Q1 2024 CES Energy Solutions Corp Earnings Call

Yeah.

Good morning, everyone and welcome to the C. D E F and their definition first quarter 2020 core result conference call and webcast.

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.

And 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 in jail.

Operator: Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Tony Aulicino, Chief Financial Officer. Please go ahead.

I'd now like to turn the conference over to Tony Allott Chino Chief Financial Officer. Please go ahead.

Anthony Michael Aulicino: Thank you, operator. Good morning, everyone. And thank you for attending today's call. I'd like to note that in our commentary today, there will be forward-looking financial information, and that our actual results may differ materially from the expected results due to various risk factors and assumptions. These risk factors and assumptions are summarized in our first quarter MD&A and press release dated May 8, 2024, and in our annual information form dated February 29, 2024.

Thank you operator, good morning, everyone and thank you for attending today's call I'd like to note that in our commentary today, there will be forward looking financial information and that our actual results may differ materially from the expected results due to various risk factors and assumptions. These.

Risk factors and assumptions are summarized in our first quarter MD&A and press release dated May eight 2024 and in our annual information form dated February 29, 2024. In addition, certain financial measures that we will refer to today are not recognized under current General X.

That accounting policies and for a description and definition of these please see our first quarter MD&A at this time I would like to turn the call over to Ken Zinger, our president and CEO.

Anthony Michael Aulicino: In addition, certain financial measures that we will refer to today are not recognized under current generally accepted accounting policies, and for a description and definition of these, please see our first quarter MD&A. At this time, I'd like to turn the call over to Ken Zinger, our President and CEO. Thank you, Tony.

Kenneth E. Zinger: Welcome, everyone, and thank you for joining us for our first quarter 2024 earnings call. On today's call, I will provide a brief summary of our incredible financial results released yesterday, followed by an update on capital allocation and then our divisional updates for Canada and the US. I will then pass the call over to Tony to provide a detailed financial update. We will take questions, and then we will wrap up the call.

Thank you Tony welcome everyone and thank you for joining us for our first quarter 2024 earnings call on today's call I will provide a brief summary of our incredible financial results released yesterday, followed by an update on capital allocation and then our divisional updates for Canada and the U S. I will then pass the call over to Tony to.

A detailed financial update we will take questions and then we will wrap up the call.

Kenneth E. Zinger: I'll start my comments today by highlighting some of the major financial accomplishments we were able to achieve in Q1 of 2024. They include all-time record revenue, record Q4 revenue of $588.6 million, our highest quarterly revenue ever, beating the prior record set in Q4 of 2022 by almost 5%. Our all-time highest quarterly EBITDA of $102 million, beating our prior all-time record level set last quarter of $84.6 million by over 20%. EBITDA margin of 17.3% versus 13.8% in Q1 of last year and 15.3% in the prior quarter.

I'll start my comments today by highlighting some of the major financial accomplishments, we were able to achieve in Q1 of 'twenty 'twenty four.

They include all time record revenue record Q4 revenue of $588 $6 million, our highest quarterly revenue ever beating the prior record set in Q4 of 2022 by almost 5%.

Our all time highest quarterly EBITDA of $102 million, beating our prior all time record level set last quarter of $84 6 million by over 20%.

EBITDA margin of 17, 3% versus 13, 8% in Q1 of last year and 15, 3% in the prior quarter.

Kenneth E. Zinger: This result was the highest quarterly EBITDA margin achieved by CES in nine years, as we continue to focus on returns. As predicted on the Q4 2023 earnings call, we have now exhausted purchasing all of the 18.7 million shares allowed under our NC, our prior NCIB plan from July of 2023, free cash flow of $57.4 million during the quarter, and the total debt to trailing 12 months EBITDA ratio dropped to a new low of 1.28 times from 1.49 times at December 31st of 2023. I now want to confirm that our capital allocation plans for 2024 remain the same as stated on the last call.

This result was the highest quarterly EBITDA margin achieved by CES in nine years as we continue to focus on returns.

As predicted on our Q4 2023 earnings call. We have now exhausted purchasing all of the $18 7 million shares allowed under our N C. Our prior N CIB plan from July of 2023.

Free cash flow of $57 $4 million during the quarter and the total debt to trailing 12 months EBITDA ratio ratio dropped to a new low of 1.28 times from 1.49 times at December 31 2023.

And I want to confirm that our capital allocation plans for 'twenty 'twenty four remain the same as stated on the last call. We will continue to support the business with the necessary investments required to provide acceptable growth and returns. We will continue to look for tuck in acquisition opportunities interrelated business lines or geographies, where we believe we can add value and grow return.

Kenneth E. Zinger: We will continue to support the business with the necessary investments required to provide acceptable growth and returns. We will continue to look for tuck-in acquisition opportunities into related business lines or geographies where we believe we can add value and grow returns. We will continue to pay our quarterly dividend of $0.03 per share, or approximately $28 million per year.

We will continue to pay our quarterly dividend of <unk> <unk> per share or approximately $28 million per year.

Kenneth E. Zinger: We intend to renew our NCIB plan once we are able in July of 2024. We will once again maximize the number of shares available for repurchase under the NCIB at 10% of our float. We will continue to exercise the NCIB to its maximum until we see a share valuation more aligned to our financial performance. We will use the balance of our remaining free cash flow to continue reducing leverage to approximately one times total debt to trailing 12 months EBITDA.

We intend to renew our NCI I'd be plan. Once we are able in July of 2024, we will once again maximize the number of shares available for repurchase under the N. CIB at 10% of our float we will continue to exercise the NCI b to its maximum until we see a share valuation and more aligned to our financial performance.

We will use the balance of our remaining free cash flow to continue reducing leverage to approximately one times total debt to trailing 12 months EBITDAX.

Kenneth E. Zinger: I'll now provide a brief summary of Q4 performance by division. Today, our rig count in the North American land market stands at 171 rigs out of 723 listed as running, representing a market share of 23.6%.

I'll now provide a brief summary of Q4 performance by Division.

Today, our rig count in the North American land market stands at 171 rigs out of the 723 listed as running representing a market share of 23, 6%.

Kenneth E. Zinger: The Canadian Drilling Fluids Division continues to lead the WCSVN market share. Today, we are providing service to 39 of the 118 jobs listed as underway in Canada. Drilling and activity in Canada so far in Q2 2024 is tracking a little higher year over year. However, rig counts at this time of year can be a little lumpy as rigs are shutting down daily due to spring breakup.

The Canadian drilling fluids Division continues to lead the WCS be end market share today, we are providing service to 39 of the 118 jobs listed is underway in Canada drilling activity in Canada. So far in Q2, 'twenty 'twenty four is tracking a little higher year over year. However.

However, rig counts at this time of year can be a little lumpy as rigs are shutting down daily due to spring breakup.

Kenneth E. Zinger: The space remains highly competitive. However, our offering of competitive pricing, along with high levels of service, employee expertise, and thousands of historical assets almost everywhere in the WCSB, provides us with a value proposition that is second to none. We remain excited about the prospects for 2024 and anticipate it will be a little stronger year overall due to the completion and impending start-up of infrastructure projects and their associated takeaway capacity for our market. Pure Chem, our Canadian production chemical business, grew again in Q1.

The space remains highly competitive however, our offering a competitive pricing along with high levels of service employee expertise and thousands of historical offsets almost everywhere in the WCS b provide us with a value proposition that is second to none we remain excited about the prospects for 'twenty 'twenty four and anticipate it will be a little stronger year overall due to the <unk>.

<unk>, an impending startup of infrastructure projects and their associated takeaway capacity for our market.

Yeah.

Pure Kim our Canadian production chemical business grew again in Q1, the vast majority of the lines with Hain pure can continue to grow as we have continued to take market share win bids optimized formulations and fine tune our supply chain the revenue and earnings from our primary business production treating continues to accelerate in Canada as we continued to deliver.

