Total Energy Services Inc.

Hello, and thank you so much for standing by. My name is AP, and I will be your conference operator today. At this time, I would like to welcome everyone to the Total Energy Services, Inc. First Quarter 2026 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star. followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. There is no restriction on the Q&A. Thank you. And I would now like to turn the call over to Mr. Daniel Halleck, the President and CEO of Total Energy Services Inc. Please go ahead.

Thank you and good morning. 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, 2026. We will then provide an outlook for our business and open up the phone lines for any questions. Yuliya, 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 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 results for the three months ended March 31, 2026 reflect continued strong North American demand for natural gas compression and process equipment and the deployment of upgraded equipment in Australia and Canada that more than offset lower North American drilling and completion activity. On a year-over-year basis, consolidated first quarter revenue increased by 25%. Contributing to this increase was $58.4 million of increased CPS segment revenue, $6.1 million from CDS segments and $2 million from well servicing. First quarter EBITDA increased $4.7 million compared to 2025, driven by the increased activity and improved fabrication margins in the CPS segment and the deployment of upgraded rigs and higher day rates in Australia and Canada. negatively impacting first quarter financial results was a $6.5 million year-over-year increase in share-based compensation expense due to a 52% increase in the company's share price during the first quarter of 2026. That was partially offset by a $2.9 million year-over-year increase in the gain on sale of property planning equipment following the sale of well-servicing equipment in the United States in February of 2026. $6.3 million of the $6.6 million of share-based compensation expense recorded in Q1 2026 was unknown cash in nature. Geographically, 46% of first quarter revenue was generated in Canada, 32% in the United States, and 22% in Australia, as compared to the first quarter of 2025, when 47% of consolidated revenue was generated in Canada, 31% in the United States, and 20% in Australia. By business segment, the compression and process services segment contributed 52% of first quarter consolidated revenue, followed by the CDS segment at 31%, wealth servicing at 11%, and the RTS segment at 6%. In comparison, For the first quarter of 2025, the compression and process services segment generated 42% of the first quarter consolidated revenue, followed by CDS at 36%, world servicing at 13%, and RTF segment at 9%. First quarter consolidated gross margin was 22% in 2026, which was 268 basis points lower than 2025. Contributing to this decline was a 10% point increase in the first quarter revenue contribution from the CPS segment, as this business segment historically generates lower margins than the other segments. A year-over-year increase in CPS segment and Australian margins partially upset a decline in RTS and North American CDS and well-servicing segment margins. First quarter CDS segment revenue increased 7% compared to 2025. An 18% year-over-year decline in first quarter North American operating drilling days was partially offset by a 38% increase in Australian operating days. Segment revenue per operating day increased by 11% during the first quarter of 2026 due primarily to increased pricing on upgraded rigs in Australia and Canada. that was partially offset by a change in the mix of equipment operating and competitive pricing in the United States. First quarter CDS segment EBITDA decreased by 5%, a segment EBITDA margin decreased by 3 percentage points compared to 2025. Due to competitive pricing, costs incurred to reactivate equipment in the United States and low utilization in Canada that was partially offset by improved Australian results. RGS segment revenue for the first quarter decreased 15% compared to 2025. This was a result of lower industry activity exacerbated by lower revenue for utilized fees resulting from the change in the mix of equipment operating. Higher costs associated with the change in the mix of equipment operating, competitive market conditions, and this segment's relatively high fixed cost structure resulted in a 23% year-over-year decrease in the first quarter segment EBITDA. and a 4 percentage point decrease in the segment EBITDA margin. First quarter CPF segment revenue increased 55% compared to 2025, driven by increased fabrication sales and higher parts and service activity. Year-over-year first quarter CPF segment EBITDA increased by $6.1 million, or 39%. EBITDA margin during the first quarter of 2026 was two percentage points lower compared to 2025, primarily due to the year-over-year increase in relative contribution of lower margin fabrication sales to segment revenue. The fabrication sales backlog at March 31, 2026 was $446.9 million, which is $181.5 million, or 68% higher compared to $265.4 million backlog at March 31, 2025, and $0.2 million higher compared to $446.7 million backlog at December 31, 2025. In well servicing, a 2% increase in revenue per service hour combined with a 4% increase in operating hours resulted in a 6% year-over-year increase in first quarter segment revenue. Increased Australian and Canadian activity was partially offset by substantial decline in U.S. activity following the discontinuance of U.S. well-servicing operations in January of 2026. Higher pricing and increased fleet utilization following the upgrade of several rigs over the past year contributed to 126% and 10% increases respectively in the first quarter of Australian and Canadian operating income. Segment EBITDA for the first quarter of 2026 was 110% higher compared to 2025, due to improved Australian and Canadian results, as well as the cessation of operating losses in the United States. Total Energy's consolidated financial position remains very strong. At March 31, 2026, Total Energy had $113.4 million of further working capital, including $91.4 million of cash. Cash on hand exceeded bank debt by $46.4 million at March 31, 2026. Total Energy's bank governance consists of maximum senior debt to trillion 12 months, bank-defined EBITDA of three times, and a minimum bank-defined EBITDA to interest expense was three times. At March 31, 2026, the company's senior bank debt-to-bank defined EBITDA ratio was a negative 0.19 times the total was in that cash position, and the bank interest coverage ratio was 51.1 times.