Total Energy Services Inc.

Thank you for standing by. This is the conference operator. Welcome to Total Energy Second 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 zero. I would now like to turn the conference over to Daniel Hellick, President and CEO of Total Energy Service, Inc. Please go ahead. Speakers, please go ahead. Speakers, please go ahead with the question. Speakers, please go ahead.

Pardon me ladies and gentlemen, please stand by. It seems we are having an issue with our speaker line. Please stand by while we check the audio. Thank you.

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Thank you for standing by. This is the conference operator. Welcome to Total Energy's second 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 Halick, President and CEO of Total Energy Services, Inc. Please go ahead.

Thank you, good morning, and sorry for the false start here. I promise I didn't touch any buttons. Anyways, good morning and welcome to Total's second quarter 2025 conference call. Present with me is Yulia Gorbache, our VP Finance and CFO. We will review with you Total's financial and operating highlights for the three months ended June 30th, 2025, provide an outlook for our business, and then 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 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 forward-looking statements due to a number of risks, uncertainties, and other factors affecting total businesses 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.crplus.ca. Our discussions during this conference call are qualified with the 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-month ended June 30, 2025 represent record second quarter results. A substantial increase in Australian drilling and service rig activity continued strong North American demand for compression and process equipment, and improved performance from Canadian well servicing, more than offset the substantial decline in United States drilling and completion activity, and a modest decline in drilling activity in Canada. On a year-over-year basis, consolidated second quarter revenue increased by 17 percent and EBITDA by 21 percent. Improved EBITDA margin in all fourth business segments, to over 58 basis points year-over-year improvements in consolidated EBITDA margins. Geographically, 38% of second quarter revenue was generated in Canada, 38% in the United States, and 24% in Australia, as compared to the second quarter of 2024, when 36% of consolidated revenue was generated in Canada, 36% in the United States, and 18% in Australia. By business segment, the compression and process services segment contributed 53% of second quarter consolidated revenue, followed by the CDS segment at 28%, while servicing at 12%, and the RTS segment at 7%. In comparison, for the second quarter of 2024, The compression process services segment generated 51% of second quarter consolidated revenue, followed by CDS at 32%, while servicing at 9%, and RDS segments at 8%. Second quarter 2025 consolidated gross margin was 23%, which was consistent with 2024. Business in U.S. CDS and while servicing operating margins were more than upset by improved operating margins in the CDF segment, as well as in Australian and Canadian CDF and world servicing businesses. Second quarter CDF segment revenue increased 5% compared to 2024. A year-over-year decline in the second quarter North American operating days was more than upset by a 30% increase in Australian operating days, and a 9% year-over-year increase in segment revenue per operating day, resulting primarily from rig upgrades in Australia and Canada. Second quarter CDS segment EBITDA increased by 11% compared to 2024, driven by a higher Australian activity and improved operating margins in Australia and Canada. RTF segment revenue for the second quarter decreased 9% compared to 2024, due to a 17% decline in Canadian revenue that was partially offset by a 3% increase in U.S. revenue following the acquisition of a fleet of rental equipment based in Oklahoma on June 10, 2025. Lower North American trillion incompletion activity and a change in the mix of equipment operating contributed to an 8% year-over-year increase in the second quarter RTF segment in Utah Second quarter revenue in total CPS segment was 22% higher compared to 2024. Increased fabrication sales and efficiencies arising from higher production levels more than offset lower rent of fleet utilization in a 29% year-over-year increase in the second quarter CPS segment operating income and a 26% increase in segment GDPR. The fabrication sales backlog at June 30, 2025 increased by $30.5 million, or 15%, to $303.9 million, compared to the $265.4 million backlog at March 31, 2025. In well servicing, An 8% increase in revenue per service hour combined with a 52% increase in operating hours resulted in a 64% year-over-year increase in second-quarter segment revenue. Increased Australian and Canadian activity resulting from rig upgrades was partially offset by substantial decline in U.S. activity. Higher pricing received for upgraded Australian rigs and improved Canadian operating margins more than substantially weaker U.S. performance and resulted in a 66% year-over-year increase in second quarter segmented design, as well as the realization of second quarter operating income as compared to an operating loss in Q2 of 2024. From a consolidated perspective, Total Energy's financial position remains very strong. At June 30, 2025, Total Energy had $108.7 million of positive working capital, including $34.2 million of cash. On April 29, 2025, Total Energy repaid $41.4 million of maturing mortgage debt using cash on hand and its existing credit facility. Total Energy's bank governance consists of a maximum senior debtor trailing 12 months bank EBITDA for three times. and the minimum bank-defined EBITDA to interest expense of three times. At June 30, 2025, company senior bank debt to bank EBITDA ratio was 0.2 times, and the bank interest coverage ratio was 32.5 three times.