Kenneth E. Zinger: The vast majority of the lines within Pure Chem continue to grow as we have continued to take market share, win bids, optimize formulations, and fine-tune our supply chain. The revenue and earnings from our primary business, production treating, continue to accelerate in Canada as we continue to deliver superior products and service combined with competitive market prices. Now for the U.S. AES, our U.S. Drilling Fluids Group, is providing chemistries in service to 132 of the 605 active rigs listed as working in the USA land market today, representing a continued number one market share of U.S. land rigs at 21.8%.

Our superior products and service combined with competitive market pricing.

Yeah.

Now for the U S. A S. R. U S drilling fluids group is providing chemistries and service to 132 of the 605 active rigs listed is working in the U S. A land market today, representing our continued number one market share of U S land rigs at 21.8% the number of rigs drilling in the USA was slightly down again quarter on.

Kenneth E. Zinger: The number of rigs drilling in the USA was slightly down again quarter over quarter, but we do see this level as being at or near the bottom of the trough. However, we continue to enjoy a basin-leading 104 rigs out of the 316 listed as working in the Permian Basin. Again, equating to our highest ever market share in this basin of 33.1%. I will note that although the USA land rig count is down since our last call, the rig count in the Permian is roughly flat.

Per quarter, but we do see this level as being at or near the bottom of the trough. We continue to enjoy a basin, leading 104 rigs out of the 316 listed is working in the Permian Basin again, equating to our highest ever market share in this basin of 31, sorry, 33.1%.

I will note that although the U S. A land rig count is down since our last call. The rig count in the Permian is roughly flat that said service intensity continues to demonstrate its presence in our numbers for aes as our rig or sorry, our revenue per rig per day continues to rise with more footage being drilled each day, along with more complicated Ken.

Kenneth E. Zinger: That said, service intensity continues to demonstrate its presence in our numbers for AES, as our revenue per rig per day continues to rise with more footage being drilled each day along with more complicated chemical solutions and services being provided due to the complexity and length of the horizontal sections. This was evidenced by the continued strong financial performance by AES in spite of a rig count that was almost 20% lower than its peak last year at this time. We see this trend continuing for the foreseeable future on both sides of the border.

<unk> solutions and service being provided due to the complexity and length of the horizontal sections. This was evidenced in the continued strong financial performance by a S. In spite of a rig count that was almost 20% lower than its peak last year at this time.

We see this trend continuing for the foreseeable future on both sides of the border.

Kenneth E. Zinger: Finally, J-Chem Catalyst had its strongest financial performance ever in Q1. We continue the recent trend of winning more business in this division, and internal analysis has us concluding that we are comfortably the number one provider of production chemicals and related services in the Permian Basin, even as we continue to grow. As with PureChem, J-Chem Catalyst continues to gain market share and grow revenue, all while providing competitive market pricing. They are doing this through best-in-class service and responsiveness, diligent problem solving, and constantly optimized formulations and manufacturing.

Finally, J Cam catalyst had its strongest financial performance ever in Q1, we continued the recent trend of winning more business in this division and internal analysis has us concluding that we are comfortably the number one provider of production chemicals and Maria and the related service in the Permian Basin, even as we continue to grow as with pure Kim Jacob catalysts.

10 years to take market share and grow over our revenue all while providing competitive market pricing. They are doing this through best in class service and responsiveness diligent problem solving and constantly optimized formulations and manufacturing.

Kenneth E. Zinger: To summarize these operating reports, I want to emphasize that we continue to see growth prospects directly in front of us, in the markets we already are participating in and established in. We continue to anticipate growth in revenues and free cash flow during the upcoming year as we win new business and grow our market share in each of our business segments. As well, I want to emphasize that we are a technology company with scientists and manufacturing infrastructure, as well as a strong connection to our customers and their challenges. This combination of strengths allows us to continue to fine-tune our product offerings in order to find unique solutions to complicated problems.

To summarize these operations reports I want to emphasize that we continue to observe growth prospects directly in front of us in the markets. We already are participating in established in.

We continue to anticipate growth in revenues and free cash flow during the upcoming year as we earn new business and grow our market share in each of our business segments as well I want to emphasize that we are a technology company with scientists and manufacturing infrastructure as well as a strong connection to our customers and their challenges. This combination of strength allows us to continue.

To fine tune, our product offerings in order to find unique solutions to complicated problems as was made obvious during this past quarter. When we find solutions that meet cried. This criteria. We are able to provided to our customers at outsized margins that can be extremely attractive to see yes, but still in line with the value proposition required by our customers then.

Kenneth E. Zinger: As was made obvious during this past quarter, when we find solutions that meet these criteria, we are able to provide them to our customers at outsized margins that can be extremely attractive to CES, but still in line with the value proposition required by our customers. Then we have been able to use these technologies to gain more market share by helping other customers achieve the results they strive for as well. As a secondary focus, we continue to look for opportunities to potentially enter strategic international markets in order to establish a foothold in these regions, which we have no exposure to currently.

We have been able to use these technologies to gain more market share by helping other customers achieve the results they strive for as well.

As a secondary focus we continue to look for opportunities to potentially enter strategic international markets in order to establish a foothold in these regions, which we have no exposure to currently.

Kenneth E. Zinger: We are also spending significant time evaluating North American tuck-in acquisitions of similar businesses to ours, as well as potential opportunities to further improve our vertical integration. Finally, I would like to highlight that the recent consolidation in the space by SLB clearly demonstrated the value of capital light, asset light, high free cash flow businesses like ours. We believe that valuation markers such as this support our aggressive buyback philosophy at current and even higher share price levels.

We are also spending significant time evaluating north American tuck in acquisitions of similar businesses to ours as well as potential opportunities to further improve our vertical integration.

Finally, I would like [noise].

Finally, I would like to highlight that the recent connotes consolidation in the space by S. L. B clearly demonstrated the value of capital light asset light high free cash flow businesses like ours, we believe that valuation markers such as this support our aggressive buyback philosophy at current an even higher share price levels.

Kenneth E. Zinger: As always, I want to extend my appreciation to each and every one of our employees for their commitment to the business culture and success of CES. Once again, this quarter, we have increased our total number of employees at CES from 2,236 on January 1st of 2024 to 2,304 at the end of Q1. This is an increase of 68 employees so far this year, or approximately 3%.

As always I want to extend my appreciation to each and every one of our employees for their commitment to the business culture and success and C. S. Once again this quarter, we have increased our total number of employees at CES from 'twenty 236 on January one 'twenty 'twenty four to 'twenty 304 at the end of Q1. This is an increase of 68 employees so far there.

This year or approximately 3%.

Anthony Michael Aulicino: In conclusion, I would like to note that the results in Q1 were once again not due to any one division or area excelling. This was a balanced effort across the company in which every business unit contributed. It speaks once again to the quality of the people employed everywhere in every division here at CES Energy Solutions. With that, I'll turn the call over to Tony for the financial update. Thank you, Ken.

In conclusion, I would like to note that the results in Q1 were once again not due to any one division or area. Excelling. This was a balanced effort across the company in which every business unit contributed speaks once again to the quality of the people employed everywhere in every division here at CES energy solutions with that I'll turn the call over to Tony for the financial update Thank you Ken.

Mhm.

Anthony Michael Aulicino: CES's financial results for the first quarter set all-time high levels of revenue and adjusted EBITDAC, underscored by the continuation of strong free cash flow despite declining rate counts in the U.S., highlighting the unique resilience of CES's consumable chemicals business model and attractive performance aligned with the prevailing trend of high service intensity levels. The record quarter benefited from strong financial contributions from all parts of the business and was bolstered by a favorable product mix, high levels of service intensity, and the adoption of innovative, technologically advanced products.

