Total Energy Services Inc.

Welcome to Total Energy's third quarter 2024 results conference call and webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. After today's 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, 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 third quarter 2024 conference call. Present with me is Yulia Gorbache, Total's VP Finance and CFO. We will review with you Total's financial and operating highlights for the three months ended September 30th, 2024, and then provide an outlook for our business and open up the phone lines for questions. Iulia, please go ahead.

Thank you, Dan. During the course of this conference call, information may be provided containing forward-looking information concerning Total's 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 business and the oil and gas service 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 with Canadian 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 September 30, 2024, represent record quarterly 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 third quarter of 2024 was 4% higher compared to Q3 2023. The addition of stocks in Australia increased compression and rental revenue and improved fabrication margins in the CPS segment, together with effective cost management in all segments contributed to a 12% increase in third quarter EBITDA as compared to 2023. Geographically, 49% of third quarter revenue was generated in Canada, 34% in the United States, and 17% in Australia, as compared to the third quarter of 2023, when 48% of consolidated revenue was generated in Canada, 43% in the United States, and 9% in Australia. By business segment, CPS segment contributed 46% of third quarter consolidated revenue, followed by the drilling segment at 36%, well servicing at 10%, and RTS segment at 8%. In comparison, for the third quarter of 2023, the CPS segment generated 48% of the third quarter consolidated revenue, followed by the contract drilling services at 33%, well servicing at 10%, and rental and transportation services contributing 9%. Third quarter consolidated gross margin was 26% as compared to 24% for prior year. Margin improvement in CPS and RTS segments more than offset a decrease in CDS segment. As compared to 2023, CDS segments saw third quarter revenue increased by 14%. A 16% increase in revenue per operating day more than offset a 2% decrease in operating days. Canadian CDS revenue was 5% lower in Q3 of 2024 as compared to the same quarter of 2023, as 2% increase in revenue per operating day partially offset a 7% decrease in operating days. Canadian operating days were negatively impacted when an AC double drilling rig was damaged in July during transit, The rig returned to service in mid-October following completion of repairs. In the United States, decreased activity and relatively lower pricing as a result of change in the mix of equipment operating during the quarter contributed to lower year-over-year revenue and the realization of slight operating loss. In Australia, third quarter operating days increased by 93%. following the acquisition of Saxon on March 7, 2024. Higher day rates on Saxon's deeper drilling rig, drilling fleet, and the newly constructed drilling rig that was deployed in the third quarter resulted in a 42% year-over-year increase in Australian Q3 revenue per opening day and was the primary driver of a 16% year-over-year increase in third quarter consolidated CDS segment revenue per opening day. Revenue in the RTS segment decreased compared to Q3 of 2023 as a result of lower industry activity in the U.S. Consistent pricing, effective cost management, and change in the mix of equipment operating contributed to a 13% increase in EBITDA and a 24% increase in EBITDA margins during the third quarter of 2024 as compared to 2023. Third quarter revenue in total CPS segment was consistent with Q3 of 2023. The deployment of several newly constructed rental units early in the year resulted in a 19% increase in the rental fleet utilization in the United States. This increased rental activity combined with improved fabrication sales margins and increased parts and service activity resulted in a 34% increase year-over-year increase in third quarter CPS segment EBITDA, and a 31% increase in the EBITDA margin. The quarter end back fabrication sales backlog increased to $189 million compared to the $152.9 million back at September 30, 2023. Sequentially, the quarter end backlog decreased by $15.6 million during the third quarter of 2024. Revenue in the well servicing segment was 5% higher as compared to the third quarter of 2023. An 11% increase in revenue per operating hour offset an 8% decrease in overall segment utilization. Increased Canadian and Australian service utilization was not enough to offset the substantial decline in U.S. activity due in part to a significant customer consolidation. Price increases in Canada and Australia following the completion of RIG upgrades more than offset weaker pricing in the United States, resulting in an 11% increase in the segment's revenue per operating hour. Increased utilization and pricing in Canada and Australia also contributed to a 20% increase in operating income during the third quarter of 2024 compared to the same quarter in 2023. Lower activity in the United States and reactivation costs in Australia contributed to a 2% decrease in third quarter well servicing EBITDA and 5% decrease in the segments EBITDA margin. From consolidated perspective, Total Energy's financial position remains very strong. At September 30, 2024, Total Energy had $97.3 million of positive working capital, including $61.9 million of cash. Working capital decreased from December 31, 2023, as $42 million of mortgage debt during April of 2025 became current during the second quarter of 2024. Total energy bank governance consists of maximum senior debt to trailing 12 months bank EBITDA of three times and then minimum bank defined EBITDA to interest expense of three times. At September 30, 2024, the company senior bank debt to bank EBITDA ratio was 0.26 and the bank interest coverage ratio was 10.15 times. Excluding $10.5 million of non-recurring interest expense relating to an income tax reassessment in Q1 of 2024, the interest coverage ratio was 26.65 times.