Thank you, Yuliya. We are pleased with Total's second quarter results. Despite challenging industry conditions in the United States and a modest year-over-year decline in Canadian drilling activity, the substantial investment made in growing our Australian business over the past year and continued momentum in our compression and process services segment underpinned our record second quarter results. As highlighted during the past several quarterly conference calls, investment in North American energy infrastructure has been substantial. and the outlook for future investment remains strong at this time. Demand for compression continues to be driven in part by the expansion of North American LNG export capacity, although the increasing use of natural gas for electricity generation is also contributing to such demand. Total's exposure to these opportunities is evidenced by the continued and substantial growth in the CPS segment sales backlog. For the first time ever, at June 30, 2025, the quarter-end fabrication sales backlog exceeded $300 million, and sales activity remains strong today. We believe there exists a solid opportunity to grow our U.S. compression business in a capital-efficient manner. To support that growth, our board has approved a $19.5 million increase to our 2025 capital expenditure budget. This increase will fund construction of a new assembly plant in Weirton, West Virginia, which is expected to be completed by the first quarter of 2027. Once completed and fully staffed, this facility is expected to increase our US fabrication capacity by at least 75%. The increased capital budget will also fund the upgrade and reactivation of an idle service rig in Australia. This rig is expected to commence operations by the end of the first quarter of 2026 under a minimum 12-month contract. From a cash flow perspective, most of the $19.5 million increase to our 2025 capital budget will be spent in 2026. While we remain sensitive to current economic uncertainty and the resultant impact on industry activity levels, We also remain focused on generating sustainable shareholder value as measured on a fully diluted per share basis. As such, we will use our balance sheet strength to pursue investment opportunities that we believe will generate acceptable full cycle returns. Historically, some of the best opportunities to deploy capital have arisen during periods of uncertainty. On June 10th, 2025, we announced the acquisition of 280 rental pieces located in Oklahoma for $9 million. This acquisition increased our U.S. major rental piece fleet by 30%. More importantly, we brought on board experienced local personnel that supported the establishment of our fourth U.S. rentals and transportation services branch in El Reno, Oklahoma. And I'd like to take this opportunity to welcome Nate Powell, who is heading up RL Reno Branch, and his team to Total Energy. I would now like to open up the phone lines for any questions.

Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, Please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. We will pause for a moment as callers join the queue. The first question comes from the line of Tim Monicello with ATB Capital Markets. Please go ahead.

Hey, good morning, guys.

Good morning, Tim.

I just want to start off in the CTS segment. really strong quarters for backlog growth. I wonder if you can talk a little bit about what you're seeing on the margins, on the horizon, if you expect that momentum to continue and really maybe just expand a little bit on the end markets and the demand that you're servicing.

So first of all, Tim, obviously with higher production levels, you tend to get efficiencies of scale and your overhead absorption is better. And so naturally, with higher production levels, you tend to get better margins, everything else being equal. You know, that said, we're seeing some cost inflation. you know, through things like steel tariffs and that. But for the most part, I believe the group's done a good job in managing those costs and passing them on to the extent we can. You know, I would note our rental utilization was down in the quarter. A lot of that reflects a bit of a shift in our U.S. customer base over the past few quarters. It tends to be large pipeline and midstream operators, which are inclined to purchase, not rent. That said, that business also tends to come in waves, and I think you'll see an uptick, particularly in Canada in the third quarter. For example, we'll have a number of our idle nomad rental units going out on a project where a facility is being refurbished, and to keep the facility going, a number of nomads will be utilized on a short-term rental basis to keep the plant running. You know, so those are – that can be a bit lumpy. But, you know, overall, I think the group in our CPS segment has done a good job executing, you know, production efficiencies with scale. And, you know, at this point, we see nothing material changing either way, you know, barring any major tariff change.