C S as financial results for the first quarter set all time high levels of revenue and adjusted EBITDAX underscored by the continuation of strong free cash flow despite declining rig counts in the U S. Highlighting the unique resilience of C. S as consumable chemicals business model and attractive performance aligned with it.

Prevailing trend of high service intensity levels the record quarter benefited from strong financial contributions from all parts of the business and was bolstered by a favorable product mix high levels of service intensity and the adoption of innovative technologically advanced products, we continue to surge.

Anthony Michael Aulicino: We continue to serve the evolving needs of our customers and realize attractive economics due to our vertically integrated business model and effective supply chain management. In Q1, CES generated record revenue and adjusted EBITDA of $589 million and $102 million, respectively, representing a 17.3% margin. Q1 revenue of $588 million represents an annualized run rate level of approximately $2.4 billion and a 6% increase above both Q4 2023 and the prior year of $553 million and $558 million, respectively.

Of the evolving needs of our customers and realize attractive economics due to our vertically integrated business model and effective supply chain management.

In Q1 C. S generated record revenue and adjusted EBITDA of $589 million and $102 million, respectively, representing a 17.3% margin Q1 revenue of $588 million represents an annualized run rate level.

Of the approximately 2.4 billion and a 6% increase above both Q4 2023 and prior year of $553 million and 558 million respectively.

Anthony Michael Aulicino: Revenue generated in the U.S. was a record $388 million and represented 66% of total revenue. This revenue figure exceeded $361 million in Q4 and $369 million a year ago. Revenue generated in Canada also set a record at $201 million in the quarter, up from $192 million in Q4 and $189 million in Q1 2023.

Revenue generated in the U S was a record 388 million and represented 66% of total revenue. This revenue figure exceeded the $361 million in Q4 and $369 million a year ago revenue generated in Canada also set a record at $201 million.

In the quarter.

From under and $92 million in Q4, and 189 million in Q1 2023.

The us and Canadian operations saw increased levels of service intensity and production chemical volumes driven by complex drilling programs customer emphasis on optimizing production through effective chemical treatments benefited both countries and counter declines in U S industry rig counts.

Anthony Michael Aulicino: U.S. and Canadian operations saw increased levels of service intensity and production chemical volumes driven by complex drilling programs. Customer emphasis on optimizing production through effective chemical treatments benefited both countries and countered declines in U.S. industry rig counts, showcasing the resilience of our business model. Adjusted EBITDA of $102 million set a record in Q1 and represented a 32% increase from $77.1 million in Q1 2023 and a sequential increase of $17.4 million, or 21%, from the $84.6 million generated in Q4.

Showcasing the resilience of our business model adjust.

Adjusted EBITDAX of 102 million set a record in Q1.

And represented a 32% increase from $77 1 million in Q1, 2023, and a sequential increase of $17 4 million or 21% from the 84.6 million generated in Q4 adjust.

Anthony Michael Aulicino: Adjusted EBITDAC margin in the quarter increased to 17.3% compared to 15.3% in Q4 and 13.8% in Q1 2023 and was reflective of increased service intensity, an attractive product mix, and continued adoption of innovative technologically advanced products supported by a proven cost structure and vertically integrated business model. During the quarter, CES generated $86 million in cash flow from operations, ahead of $39 million in Q4 and $73 million in Q1 2023

Adjusted EBITDA margin in the quarter increased to 17.3% compared to 15, 3% in Q4 and 13.8% in Q1, 2023 and was reflective of increased service intensity and attractive product mix and continued adoption of innovative.

We advanced products supported by improving cost structure and vertically integrated business model.

During the quarter C S generated $86 million in cash flow from operations of 39 million in Q4 and $73 million in Q1 'twenty twenty-three. These.

Anthony Michael Aulicino: These improvements came from strong revenue levels, attractive margins, and sustained improvements in working capital management. Funds flow from operations, which excludes the impact of changes in working capital, was $74 million for Q1, representing a 9% increase over $68 million in Q4, and 18% over $63 million in Q1 2023. CES continued to maintain a prudent approach to capital spending through the quarter with CapEx spend net of disposal proceeds of $21 million.

These improvements came from strong revenue levels attractive margins and sustained improvements in working capital management.

Funds flow from operations, which excludes the impact of changes in working capital was 74 million for Q1, representing a 9% increase over $68 million in Q4, and 18% over 63 million in Q1 2023.

T. S continued to maintain a prudent approach to capital spending through the quarter with Capex spend net of disposal proceeds of $21 million. We will continue to adjust plans as required to support existing business and grow throughout our divisions and for the full year.

Anthony Michael Aulicino: We will continue to adjust plans as required to support existing business and growth throughout our divisions, and for the full year 2024, we continue to expect cash CapEx to be approximately $70 million, split evenly between maintenance and expansion capital to support sustained revenue levels and a creative business development opportunity. During the quarter, we completed our NCIB program, purchasing 4.6 million common shares at an average price of $3.88 per share for a total of $17.8 million.

<unk> 'twenty 'twenty four we continue to expect cash capex to be approximately $70 million split evenly between maintenance and expansion capital to support sustained revenue levels and accretive business development opportunities.

During the quarter, we completed our in CIB program purchasing 4.6 million common shares at an average price of $3.88 per share for a total of $17.8 million in total under the existing in CIB program, we repurchased the full $18 seven.

Anthony Michael Aulicino: In total, under the existing NCIB program, we repurchased the full 18.7 million common shares at an average price of $3.66 per share for a total of $68.6 million. Since the inception of our NCIB programs in 2018, CES has repurchased approximately 23% of outstanding shares at an average price of $2.63 per share. We ended the quarter with $435 million in total debt, representing a decrease of $35 million from the prior quarter. Total debt is comprised primarily of the $250 million in Canadian term loan facility, which was used to settle the company's senior notes in November, a net draw on the senior facility of $105 million, and $71 million in lease obligations.

Common shares at an average price of $3.66 per share for a total of $68.6 million as a reminder.

Since inception of our M C.

Since inception of her in CIB programs in 2018 C. S has repurchased approximately 23% of outstanding shares at an average price of $2.63 per share.

We ended the quarter with $435 million in total debt, representing a decrease of $35 million from the prior quarter.

Total debt is comprised.

Primarily of the $250 million and Canadian term loan facility, which was used to settle the company's senior notes in November.

Our net draw on the senior facility of $105 million.

And 71 million in lease obligations total debt to adjusted EBITDA improved to 1.28 times at the end of the quarter compared to 1.49 times.

Anthony Michael Aulicino: Total debt to adjusted EBITDA improved to 1.28 times at the end of the quarter compared to 1.49 times at December 31, 2023, demonstrating our continued leveraging trend. When you account for the $18 million spent on share repurchases and the $6 million on dividends, the reduction in total debt in Q1 could have otherwise been $60 million. However, we are very comfortable with our current debt level and leverage in the 1 to 1.5 times range, thereby facilitating a strong return of capital to shareholders and prioritizing sustainable dividend and share buyback levels.

At December 31st 2023, demonstrating our continued deleveraging trend.

When you account for the $18 million spent on share repurchases and the $6 million in dividends the reduction in total debt. During Q1 could have otherwise been $60 million. However, we are very comfortable with our current debt level and leverage in the one to 1.5 times range.

Thereby facilitating strong return of capital to shareholders and prioritizing sustainable dividend and share buyback levels.

Anthony Michael Aulicino: Our consistent, prudent capital structure management and strong financial results were recognized recently by credit rating agencies and led to positive rating actions by DBRS to a high positive outlook and SMP to a flat positive outlook as well. I would also note that our working capital surplus of $637 million exceeded a total debt of $435 million by $202 million and demonstrated continued improvement compared to both the prior quarter and the prior year. Continued focus on working capital optimization has led to improvements in the cash conversion cycle to a record 106 days for the quarter from 112 days in Q4 2023 and 119 days in the prior year.

