Total Energy Services Inc.

Thank you for standing by. This is the conference operator. Welcome to the Total Energy's first quarter 2025 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 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then 0. 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 first quarter 2025 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 March 31, 2025, and then provide an outlook for our business and open up the phone lines for 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 described under the heading risk factors and elsewhere in total most recently filed annual information form and other documents filed with Canadian Provincial Securities Authorities that are available to the public at www.zeroplus.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 three months ended March 31, 2025, reflect relatively stable industry conditions in Canada and Australia, and continue to sustain U.S. drilling and completion activities. Consolidated first quarter revenue was 23% higher compared to Q1 of 2024. The acquisition of Saxon and the upgrade and reactivation of several drilling rigs and service rigs in Australia, combined with increased activity in the CPS segment, more than offset lower U.S. drilling and completion of duty, and weaker North American CDS and law servicing operating margin. first quarter consolidated EBITDA was $7.2 million, was 17% higher than in 2024. Geographically, 47% of the first quarter revenue was generated in Canada, 31% in the United States, and 21% in Australia, as compared to the first quarter of 2024, when 50% of the consolidated revenue was generated in Canada, 39% in the United States, and 11% in Australia. By business segment, the compression and process service segment contributed 42% of the first quarter consolidated revenue, followed by the CDS segment at 36%, both servicing at 13%, and RTS segment at 9%. In comparison, for the first quarter of 2024, The contract drilling services segment generated 40 percent of the first quarter consolidated revenue, followed by CPS at 38 percent while servicing at 11 percent and RTS contributing 11 percent. First quarter of 2025 consolidated gross margin was 25 percent as compared to 28 percent for the prior year quarter. The primary reasons for this decrease where the year-over-year increase in CPS segment revenue contribution to consolidated revenue, a change in revenue mix in the RTF segment, and lower North American contractual and annual servicing operating margins. As compared to 2024, CDS segments saw first quarter revenue increase by 12%, a 14% increase in revenue per operating day, more than offset 2% decrease in operating day. Canadian CDS revenue was 6% lower in Q1 2025 as compared to Q1 2024 due primarily to a 3% year-over-year decrease in utilization resulting from lower utilization of the mechanical double rig fleet due to competitive market conditions for that class of the rig. Lower rig utilization and inability to increase rates due to set-up cost inflation resulted in a 32% year-over-year decrease in the first quarter Canadian CDS segment operating income. In the United States, 6% increase in revenue per operating day was offset by 60% decrease in operating days resulting in a 58% decrease in revenue and realization of an operating loss. Australian first quarter operating days increased by 70% following the acquisition of Saxon in March of 2024. Higher day rates on Saxon's deeper drilling rig, a new drilling rig and several upgraded rigs that were deployed in the second half of 2024 contributed to a 124% year-over-year increase in first quarter Australian revenue and a 15-fold increase in operating income. RDS segment revenue for the first quarter increased modestly compared to 2024. A change in the mix of equipment operating and expenses encouraged by deploying new and upgraded equipment contributed to a year-over-year decrease in the first quarter segment operating income and operating income margin. First quarter revenue in total CPS segment was 37% higher compared to 2024. Increased fabrication sales and efficiencies arising from higher production levels resulted in a 51% year-over-year increase in first-quarter CPS segment operating income and a 9% increase in segment operating income margin. The fabrication sales backlog at March 31, 2025 increased by $76.4 million, or 40%, to $265 million, compared to $109 million backlog at December 31st, 2024. In wealth servicing, a 13% increase in revenue per operating hour combined with an 18% increase in operating hours resulted in a 34% year-over-year increase in first quarter wealth servicing segment revenue. Stable industry activity in Canada An increased Australian service rate utilization following the deployment of several upgraded rigs was partially offset by substantial decline in U.S. activity. Higher pricing received for upgraded rigs and increased utilization in Australia more than offset recent North American margins and drove a 34% year-over-year increase in Batman's first quarter of green income. Competitive industry conditions in Canada contributed to a modest decrease in both hours and revenue per service hour. These decreases, combined with general cost inflation and labor retention costs, contributed to a 32 percent year-over-year decrease in the first quarter Canadian oil servicing operating income. Increased revenue per service hour in the U.S. was more than offset by a substantial decrease in the fleet utilization resulting in the first quarter operating loss. The upgrade in reactivation of several rigs in Australia resulted in 109% year-over-year increase in first quarter service hours. The increase in service hours combined with increased pricing for upgraded equipment resulted in the realization of the first quarter Australian operating income as compared to operating loss in 2020 form. From a consolidated perspective, Total Energy's financial position remains very strong. At March 31, 2025, Total Energy had $78.9 million of positive working capital, including $65.1 million of cash. On April 29, 2025, Total Energy received $41.4 million of matured mortgage debt using cash on hand in its existing credit facility. Total energy bank covenants consist of a maximum senior debt to trillion 12-month bank-defined EBITDA of three times and a minimum bank-defined EBITDA to interest expense of three times. At March 31, 2025, the company's senior debt bank debt to bank-defined ratio was 0.09 times, and the bank interest coverage ratio was 26.82 times.