In terms of bookings and, I guess, opportunity set – Are you seeing a lot of momentum continuing through the back half of the year? Been a couple of strong quarters.

Yeah, to date, you know, it's early August, but quoting and booking activity remains strong.

And CPS fabrication capacity addition, can you talk a little bit about the rationale behind that? Are you running near capacity today? Okay. and what gives you confidence that you'll need the extra 75% or more capacity?

So first of all, we see the U.S. as a huge market opportunity for us. We believe there's a lot of room for us to grow both market share and into a growing market. So we believe the market for U.S. compression over the next decade several years will grow bigger and we also believe we can get a bigger share of that market and yes you know running near capacity when you these things take some time as you can see the physical construction takes till q1 at 27 obviously we'll have to staff up going into that but i believe the incremental capital we've allocated is a pretty low risk option on continuing to grow our U.S. compression business.

Are there any changes in the design of that? I guess the expansion, anything notable from an efficiency perspective or that might drive margins higher as you go forward in that capacity commission?

What I would generally say, and I don't want to give any competitive secrets away, but we're following the model we followed in Canada, which worked very well.

Okay, that's helpful. Australia, you know, record quarter in Australia. It seems like things are clicking there. Can you talk a little bit about the outlook in Australia and specifically I'd be interested if you could just recap your expectations for rig additions through the back half of the year for rigs that are coming into the fleet off upgrades?

So, you know, first of all, we've invested a lot of capital in Australia over the past year. So, you know, we expected to see a ramp up and, you know, it's going in the right direction. You know, we highlighted this quarter another service rig will come off the fence. By the end of Q1, early Q2, we have a rig that's going to be going into service by Q4 here this year. And, you know, I mentioned that we have a few idle rigs that we're working on, nothing to report yet. And, you know, we're always open to working with our customers in all geographies to, you know, look at upgrades and opportunities to work together to, you know, grow our active fleet and improve our existing fleet. So at this point, we continue to execute on the projects we've announced and so far so good.

The U.S. has been a bit of a challenging market, you know, just in general. Are you seeing any opportunities there to, I guess, reactivate equipment?

Yeah, I think we're certainly interested in growing our U.S. presence. Certain areas of the market are extremely competitive. We tend to back off, and we won't try and race to the bottom on price. We'd rather stand on the sidelines, let things settle out within reason. We understand we have to be competitive, and so we do adjust. But there's certain times where you're better to... you know, just let your equipment take a breather. The flip side is, you know, it's probably not a bad time to look at M&A opportunities. And, you know, what we find is, depending on the area, the type of equipment, vendor expectations are somewhat in line, but also there's expectations that are not in line with kind of public market valuations. So, you know, we continue to watch that market closely. We will work with good customers to continue to operate. We've historically stuck it out as opposed to fold up our tent. We'll wait also for good opportunities to grow. I think that's kind of our perspective at this point. It's a huge market. It's been a challenging few years, but we're trying to build a company for the long run here.

You have done a pretty strong job of finding growth opportunities across your platform in 2025, capex of over $100 million now. As you look to 2026 and you look at the suite of opportunities you expect, maybe you can just talk a little bit about what that opportunity set looks like going forward, or do you continue to see growth? good places within the portfolio to invest capital?