Our consistent prudent capital structure management and strong financial results were recognized recently by credit rating agencies and led to positive rating actions by D. B R. S to be high positive outlook and S. M. P to be flat positive outlook is.

Well.

I would also note that our working capital surplus of $637 million exceeded total debt of $435 million by $202 million and demonstrated continued improvement compared to both prior quarter and prior year.

Continued focus on working capital optimization has led to improvements in cash conversion cycle to a record 106 days for the quarter from 112 days in Q4, 2023, and 119 days in the prior year. This also translates to a reduction.

Anthony Michael Aulicino: This also translates to a reduction in operating working capital as a percentage of annualized quarterly revenue to 27% from 29% in Q4 2023 and 31% in the prior year. It should be noted that each percentage improvement at these revenue levels represents approximately $24 million on our balance sheet in incremental value realization. This very strong surplus free cash flow trend is indicative of the cash flow generating characteristics of CES in this environment and is further illustrated by our current net drawdown, which has declined by another $40 million to $65 million as at May 8.

Shown in operating working capital as a percentage of annualized quarterly revenue to 27% from 29% in Q4, 2023 and 31% in the prior year it.

It should be noted that each percentage improvement.

At these revenue levels represents approximately $24 million on our balance sheet and incremental value realization.

This very strong surplus free cash flow trend is indicative of the cash flow generating characteristics of C. S. In this environment and is further illustrated by our current net drawn.

Which has declined by another $40 million to $65 million as at May eight.

Anthony Michael Aulicino: We have dedicated our efforts to profitably growing market share, improving margins, and delivering consistent free cash flow, record-setting revenue levels underpinned by a prudent capital structure. Internally, we have spent the last few years implementing very specific return on average capital employed metrics at the divisional level. This approach has led to a cultural adoption of key ROACE maximizing factors, such as profitable growth, strong margins, working capital optimization, and prudent capital expenditures.

We have dedicated our efforts to profitably growing market share improving margins and delivering consistent free cash flow a record setting revenue levels underpinned by a prudent capital structure.

Okay.

Internally, we have spent the last few years implementing very specific return on average capital employed metrics at the divisional levels.

This approach has led to a cultural adoption of key R. O. A C E maximizing factors such as profitable growth strong margins working capital optimization and prudent capital expenditures I am proud to report that as a result of these efforts and this cultural shift.

Anthony Michael Aulicino: I am proud to report that as a result of these efforts and this cultural shift, Consolidated LTM ROACE is now sitting at a record-setting level of 23%. These record financial achievements have allowed CES to deliver on our commitment to returning capital to shareholders. During the quarter, we returned $24 million through $18 million in share buybacks and $6 million in dividends, representing 41% of free cash.

Consolidated LTM ROE a C. E is now sitting at a record setting level of 23%.

These record financial achievements have allowed C S to deliver on our commitment to returning capital to shareholders. During the quarter. We returned we returned $24 million through $18 million in share buybacks and 6 million in dividends, representing 41% of free cash flow.

Operator: At current levels of activity, market share, and service intensity, CES remains in a position of strength and flexibility, supporting our capital allocation priorities as outlined by Ken. At this time, I'd like to turn the call back to the operator for questions. Thank you. To join the question queue, you may press star, then 1 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.

At current levels of activity market share and service intensity C. S remains in a position of strength and flexibility supporting our capital allocation priorities as outlined by Ken.

At this time I'd like to turn the call back to the operator for questions.

Thank you.

Brian the question queue.

And one telephone keypad, well head Tom acknowledging aircraft.

I'll pick up on a couple of handset.

Does it tie up on him.

Operator: To withdraw your question, please press star, then two. The first question comes from Aaron MacNeil with TD Commons. Please go ahead. Good morning, appreciate the time for a few questions. I wanted to sort of look at capacity from a couple different angles. What would you say are current? Transcription by Transcription Outsourcing, LLC. If it's applicable, I'm sort of wondering what the remediation steps might be.

Question.

T D.

Thank God.

Hey, good morning, I appreciate the time for a few questions.

I wanted to start on looking at capacity from a couple of different angles.

What would you say are current pinch points, if any in manufacturing and blending and distribution or other things in the business and if its applicable on <unk> wondering what the remediation steps might be I know theres some growth capital this year and if it is.

Kenneth E. Zinger: I know there's some growth capital this year, but if that's not the case, I'd like to understand, you know, what sort of revenue growth do you think you could sustain without significant capital. Sure, I'll take that one, Aaron.

Not the case I would like to understand.

What sort of revenue growth do you think you can sustain without significant capital investment.

Sure I'll take that one Aaron thanks.

Kenneth E. Zinger: Thanks. As far as capacity goes, we're constantly able to manipulate our capacity at the plants, at Sielko and in Kansas, and even the blending plants in Carlisle and Midland. We're able to just add blend vessels or add reactor vessels as we need them. So it's constant, it's part of our capital expenditure annually. We anticipate our revenues, we anticipate our volumes, and if we need more capacity, we just simply add little pieces of infrastructure like that. It's not building buildings or changing how we do things in any way.

As far as as capacity goes we constantly era are able to manipulate our capacity so at the plants.

And at Sea, Alco and in Kansas, and even the blending plants in in Carlisle and Midland, We're able to just add blood vessels or add reactor vessels as we need them. So that it's a constantly it's part of our Capex annually, we anticipate our revenues, we anticipate our volumes and if we need more capacity, we just simply add.

Little pieces of infrastructure like that it's not building buildings are or changing how we do things in any way. So it's been that's been something that's been going on as we've grown from sort of the 1.3 billion $1 2 billion in revenue that we used to do to to the current 2.4, it's it's a constantly adapting thing the one pinch point that we identified last year.

Kenneth E. Zinger: So it's been, that's been something that's been going on as we've grown from sort of the $1.3 billion, $1.2 billion in revenue that we used to do to the current $2.4 billion. It's a constantly adapting thing. The one pinch point that we identified last year when, you know, early 22, or sorry, early 23, was the Barite grinding facility. That one took having, either we had to buy it somewhere else, because you can only grind so much Barite when you're running 24 hours a day with the mills we had.

When you know early 'twenty, two or sorry early twenty-three was the barite grinding facility that one took having either we had to buy it somewhere else because you can only grind so much barite when you're running 24 hours a day with the mills, we had and that was the driver for US building the Peco's facility, but that's now done operational and we have plenty of capacity.

Kenneth E. Zinger: And that was the driver for us building the PECOS facility. But that's now fully operational, and we have plenty of capacity there as well. So currently, there is none.

There as well so currently there is none.

I think the only limitation would be our suppliers' capacity, but I mean after everything we went through in early 'twenty two with the supply chain constrictions, we've learned a lot about the playing field for basic molecules and we I don't see any way that we would run into a shortage situation.

Kenneth E. Zinger: And I think the only limitation would be our supplier's capacity. But I mean, after everything we went through in early 22 with the supply chain constrictions, we've learned a lot about the playing field for basic molecules. And we, I don't see any way that we would run into a shortage situation. I would add that over the last year, and we have this in our investor deck, where we actually illustrate different areas where we have spent CapEx to do things like de-bottlenecking. And another one was expansion in the Permian.

I would add that over the last year and we have the generic in our investor deck, where we actually illustrate.

Different areas, where we spend capex on to do things like Debottlenecking and another one was extension in the Permian our divisional presidents at Aes and J Cam catalyst over the last couple of years had the foresight to to overbuy and and actually buy more.

