Q4 2024 CES Energy Solutions Corp Earnings Call
Good day and welcome to the C. E S Energy Solutions Corp, fourth quarter 2024 results conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star Keith followed by zero.
Operator: Good day, and welcome to the CES Energy Solutions Corp fourth quarter 2024 results conference call.
Operator: All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. And to withdraw your question, please press star and then two.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone and to withdraw your question. Please press Star then two.
Operator: Please note that this event is being recorded.
Please note that this event is being recorded.
Anthony Aulicino: I would now like to turn the conference over to Mr. Tony Aulicino, Chief Financial Officer. Thank you, operator. Good morning, everyone. And thank you for attending today's call.
Tony I'll: I would now like to turn the conference over to Mr. Tony I'll, Let Gino Chief Financial Officer. Please go ahead Sir.
Anthony Aulicino: 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 annual information form, fourth quarter MD&A, and press release dated March 6, 2025.
Tony I'll: materially from the expected results due to various risk factors and assumptions.
Tony I'll: These risk factors and assumptions are summarized in our annual information form, fourth quarter MDNA, and press release dated March 6, 2025.
Anthony Aulicino: In addition, certain financial measures that we will refer to today are not recognized under current general accepted accounting policies. And for a description and definition of these, please see our fourth quarter MD&A.
Tony I'll: In addition, certain financial measures that we will refer to today are not recognized under current general accepted accounting policies, and for a description and definition of these, please see our fourth quarter MDNA.
Kenneth Zinger: At this time, I'd like to turn the call over to Ken Zinger, our President and CEO. Thank you, Tony. Welcome everyone and thank you for joining us for our fourth quarter in year end 24 earnings call.
Tony I'll: At this time, I'd like to turn the call over to Ken Zinger, our president and CEO .
Thank you, Tony.
Tony I'll: Welcome, everyone, and thank you for joining us for our fourth quarter in year-end 24 earnings call.
Kenneth Zinger: On today's call I will provide a brief summary of our strong financial results released yesterday followed by an update on capital allocation and then our divisional updates for Canada in the US as well as our outlook for the remainder of 2025.
Tony I'll: On today's call, I will provide a brief summary of our strong financial results released yesterday, followed by an update on capital allocation and then our divisional updates for Canada in the US as well as our outlook for the remainder of 2025.
Kenneth Zinger: I will then pass the call back over to Tony to provide a detailed financial update.
Tony I'll: I will then pass the call back over to Tony to provide a detailed financial update, we will take questions and then we will wrap up the call.
Kenneth Zinger: We will take questions and then we'll wrap up the call.
Kenneth Zinger: As always, I will start my comments today by highlighting some of the major financial accomplishments we achieved in Q4 of 2024. These highlights include our second best quarterly revenue ever of $605.4 million, which was 9.5% higher than Q4 of last year and just $1 million lower than our quarterly record from last quarter. All-time record quarterly EBITDA of $103.2 million, which was ahead of last year's Q4 by 22%. EBITDA margin of 17.1%, which was well ahead of the 15.3 in Q4 of 2023. By year end, we had repurchased 10.6 million shares of the 19.2 million shares allowed under our current NCIB plan at an average price of $7.90.
Tony I'll: These highlights include our second best quarterly revenue ever of $605.4 million, which was 9.5% higher than Q4 of last year and just $1 million lower than our quarterly record from last quarter.
Tony I'll: All-time record quarterly EBITDA of $103.2 million, which was ahead of last year's Q4 by 22 percent.
Tony I'll: EBITDA Margin of 17.1%, which was well ahead of the 15.3 and 2.4 of 2023.
Tony I'll: By year end, we had repurchased 10.6 million shares of the 19.2 million shares allowed under our current NCIB plan at an average price of $7.90. This represents 55% of the current program in just over five months.
Kenneth Zinger: This represents 55% of the current program in just over five months. free cash flow of $34.6 million during the quarter and $186.9 million during 2024. Total net trailing 12 months EBITDA was at 1.12 times at the end of Q4 2024, well below the 1.49 times reported at the end of the year last year, and at the lower end of our targeted range of 1 to 1.5 times. Cash conversion cycle days came in as 111 days at the lower end of our targeted range of 110 to 115 days.
Tony I'll: Total that trip trailing 12 months Yvdda was at 1.12 times at the end of Q4 2024, well below the 1.49 times reported at the end of the year last year and at the lower end of our targeted [inaudible]
Tony I'll: Cash Conversion Cycle Days came in as 111 days at the lower end of our targeted range of 110 to 115 days.
Kenneth Zinger: By way of an update on our capital allocation plans, I am happy to report the following. Consistent with our prior messaging of addressing the dividend once per year in Q4 or Q1 of each year, and due to our confidence in the cash generating capability of CES even in the current market environment, we will increase our quarterly dividend by 42.5% to $0.0425 per share from $0.03 per share. At today's share count, this will increase our dividend spend by about $11 million per year. We will continue to support the business with the necessary investments required to provide acceptable growth and returns.
Tony I'll: By way of an update on our capital allocation plans, I am happy to report the following.
. . . . . . . . . . . .
Consistent with our prior messaging.
Tony I'll: of addressing the dividend once per year in Q4 or Q1 of each year.
Tony I'll: and due to our confidence in the cash generating capability of CES, even in the current market environment, we will increase our quarterly dividend by 42.5% to 4.4 cents per share, from 3 cents per share. At today's share count, this will increase our dividend spend by about $11 million per year.