Yeah, I think, first of all, we're agnostic. We don't, you know, we have four children. We love them equally, but they're all very different, and they all go through different phases in their growth. And what I would say is, you know, we stick to our principles of insisting a return on our invested capital. That exceeds our whack over the life of the investment. That will drive... you know, where we spend our attention and where we place our owner's capital. You know, competing with all of this is share buybacks, and, you know, we remain steady on that. You know, so nothing really is going to change. We're going to continue to be opportunistic. We will go where opportunities take us. We don't fall in love with any particular piece of equipment, and... In the meantime, you need to operate your existing businesses efficiently and well. That's a strong part of our culture and focus as well. In an uncertain market, first of all, you have to have the balance sheet to be able to do things, which we do. Secondly, you have to have the intestinal fortitude to look beyond the near-term choppiness. Um, you know, that short term, I'm certainly definitely impacts our modeling, but it doesn't prevent us from doing deals. That makes sense.

Okay. That's helpful. Um, then last one for me, uh, can you just talk a little bit about how, you know, that tuck in in Oklahoma and the rental fleet is, uh, is working out in your expectations, be able to grow that business.

So, first of all, um, The first month or so, couple months, their performance has exceeded our expectations. In part, we've been able to leverage the... utilization of the assets in that market to pull some demand for other assets and trucks. We picked up a group of people that had worked with the asset base. They're experienced, local, lots of energy. We're committed to the market. We want to be in that business, and I think they picked the right partner in terms of who they want to work with, and we want to grow our presence there. Oklahoma's for whatever reason, seen a bit of a rig increase versus West Texas. And so, you know, whether that's luck or whatever, we've got a bit of a tailwind behind us. But so far, we're pleased with how that's been performing. And we look to grow our presence in that market.

Okay, got it. That's all the questions I had. I appreciate it, and strong order.

Thanks, Tim. Thank you. A reminder to all the participants that you may press star and 1 to ask a question. Next question comes from the line of Joseph Schachter with SER. Please go ahead.

Good morning and congratulations on the great quarter. Thank you, Joseph. First, to go into the compression business, are there any certain products that are in high demand and what's the lead time somebody wants to put an order in? Are they looking at a Year delivery, two years delivery, you know, you've got the big backlog, but I'm wondering if there's certain product lines that are in higher demand and is there a delay issue there in delivery?

So what we're seeing is a lot of demand, Joseph, for big horsepower compression. Part of the business involves making working capital investments, notably in engines, compressors, and coolers. What we're seeing on the engine side, and in particular in the ultra-large Caterpillar engines, is very long lead times. The good news is we've used our balance sheet to keep a steady flow of engine inventory coming into our system. But you're looking at lead times out of Caterpillar in excess of 80 weeks on certain types of engines. but that's why we also have $100 million of inventory on our balance sheet. You know, we need to fund that, which this is becoming a big boy game if you want to play in that market. And so, you know, the challenge for us is when you have those sort of lead times, you're anticipating future demand now almost two years into the future. At some point, you know, That's going to roll over, but at this point we don't see that happening anytime soon. But we've made inventory commitment purchases or purchase commitments that we believe will keep our operations running for the foreseeable future.

So if a new customer comes in tomorrow, what timeline would you say to them for deliveries?

It really depends on the product they're looking for. You know, the price they're willing to pay, you know, how do you allocate a scarce resource? Certainly, if someone's willing to pay a high price, we can make it happen. But ordinary course, you know, you're looking at, we'd measure it in months, not years. And again, a lot of these projects, Joseph, are with large pipeline midstream companies that, you know, these are being built out over quarters. And so there's a lot of coordination between the customer and our facility for, you know, planning deliveries and that. So as opposed to, you know, small wellhead compression where we still do a lot of that, to me that's a bit of filler work. And again, if someone was in a panic, we can probably turn around pretty quickly. But obviously, you know, the price needs to reflect taking a scarce resource, which is floor space right now.

Another area to pursue, Australia, excellent results there. Is there a new play there, oil or natural gas, that's causing demand? Permium, you said Oklahoma's picking up. Is there something going on specifically that's going to add significant production to the Australian economy? you know, oil and gas industry? And is that the driver of this pickup in demand?