Kenneth E. Zinger: Our divisional presidents at AES and J-CAM Catalyst over the last couple of years had the foresight to overbuy and actually buy more property and space. And that wasn't because we were limited by machines and reactors, et cetera. It's those investments that were made over the last year. So we'll probably do a few small ones this year as well. Give us more space in the areas that we're very busy in to allow our operational folks to streamline flows and production and logistics and work very closely with procurement and operations to meet these increasing volume demands.

Property and space and that wasn't because we were limited by machines and reactors et cetera.

So it's those investments that were done over the last year or so we'll probably do a few small ones. This year as well give us more space in the areas that we're very busy yet to allow our operational folks to streamline flows and in production and logistics and worked very close.

Lee with procurement and operation to meet these increasing volume demands.

Kenneth E. Zinger: Gotcha. And then maybe just sticking with this theme of capacity. I'm seeing corporate takeovers; there are inevitably going to be people who don't want to stick around. I mean, you mentioned that you've already added people year to date.

Got you and then maybe just sticking with this theme of capacity.

Saint corporate takeovers, there's inevitably going to be people, who don't want to stick around I mean, you mentioned.

Kenneth E. Zinger: Does the SLB acquisition of ChampionX create an opportunity for you to bring in some strong sales or operational people to either JChem Catalyst or PureChem to sort of increase the size of the pie? And, you know, do you want or need these people assuming they can bring a client list? I can appreciate that there are some sensitivities whenever people are involved, but I'd be interested in hearing anything you could share.

And you've already added people year to date.

The <unk> acquisition of champion X create an opportunity for you to bring on some strong sales of our operational people.

To either Jacob catalyst.

<unk> increased the size of the pie and.

Do you want or need these people assuming they can bring a client list.

I can appreciate that there's some sensitivities whenever people are involved but I'd be interested in hearing anything you can share from that perspective.

Kenneth E. Zinger: Yeah, for sure. I mean, I think any time there's people like that, where there's a change in control at a company, there's going to be people that are dissatisfied. And our door is always open.

Yeah for sure I mean, I think in anytime theres upheaval like that where there's a change in control of the company theres going to be people that are dissatisfy them. Our door's always open we've been we've had our eye on quite a few of our competitors people for a long time and you know if they happen to become available for sure. We'll we'll talk to them.

Kenneth E. Zinger: We've been, we've had our eye on quite a few of our competitors for a long time. And, you know, if they happen to become available, for sure, we'll talk to them. Okay, thanks guys. We'll turn it over. The next question comes from Cole Pereira with Stifo. Please go ahead.

Okay.

Turning it over.

Our next question comes from Qualcomm <unk> Stifel. Please go ahead.

Kenneth E. Zinger: Hi, good morning all; maybe sticking with a similar theme. How do you think about Schlumberger's acquisition of Champion X in terms of how it's going to impact competition or maybe opportunities for CEU? I think Schlumberger is a great company.

Hi, Good morning, all maybe sticking with the similar theme how do you think about slumber Js acquisition of champion X in terms of how it's going to impact competition or maybe opportunities for C U.

Kenneth E. Zinger: They do a lot of good business internationally, and I think that they're challenged by their corporate structure a little bit to be as responsive as we are. And responsive means a lot of things.

I think some schlumberger is a.

A great company, they do a lot of good business internationally.

And I think that.

They're challenged by corporate structure, a little bit to be re spot as responsive as we are and responsive means a lot of things, but you know it goes right down the list to manufacturing special products coming up with new solutions. So I think that gives us an edge, but we'll see how it plays out you never know how it's going to.

Kenneth E. Zinger: But, you know, it goes right down the list to manufacturing special products and coming up with new solutions. So I think that gives us an edge, but we'll see how it plays out. You never know how it's going to play out.

Kenneth E. Zinger: Champion X has been a great competitor for a long time, and if they continue to do the things they've always done, it's going to continue to be a tough playing field. Got it. You talked a little bit about potentially entering new geographies. I mean, is this kind of a longer-term scenario where, you know, could you do something like that in the short term? Which areas do you think would be the most likely and, Do you think you could get into it organically, or would you have to sort of acquire your way into it? Good questions; all of them things we've been thinking about. I think it could happen.

Play out champion X has been a great competitor for a long time and if they continue to do the things they've always done it's going to continue to be a tough plainfield.

Got it and you talked a little bit about you know potentially entering new geographies I mean.

Is this kind of a longer term scenario, where you know could you could you do something like that short term you know what.

Which areas do you think would be the most likely and do you think you could get into it organically or would you have to sort of acquire your way in.

Kenneth E. Zinger: I think it's going to be opportunity-based because I think to go organically, we would go with a customer. So if a customer suddenly had some work they were doing somewhere where they wanted to drag us along, we would respond to that. And also, opportunities to buy companies that are small in those places to get a foothold don't come along every day. So it'll just be if something popped up that caught our attention, that fit the bill for what we're looking for at the price we're looking to pay.

Good questions all of them things, we've been thinking about I think it could happen I think it's going to be opportunity base, because I think to go organically, we would go with our customers or the customers suddenly had some work they were doing somewhere where they wanted the drag us along we would respond to that.

And also the opportunities to buy companies that are small in those places to get a foothold don't come along every day. So it'll just if something popped up that caught our attention that fit the bill for what we're looking for at the price. We're looking to pay then obviously, we would take a close look at jumping on that but we're not looking for anything big.

Kenneth E. Zinger: Then, obviously, we would take a close look at jumping on that. But we're not looking for anything big. It's more just to get some people and a footprint on the ground somewhere because that would definitely make us try. We've tried in the Middle East before, working with customers without a foothold there or employees there and building it out. And it's, it's a tough sled. It'd be much more comfortable to just buy an existing business with an existing revenue stream. Got it. And you talked about, you know, maybe opportunities to add something by vertical integration as well. Can you add some details on what that might look like?

It's more just to get some people in footprint on the ground. Some workers that would definitely make we've tried we've spent some time in the middle east prior I'm working with customers are without a foothold there or employees, there and building it out and it's it's a tough sled there'd be a much more comfortable to just buy an existing business with an existing revenue stream.

Got it.

To vote, you know maybe opportunities to add something via vertical integration as well can you just add some details on what that might look like.

Kenneth E. Zinger: Yeah, I mean, I don't want to, disclose the sort of things that we're looking at are that important to us, but I mean, we buy products from other companies and some of them, a lot of what we buy is already basic chemistry, but there are some that we have to buy from a manufacturer that reacts with it in a way that we like, or that they have something, a patented process around. So, if there was something unique like that that could actually improve our supply chain and improve our costs and make us more basic, that's sort of what we're talking about, but I don't want to get into exactly what those chemistries are. Yeah, fair enough. That's all for me.

Yeah, I mean, I don't want to.

Disclosed sort of the things that we're looking at or that are important to us, but I mean, we buy products from other companies and <unk>.

Some of them a lot of what we buy is already basic chemistry, but there is some that we have to buy from a manufacturer that reacts in a way that we like.

Or that they have something a patented process around so if there was something unique like that that could actually improve our supply chain and improve our costs and make us more basic that's sort of what we're talking about but don't want to get into exactly what those chemistries are.

Speaker Change: Yeah Fair enough. That's all for me, Thanks, I'll turn it back.

Speaker Change: Thanks, Paul.

Kenneth E. Zinger: Thanks. I'll turn it back. Thanks, Cole. The next question comes from Tim Monachello with ATB Capital Markets. Please go ahead. Hey, good morning, guys. Good morning, Tim.

The next question comes from Tim Monitor along with <unk> capital. Please go ahead.

Tim Monachello: Hey, good morning, guys.

Tim Monachello: I just wanted to touch on the margins here. I mean, it's been pretty impressive. Call it 220 basis points of margin improvement quarter over quarter. Unknown Attendee, Aaron MacNeil, Tim Monachello, Jonathan Goldman, Keith MacKey, Philip Schermer, I'll take a shot at that from a financial perspective.

