Total Energy Services Inc.

Welcome to Total Energy's fourth 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 an 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 fourth 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 December 31st, 2024, and 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'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 businesses and the oil and gas service industry in general. These risks, uncertainties, and other factors are described under the heading Risk Factors and ELFAR 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 means released 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 December 31, 2024 reflect relatively stable industry conditions in Canada and Australia. and lower drilling and completion activity levels in the United States. Consolidated revenue for the fourth quarter of 2024 was 15% higher compared to Q4 of 2023, with the addition of Saxon offsetting lower U.S. drilling and completion activity. Fourth quarter consolidated EBITDA was $4.7 million lower than in 2023 due to lower U.S. activity extended holiday shutdowns in Canada, and wet weather conditions in Australia. And the negative impact of foreign exchange translation differences more than offsetting improved CPS and RTS segment margins. Excluding $4.1 million year-over-year negative impact due to foreign exchange translation differences, fourth quarter EBITDA declined by 1 percent compared to 2023. Geographically, 48% of fourth quarter revenue was generated in Canada, 33% in the United States, and 19% in Australia as compared to the fourth quarter of 2023 when 54% of consolidated revenue was generated in Canada, 37% in the United States, and 9% in Australia. By business segment, the CPS segment contributed 47% of fourth quarter consolidated revenue, followed by the contract drilling services segment at 34%, well servicing at 11%, and the RTS segment at 8%. In comparison, for the fourth quarter of 2023, the CPS segment generated 45% of fourth quarter consolidated revenue, followed by the contract drilling services at 35%, while servicing at 11%, and rentals and transportation services contributing 9%. Fourth quarter gross margin was 23% as compared to 27% for the prior year. The primary reason for the decrease in the fourth quarter consolidated gross margin was a year-over-year decrease in operating margin in the CDS and while servicing segments. Delays in deploying upgraded rigs and reduced activity in Australia due to wet weather conditions, lower U.S. activity levels, and a $4.1 million negative impact on Canadian CDS segment operating income arising from foreign exchange translation differences were primary reasons for such lower CDS and well-servicing segments operating margins. Partially upsetting, the lower CDS and well-servicing improved operating margins in the CDS and RTS segments. As compared to 2023, the CDS segment saw consolidated fourth quarter revenue increase by 12%, a 17% increase in revenue for operating day, more than of said, say, 4% decrease in operating day. Median CDS revenue was 12% lower in Q4 of 2024, as compared to the same quarter of 2023, as a 1% increase in revenue per operating day was offset by 13% decrease in operating day. Canadian operating days were negatively impacted by extended holiday shutdowns in December. In the United States, 17% increase in revenue per operating day was offset by 66% decrease in operating days resulting in a 60 percent decrease in USCDS revenue and the realization of an operating law. In Australia, first quarter operating days increased by 110 percent following the acquisition of Saxon in March of 2024. Higher day rates on Saxon's drilling rig fleet and the newly constructed drilling rig that was deployed in the third quarter resulted in 173 percent year-over-year increase in Australian Q4 revenue and a 30 percent increase in fourth quarter Australian CDS segment revenue per operating day. Costs to reactivate several upgraded rigs and accrued retention costs incurred during extended wet weather conditions resulted in a slight operating loss for the fourth quarter. RTS segment revenue for the fourth quarter decreased compared to 2023 due to lower activity in the U.S. Effective cost management and change in the mix of equipment operating contributed to a 13% year-over-year increase in fourth quarter segment EBITDA and a 17% increase in EBITDA margin. Fourth quarter revenue in the total CPS segment was 22% higher as compared to 2023. Increased rental imports and service activity combined with improved fabrication sales margin resulted in a 23% year-over-year increase in the fourth quarter CPF segmenting staff. The quarter-end fabrication sales backlog increased to $189 million compared to $162.8 million backlog at December 31, 2023. Sequentially, the quarter-end sales backlog remained consistent with $189 million at September 30, 2024. In well servicing, a 10% increase in revenue per operating hour combined with a 4% increase in operating hours resulted in a 15% year-over-year increase in the fourth quarter consolidated well servicing revenue. Increased Canadian and Australian service utilization was partially upset by a substantial decline in U.S. activity. Price increases in Canada and Australia Following the completion of RIC upgrades, more than offset weaker pricing in the United States, resulting in a 10% increase in the segment's revenue for operating power. Increased utilization and pricing in Canada contributed to a 41% increase in Canadian World Servicing operating income. This increase was offset by operating losses in the US and Australia. The U.S. operating loss was due to substantially lower duty levels. In Australia, cost to reactivate several upgraded rigs and accrued retention costs incurred during extended wet weather conditions resulted in a fourth quarter operating loss. Overall, the wealth servicing segment experienced a 20% year-over-year decrease in the fourth quarter EBITDA and a 29% decrease in segment EBITDA margins. From a consolidated perspective, Total Energy's financial position remains very strong. At December 31, 2024, Total Energy had $78.7 million of positive working capital, including $38.4 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. During the fourth quarter, Total Energy repaid $25.5 million of bank debt, such that total bank debt less cash was $72.5 million at December 31, 2024. Total Energy's bank covenants consist of a maximum senior debt to $3.12 bank-defined EBITDA of three times and a minimum bank-defined EBITDA to interest expense of three times. At December 31, 2024, the Company Senior Bank Debt to Bank Defunding Retire Ratio was 0.25 times, and the Bank Interest Coverage Ratio was 25.81 times. Thank you, Yuliya.