No, I would say generally market share gains is what we're seeing. And, you know, when we acquired Saxon, Saxon was for sale. And when you're for sale, you know, I don't mean this in a disrespectful way, but you tend not to focus on the business. We want to be in the drilling business. We're keen to be in the drilling business. We're drillers. And when we're focused on it and willing to invest in upgrades and recertifications and all that, and if you do a good job, you can gain market share. So I would say Australia is very stable from our perspective at a macro level, and really the gains we're seeing are market share increases.

Okay. You show utilization at 54% and number of rigs at 17%. How many rigs do you have idle that could be brought back to work under good contract?

That number is shrinking. What do we have there, 17 in total? Running 12. We've got another one coming, 13. So probably two, perhaps three max.

Okay. And the Canadian-U.S. side, Canada was down. U.S., of course, we know what's going on there. Some of the other players are showing Canada doing better this year versus last year. Is there any specific reason in terms of the areas you work, the client mix, where you're down versus other people showing up?

Well, I think client mix is one. We saw a couple major acquisitions where our customer was on the sell side. We continue to work with the buyer, but definitely that interrupted and delayed Q2 operations. The other piece to that would be market share. We've given up some market share, particularly in the mechanical double market, where we've seen extremely aggressive pricing to the point where it doesn't make a lot of sense to put your iron out for that. We have to be competitive, but we also are sensitive to working our equipment into the ground. We need to cover our depreciation expense. If you don't, you'll find out over time that it's not a sustainable business. Again, we play in the long run here. When we put a rig to work, we expect to deliver solid operations and back it up. If you're not covering your costs, that's difficult to do.

One more for me. What is your mix of rigs in Canada between You know, the singles, the tough doubles market, and then the triples. And do you see customers looking for new equipment that you can either bring equipment in from the states or, you know, what do you need to justify new builds?

So we've got our triples, AC doubles fully utilized, super single, strong demand, although we saw a little bit of choppiness Q2. Part of it was M&A, part of it spring breakup, pretty wet summer here. So a lot of those areas where you're moving rigs regularly are tough with the rain. We have a second triple in Canada that's currently our double to triple upgrade. That rig is in a lot of demand. That'll go to work by Q4. And I think when that goes out, we have other currently non-utilized mechanical doubles that we can upgrade at a price that's substantially less than new build. And the beauty of our design, which is patented, is this rig will drill like a triple, move like a double. But it also commands a higher day rate and so you're selling into a bit different market than our AC double market. But that's going to be an area that we are quite interested to see how it plays out and when that rig begins operating and if it proves what we think it can do, I expect we'll be looking at more double to triple upgrades.

Super. Well, that's terrific. Thanks very much for answering all my questions, and congratulations on the great quarter.

Thanks, Joseph.

Thank you. This concludes the question and answer session. I would now like to turn the conference back over to Mr. Halleck for closing remarks. We have a question that is from the line of Tim Monicello with ATB Capital Markets. Please go ahead.

So just a quick follow up. In the CPS segment, given that you're working close to capacity, or you at least mentioned that more space is a scarce resource right now. Do we view the Q2 revenue as sort of a capacity number?

I wouldn't say so. There's other levers we can pull. For example, increased night shifts, things like that. Again, it kind of goes to if customers need things and are willing to pay for shorter delivery times, we can certainly accommodate that. We're also constantly looking at ways to increase our delivery throughput and so I wouldn't suggest that I Wouldn't suggest that we're at capacity yet, but you know part of the reason we're expanding is we're looking quarters ahead not days ahead and Our view is we believe we can increase materially our US business and we're starting that process now so that we don't start it when we have hit capacity and

Okay. And then that AC, the double to triple conversion that you're doing, is that rig signed up now?

I don't want to comment on that, but I expect it'll go to work in Q4. I'll leave it at that.

Okay.

Appreciate it.

Mr. Monicello, are you done with the question?

Yeah, that's all for me. Thank you.

Thank you. This concludes the question and answer session. I would now like to turn the conference back over to Mr. Hellick for closing remarks.

Thank you, everyone. Again, apologies for the delayed start, but look forward to speaking with you after our Q3, and have a great rest of your summer.

Thank you. This brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.