Tim Monachello: Good morning, Tim I, just wanted to touch on on the margins here.

Tim Monachello: Pretty impressive.

Tim Monachello: Call It 220 basis point of margin improvement quarter over quarter.

Tim Monachello:

Tim Monachello: A lot more year over year.

Tim Monachello: What changed in Q1, there was able to do that drove those margins higher.

Unless you.

He was sustainable.

Anthony Michael Aulicino: Like we were very deliberate in our words, it was a combination of an Attractive Product Mix and a few divisions really benefiting from the higher levels of service intensity, as evidenced by third-party work that has demonstrated that continued trend in a higher number of feet drilled per given day. Those are bringing on more prolific wells that have higher initial production rates. And then there was the introduction and adoption of a few products that were beneficial for two reasons.

Speaker Change: I'll I'll take a shot at that from a financial perspective, like we were very deliberate in our words. It was a combination of all.

Speaker Change: Our attractive product mix.

Speaker Change: The a few divisions really benefiting from the higher levels of service intensity as evidenced by a third party work that has demonstrated that continued trend and higher number of feet drilled per given day those are bringing on more prolific wells that have higher additional our initial pre.

Speaker Change: Duction rates and then there was the the introduction and adoption of the <unk> of.

Speaker Change: A few products that were were beneficial for two reasons number one they created incremental market demand and incremental revenue.

Anthony Michael Aulicino: Number one, they created incremental market demand and incremental revenue. And, as Ken outlined, the secret sauce or one of them here is our ability to vertically integrate and provide these at levels that are appropriate for the customer to meet their needs in terms of responsible pricing. And if we're able to control that supply chain and manufacturing internally, we can have reasonable economics as well. One of the unique factors about this quarter, though, is the fact that we strung together three consecutive months where, even before those trends... All of the divisions were firing on all cylinders. So what we look for, we're going into Q2, which is always a little bit seasonally slower than Q1.

Tim Monachello: Ken outlined are the secret sauce or one of them here is our ability to vertically integrate.

And and and provide those in levels that are a.

Tim Monachello: Appropriate for the customer.

Tim Monachello: Do you want to meet their needs in terms of added.

Tim Monachello: Responsible pricing and if we're able to control that supply chain and manufacturing internally, we can have a reasonable economics as well one of the unique factors of Otis This quarter, though was the fact that we strung together three consecutive months, where even before those trends.

Tim Monachello: All of the divisions were firing on all cylinders. So while we look for we're going into Q2 that always has a little bit seasonally slower than Q1 and in terms of sustainability of 17, 3% do you think that's a big big expectation and it's going to be difficult to gauge over the next.

Anthony Michael Aulicino: And in terms of sustainability of 17.3%, I think that's a big, big expectation, and it's going to be difficult to gauge over the next, www.ces-energy.com Yeah, and to give a little bit of color on sort of how we achieve that, it's the specialty products we're talking about, it's the stringing the months together, that was very important. We've had big months before, but we've just never had a big one, everything comes three in a row aligned with a quarter.

Tim Monachello: A few months, but we will come up for air probably.

Tim Monachello: In August when we're reporting Q2 and have a pretty good feel for where things are going we've always talked about 14% to 15% target range. We're going to have to think about increasing that and I don't think you'll hear the 17 in that range, but stay tuned and we'll probably revisit that recommended range.

Tim Monachello: Cymer we report.

Tim Monachello: Yeah and to give them a little bit of color on sort of how we achieve that its the specialty products. We're talking about it's the stringing. The months together that was very important we've had big months before we've just never had a big everything come three in a row aligned with the corner quarter.

Kenneth E. Zinger: But if you look back to, to 2020 Q1 of 2023 when we were at 13.8% margins, it's been kind of a steady tick up since then. And what's been happening in that time is we've just been reformulating and revisiting the supply chain at every level. As our volumes have gone up, our purchasing power got a little better. I want to make it clear that we're not charging more for products.

Tim Monachello: But if you look back to.

Tim Monachello: 2020.

Tim Monachello: Q1 of 2023, when we were at 13.8% margins, it's been Mccann or a steady tick up since then and what's been happening in that time as we've just been re formulating and and re visiting supply chain at every level as our volumes have gone up our purchasing powers got a little better.

Tim Monachello: I want to make it clear that we're not charging more for products were in line with the market.

Kenneth E. Zinger: We're in line with the market, and the wins that we're finding are all internal. Got it. A few of those things are kind of on a continuum like rising service intensity and efficiency that you guys have been putting into the business. Margin was a step change. So I can appreciate that the, you know, strong three months in a row was probably a major factor. But a couple things that kind of stand out to me are the very grinding facility and some new technologies you're talking about. How significant were those in the Barrett grinding facility? Not very much, like maybe nothing, I would say.

Tim Monachello: And the wins that we're finding are all internal.

Speaker Change: Got it.

Speaker Change: A few of those things are kind of on a continuum like rising service intensity and inefficiencies that he has been putting into the business margins were a step change that I can appreciate that.

Tim Monachello: In Australia in the three months in a row as was probably a major factor, but a couple of things that kind of standards near what the dairy grinding facility and some new technologies, you're talking about a significant windows in the quarter.

Tim Monachello: The Berry barite grinding facility not very much like maybe nothing I would say, we're still not running at full capacity there yet so we're only buying a little bit and then with the rig slowdown over the past year. Our demand as you know we need that facility to be able to run a shift but it doesn't need to run 20 <unk>.

Kenneth E. Zinger: We're still not running at full capacity there yet, so we're only buying a little bit. And then, with the rig slowdown over the past year, our demand is, you know, we need that facility to be able to run a shift, but it doesn't need to run 24 hours a day. So it wasn't a huge impact. But yeah, some new technologies that we have that are unique, that provide customers solutions to problems they were having, those things contributed for sure. Unknown AttendeeThey always do. It's just in these three months that they were bigger ports portions of it, right? But it was just the mix.

Tim Monachello: Four hours a day so it wasn't a huge impact but yeah. Some new technologies that we have that are unique that provide the customers solutions to problems. They were having those things contributed for sure.

Tim Monachello: They always do it just in these three months they were bigger ports portions of it right, but it was just the mix.

Kenneth E. Zinger: Are those technologies in any specific business line or across all? They're everywhere. Like there's not one thing that's causing this. It's a whole bunch of stuff coming together and then just having the right mix for a quarter. Okay, thanks a lot. Unbelievable progress. Thanks, Tim. The next question comes from John Gibson with BMO Capital Markets. Please go ahead.

Speaker Change: Are those technologies in any specific business line or across all.

Tim Monachello: They're everywhere.

Tim Monachello: Like there's not one there's not a single thing that's causing this it's a whole bunch of stuff coming together and then then just having the right mix for a quarter.

Tim Monachello: Okay.

Speaker Change: Thanks, a lot unbelievable for Autodesk.

Speaker Change: Thanks, Tim.

Speaker Change: Our next question comes from John <unk> from BMO Capital Michael. Please go ahead.

John Gibson: Morning, and congrats again on the strong quarter here. I want to, because a little bit of pre-cash flow conversion remains very strong and above. Some of the competing companies, you know, they're what's been driving this and all things being equally expected to continue. So the answer is yes, we do expect it to continue, and by it, it'll vary, especially depending on what happens with working capital in any given quarter, if that's the metric that you're referring to. But it's been an evolution, just like.

John: Good morning, Congrats again on the strong quarter here I want to shift gears.

John: Little bit free cash flow conversion youre remains very strong and above.

John: The competitor countries.

John: What's been driving this at all things being equal do you expect it to continue.

John: So the answer is yes, we do expect it to continue and buy it it'll vary especially.

