16% and the segment EBITDA by 27% compared to the second quarter of 2023. From a consolidated perspective, Total Energy's financial position remains very strong. At June 30, 2024, Total Energy had $71.8 million of positive working capital including $24.8 million of cash. Working capital decreased from December 31, 2023, as $42 million of mortgage debt. June-April 2025 became current during the second quarter of 2024. Total energy bank covenants consist of maximum senior debt to trail in 12 months, bank-defined EBITDA of three times, and the minimum bank-defined EBITDA to interest expense of three times. At June 30, 2024, the company's senior bank debt to bank EBITDA ratio was 0.45, and the bank interest coverage ratio was 10.17 times, excluding $10.5 million of non-recurring interest expense. Relating to an income tax reassessment in Q1 2024, The interest coverage ratio was 27.99 times.