John: Depending on what happens with working capital any given quarter, if that's the metric that you're referring to.

John: But it's it's been an evolution just like the.

Anthony Michael Aulicino: The cash conversion cycle and the ROAC and the margins. It's, it's a wide cultural adoption of staying true to our CAPEX Light Acid Light business model, maximizing margins where we can, minimizing cash burn after EBITDA, and yeah, we do expect to continue to be industry leaders in cash conversion rates. And last one for me, on the capital return program you've outlined, does this plan maybe change at all, given where your shares are trading at now and trending with the strong quarters here, maybe towards more of a dividend and less towards a buyback?

John: The cash conversion cycle, and the ROA C E and the and the margins. It's a it's a wide cultural adoption of <unk>.

John: Staying true to our Capex light asset light business model maximizing margins, where we can minimizing cash burn after EBITDA and yeah, we do expect to be and continue to be industry leaders in cash conversion rate.

Tim Monachello: And last one for me on the capital return program you've outlined does this Glenn maybe changed at all given where your shares are trading at now and trending.

Tim Monachello: With the strong quarters here, maybe towards more of a dividend and less towards buyback.

Anthony Michael Aulicino: Yeah, you know, we've been pretty steadfast in what drives our buyback philosophy. Number one, do we have the liquidity and the capital to do what we need to do to support the business? So we check that box.

Glenn: Yeah, you know, we've been pretty steadfast and what's driving what drives our buyback philosophy number one do we have.

Tim Monachello: The liquidity and the capital to do what we need to do to support the business. So we checked that box, we absolutely do and the next one is if we think our shares are undervalued.

Anthony Michael Aulicino: We absolutely do. And the next one is if we think our shares are undervalued. I expect analyst estimates for full years 2024 and 2025 to increase based on what we reported yesterday. We already started seeing that last night.

Tim Monachello: I expect <unk>.

Tim Monachello: Analyst estimates for full year, 2024, and 25 to increase based on what we reported yesterday, we already started seeing that last night see how the share prices up whenever it's up today, but the multiple is still in the five times range, just maybe slightly above five times and.

Anthony Michael Aulicino: So yeah, the share price is up whenever it's up today, but the multiple is still in the five times range, just maybe slightly above five times. And I put it out, well, we put it out to investors, and we own five and a half percent of the company as well as management and certain board members. And this is a cash on cash yield still in the mid-teens. And with the best conversion and cash conversion cycle in the industry and one of the best ROACEs in the industry, it should not be trading in the future.

Tim Monachello: I put it out we put it out to investors and we own five 5% of the company's well management and certain board members and this is a cash on cash yield still have mid teens and with the best conversion cash conversion cycle in the industry and one of the best ROA.

Tim Monachello: C E in the industry it should not be trading in the fives. So when we're when we're trading at a much higher multiple we'll have that conversation, but we're not going to about an eyelash in the sixes for sure.

Anthony Michael Aulicino: So when we're trading at a much higher multiple, we'll have that conversation, but we're not gonna bat an eyelash in the sixes for sure. Fair enough. I'll turn it back to my quarter. The next question comes from Han Gagnon Heron with Scotiabank. Please go ahead. Hi, this is Hannah on Aaron calling in for Jonathan Goldman.

Speaker Change: Fair enough.

Speaker Change: Congrats on the quarter.

Speaker Change: The next question comes from Ken Goldman with Scotiabank. Please go ahead.

Speaker Change: Hi, This is <unk>, calling in for Jonathan Goldman Thanks for taking my question guys.

Han Gagnon Heron: Thanks for taking my questions, guys. I know you don't break it out, but are you seeing a similar trend in your production chemicals business? Yeah, we don't break it out. But I mean, generally speaking, that's exactly what's happening.

Jonathan Goldman: One for Ken when it is another it's another good morning.

Jonathan Goldman: Another strong quarter for share gains in the U S drilling fluids business I know you don't break it out but are you seeing a similar trend in your production chemicals business.

Jonathan Goldman: Yeah, we don't break it out, but I mean generally speaking that's exactly what's happening.

Kenneth E. Zinger: The Canadian drilling fluids business is a little more mature. We've been kind of in this number one spot for 10 years plus, so we ebb and flow a little bit. But the other three main divisions, the two production chemical divisions and the drilling fluids division in the US, yeah, they're all in growth mode still, and they still have plenty of room to grow. Gotcha. Perfect.

Speaker Change: The Canadian drilling fluids business is a little more mature we've been kind of in this number one spot for 10 years, plus so we ebb and flow a little bit but the.

Tim Monachello: The other three Bay main divisions of two production chemical divisions in the end the drilling fluids division in the U S. Yeah, they're all in girl mode still and they still have plenty of run room.

Kenneth E. Zinger: And another on the US trailing fluids business. Can you discuss what's underpinning that growth? And is there a ceiling to share gains in the US? There's no ceiling to share gains. I mean, competition wise, operators like to have choices.

Speaker Change: Gotcha, perfect and another on the U S drilling fluids business can you discuss what's underpinning that growth and is there a ceiling to share gains in the U S.

Speaker Change: There is no ceiling the share gains I mean, I guess competition wise operators like to have choices. So I missed I would guess that like Canada. When you get to that 35, 40% market share Theres, probably a roadblock you hit them, but as far as as opportunity there's tons of opportunity and what's driving.

Kenneth E. Zinger: So I would guess that, like Canada, when you get to that 35-40% market share, there's probably a roadblock you hit. But as far as opportunity, there's tons of opportunity. And what's driving it? Service, it's our people, attention to detail, security of supply, infrastructure in the right places, costs that are as good or better than anybody else can provide. I mean, it's just a wide bucket.

Speaker Change: I think it it's it service, it's our people it's attention to detail. This.

Tim Monachello: The security of supply its infrastructure in the right places it's costs that are as good or better than anybody else can provide I mean, it's just a wide berth bucket and our people are really good at all those things and it's not just the drilling fluids group in the U S. That's that's how we run the business in every division.

Kenneth E. Zinger: And our people are really good at all those things. And it's not just the drilling fluids group in the US; that's how we run the business in every division. Awesome. And one final one for me.

Kenneth E. Zinger: Is there any update on your entry into Haynesville? No, it continues as discussed. As I mentioned in the past, we still have one rig working there. We're working on some special projects for a couple of operators that we don't currently work for there to see if we can come up with some technical solutions for them for some problems they have. And if we do, then we'll probably pick up some rigs sooner.

Speaker Change: Awesome and one final one for me is there any update on your entry into the Haynesville.

Speaker Change: No. It continues as talked about like our as I've mentioned in the past we when we have one rig working there still were working on some special projects for a couple of operators that we don't currently work for there to see if we can come up with some technical solutions for them for some problems they have and if we do them, we'll probably pick up some rigs sooner.

Speaker Change: If we don't then we're just kind of getting some offsets in getting some history. So that when that rig count actually starts ticking up because earlier LNG starts picking up we'll be there to to grab onto some rigs.

Kenneth E. Zinger: If we don't, then we're just kind of getting some offsets and getting some history so that when that rig count actually starts picking up because LNG starts picking up, we'll be there to grab onto some rigs. Perfect. Congratulations on the quarter, and I'll turn it over to you.

Speaker Change: Perfect.

Speaker Change: That's on the quarter and I'll turn it over.

Kenneth E. Zinger: Thank you. Thank you. Once again, if you have a question, please press star, then one. The next question comes from Keith MacKey with RBC Capital Markets. Please go ahead.

Speaker Change: Thank you. Thank you.

Speaker Change: Once again, if you have a question.

Speaker Change: One one.

Speaker Change: Next question comes from Keith Mackey with RBC capital Michael. Please go ahead.

Keith MacKey: Yeah, thanks and good morning. I just wanted to start with a question or revisit a question that we've discussed before. We've historically thought of the... Drilling Fluids and Production Chemicals businesses were roughly equal in size in terms of revenue. Tony, Ken, is there any update to that number, or are they still around? Yeah, there are.

Keith MacKey: Yes, Thanks, and good morning, just wanted to start with a question or or revisit a question that we've that we've discussed before.

Keith MacKey: <unk>.

Keith MacKey: Historically thought of the drilling fluids and production chemicals businesses roughly equal in size in terms of revenue.

Keith MacKey: Tony Ken is there any update to that number or are they still about 50 50.

Tony Ken: Yeah, they're wrong.

Anthony Michael Aulicino: We started at that 50-50 when we started disclosing it, and then as it evolved, we did continue to see production chemicals grow a little bit in relative contribution. And it's in the 50 to 55 range for production chemicals and 45 to 50 for drilling fluids.

Speaker Change: We started.

Tony Ken: We started that at that 50 50, when we started disclosing it and then.

Tony Ken: As a as it evolved.

Tony Ken: We did continue to see production chemicals grow a little bit and relative contribution and it's it's in the 50 to 55 range for production chemicals, and 45 to 50 for drilling fluids.

Anthony Michael Aulicino: Okay, thanks, that's helpful. And if we just think about the margins for kind of the segments broadly, I know you're not going to want to get too granular there, but there's historically been sort of a target of 15% for each of the main operating divisions. How would all of the divisions rank today, without maybe asking for specific numbers, but how would all of the divisions rank today in terms of margins versus each other and versus that 15%? Yeah, we're, we can't rank them.

Speaker Change: Okay. Thanks, that's helpful and.

Tony Ken: We just think about the margin for kind of the segment broadly I know youre not going to want to get too granular there, but theres historically been sort of a target of 15% for each of the main operating divisions.

Speaker Change: How would all of the divisions ranked today without maybe asking for specific numbers on how it all the divisions ranked today in terms of margins versus each other and versus that 15%.

Anthony Michael Aulicino: But, you did just give us an opportunity to help you guys out a little bit. So we're happy to say that every single division was north of 15% this past quarter. And just finally, for me, Tony, you've certainly done a lot of work on the balance sheet over the last few years, both in terms of getting the debt level down and optimizing the debt mechanisms and maturities. I notice you made a point of calling out some of the ratings agency upgrades there.

Tony Ken: Yeah.

Speaker Change: We can't rank them, but but you did just gave us an opportunity to help you guys out a little bit. So we're happy to say that every single division was north of 15%.

Tony Ken: This last quarter.

Speaker Change: Perfect, Okay, and just finally for me Tony certainly done a lot of work on the balance sheet over the last few years, both in terms of getting the debt level down and optimizing.

Anthony Michael Aulicino: Can you just talk about how you see the debt stack and mechanisms going forward relative to what you've got today? Sorry, what do you mean, Keith? Yeah, do you have any opportunity, I guess, to think about your debt? Instruments in terms of optimizing rates, and then ultimately optimizing the structure of your debt as you think out the next, you know, one, two, three years. Yeah, no, for sure.

Tony Ken: <unk> mechanisms and maturities.

Tony Ken: I noticed you made a point of calling out some of the ratings agency upgrades. There maybe just talk about how you see the debt.

Tony Ken: Stack and mechanisms going forward relative to what you've got today.

Speaker Change: Sorry, what do you mean Keith.

Speaker Change: Yeah do you have any.

Keith: Do you have any opportunity I guess to think about your debt instruments in terms of optimizing rate.

Keith: And then ultimately optimizing the structure of your debt as you think out the next one to three years.

Anthony Michael Aulicino: So we have our Term Loan A and our credit facility that are currently in place. In hindsight, we did the right thing last year by putting in a $250 million Term Loan A that's now fully drawn. And we have our $450 million credit facility that we only have $65 million drawn on right now. It was $105 million at the end of Q1. We put that TLA in place last year for a very specific reason.

Speaker Change: Yeah no for sure. So we are we have a term loan a and are in the credit facility.

Speaker Change: That are currently in place in hindsight, well, we did the right thing last year by putting in a $250 million term loan a.

Speaker Change: That's now fully drawn and we have our $450 million credit facility.

Tony Ken: We only have $65 million drawn on right now it was $105 million at the end of Q1, we put the T. L. A in place last year for a very specific reason it was because we were starting to put up the numbers and not everybody was acknowledging them and we continued.

Anthony Michael Aulicino: It was because we were starting to put up the numbers, and not everybody was acknowledging them. But we continued. Unknown Attendee, to believe that we would be improving those numbers, and by not everybody, I mean debt investors, rating agencies, equity investors, and we did our part. Over the year, we grew to the numbers that you saw in the last year, including this past quarter. Number one, and the other reason we did that was we didn't want to refinance that bond in a market that had high interest rates last year and was not very re And then we kept doing our part. The macro has obviously improved from a rate perspective.

Tony Ken: To believe that we would be improving those numbers and by not everybody might mean that investors rating agencies equity investors and we did our part over the year. We grew to the numbers that you saw over the last year, including this past quarter number one and the other reason we did that was we didn't want to.

Tony Ken: Refinance that bond in the market, but that had high interest rates last year and was not very receptive to new bond deals last year and then we kept doing our part the macro has obviously improved from a rate perspective.

Anthony Michael Aulicino: If you use S&P and DBRS as positive actions as a barometer, obviously, even the debt side of the investor house has acknowledged and is acknowledging the very strong creditworthiness and cash flow generation capability of this business. So I continue to say we will access the bond market when it makes sense, at the right price and the right terms, and we will definitely do that before the TLA goes current next April and will be opportunistic if we get the right terms in the right market window. Okay, that's great, Keller. Thanks very much. This concludes the question and answer session. I would like to turn the conference back over to Ken Zinger for any closing remarks. Please go ahead.

Tony Ken: You use S&P and DVR S as positive actions as a barometer.

Tony Ken: Obviously.

Tony Ken: Even the the debt side of the Investor House.

Tony Ken: It has acknowledged in is acknowledging the are the very strong credit worthiness and cash flow generation capability of this business. So I continue to say, we will access the bond market when it makes sense at the right price and the right terms and we will definitely do that before.

Tony Ken: Or on the T L Eagle's current.

Tony Ken: Next April and we'll be opportunistic if we get the right terms and the right market window.

Tony Ken: Okay.

Speaker Change: Great color, thanks, very much I'll turn it back.

Tony Ken: This concludes our question and answer I would like to turn the conference back over to Ken Dennard.

Kenneth E. Zinger: Well, with that, I'm going to wrap up this call by saying thank you to everyone who took the time to join us here today. We continue to be very optimistic about the future here at CES Energy Solutions. We will be hosting our virtual AGM on June 18th, and we look forward to speaking with you all again on our Q2 update in August. Thank you for your time today. This concludes today's conference call. You may disconnect your lines at any time.

Tony Ken: Okay.

Kenneth E. Zinger: Please go ahead.

Kenneth E. Zinger: Thank you well with that I'm going to wrap up this call by saying. Thank you to everyone who took the time to join US here today, we continue to be very optimistic about the future here at CES energy solutions.

Kenneth E. Zinger: We will be hosting our virtual AGM on June 18th and we look forward to speaking with you all again on our Q2 update in August. Thank you for your time today.

Kenneth E. Zinger: Yeah.

Speaker Change: This concludes today's conference call you may disconnect your lines. Thank you for that.

Operator: Thank you for participating and have a pleasant day. www.ces.gov.au

Speaker Change: And have a pleasant day.

Tony Ken: Yeah.

Tony Ken: Okay.

Tony Ken: Yeah.

Tony Ken: Okay.