Tony I'll: We will continue to support the business with the necessary investments required to provide acceptable growth in returns. This includes anticipated capex in 2025 of $80 million.
Kenneth Zinger: This includes anticipated CapEx in 2025 of $80 million. This is a little higher than prior guidance, due almost entirely to the unexpected increase in FX. over the past 4 months and its mathematical effect on our U.S. CapEx.
This is a little higher than... [inaudible]
Tony I'll: This is a little higher than prior guidance. Do almost entirely to the unexpected increase in
. . . . .
Tony I'll: over the past four months. And it's mathematical effect on our U.S. Catholics. We will continue to look for strategic tuck-in acquisition opportunities into related business lines or geographies where we believe we can add value and grow returns.
Kenneth Zinger: We will continue to look for strategic tuck-in acquisition opportunities into related business lines or geographies where we believe we can add value and grow returns. Based upon our current outlook versus the current share price, we intend to ramp up our NCIB as soon as we are out of blackout next week. With the current share price of CEU, we plan to aggressively repurchase as many shares as possible under our NCIB of 19.2 million shares. We will continue to target a debt level in the one to one and a half times debt trailing 12 months EBITDAC range.
Based upon our current outlook.
Tony I'll: versus the current share price. We intend to ramp up our NCID as soon as we are out of blackout next week. With the current share price of CEU, we plan to aggressively repurchase as many shares as possible under our NCID of 19.2 million shares. We will continue to target a debt level in the one-to-one-of-a-half times debt to the twirling 12-month EVA-DAC range.
Kenneth Zinger: I'll now move on to summarize Q4 performance by division. Today our rig count in North America stands at 233 rigs out of the 840 listed as running, representing an industry-leading North American rig market share of over 27.7%. This is our highest market share ever in the North American land market. Due to the large number of rigs moving and firing up on both sides of the border after January 1, we have noted noise in our numbers as a higher proportion of the rigs were drilling on non-specialty portions of the wells, namely surface holes and vertical sections, at the same time.
I'll now move on to summarize Q4 performance by division.
Tony I'll: Today, our rig count in North America stands at 233 rigs out of the 840 list of those running representing an industry leading North American rig market share.
Tony I'll: of over 27.7%. This is our highest market share ever in the North American land market.
Tony I'll: Do the large number of rigs moving and firing up on both sides of the border after January 1st. We have noted noise in our numbers as a higher proportion of the rigs, we're drilling with non-specialty portions of the wells, namely surface holes and vertical sections at the same time.
Kenneth Zinger: This led to some margin degradation in our January numbers from the drilling fluids divisions. We have noted this effect was transitory and we are moving back to more historical levels of profitability in February and are hoping for the same in March. We anticipate this phenomenon may present itself in slightly lower margins for Q1 but not revenue. This rather sudden 33 rig or 17% increase in our rig count since November, combined with strategic purchasing in anticipation of tariffs, has led to some working capital build within the business during the past few months. We expect all of this noise to level out back to historical levels in the coming months and quarters.
Tony I'll: This led to some margin degradation in our January numbers from the drilling fluids divisions.
Tony I'll: We have noted this effect was transitory and we are moving back to more historical levels of profitability in February and are open to the same in March.
Tony I'll: We anticipate this phenomenon may present itself in slightly lower margins for Q1 but not revenue.
Tony I'll: This rather sudden 33 rig or 17% increase in our rig counts in November , combined with strategic purchasing in anticipation of tariffs, has led to some working capital built within the business during the past few months. We expect all of this noise to level out back to historical levels in the coming months and quarters.
Kenneth Zinger: In Canada, the Canadian Drilling Fluids Division continues to lead the WCSV in market share. Today, we are providing service to 92 of the 236 rigs listed as working in Canada, or a 40% market share. This is our highest market share by percentage in Canada since January of 2020. The active drilling rig count in Canada so far in Q1 of 2025 has been trending consistently higher by approximately 5% year-over-year. We remain optimistic about the prospects for 2025 due to the completion and full start-up of infrastructure projects and their associated takeaway capacity. Although we are aware tariffs may impact profitability of our customers in Canada, we currently have seen no signs of a drastic slowdown in activity for 2025.
Tony I'll: In Canada, the Canadian Drilling Fluids Division continues to lead the WCSB in market share. Today we are providing service to 92 of the 236 rigs listed as working in Canada or a 40% market share.
Tony I'll: This is our highest market share, 5%age in Canada since January of 2020. The active drilling rate count in Canada so far in Q1 of 2025 has been trending consistently higher by approximately 5% year over year.
Tony I'll: We remain optimistic about the prospects for 2025 due to the completion and full start-up of infrastructure projects and their associated take-away capacity. Although we are aware tariffs may impact profitability of our customers in Canada, we currently have no, have seen no signs of a drastic slowdown in activity for 2025.
Kenneth Zinger: PureChem, our Canadian production chemical business, had very strong results once again in Q4. Like JChem Catalyst, PureChem continues its outsized growth versus the general activity increases. All of the business lines within PureChem continue to grow significantly as we continue to take market share, win bids, and optimize formulations. The revenue and earnings from our primary business production trading continues to drive the growth in Canada as we consistently strive to deliver superior products and service, combined with competitive market pricing. We believe all these positive results make us the clear number one provider of production chemistry in the Canadian conventional market, and we are now participating in meaningful business in the heavy oil market as well.
Tony I'll: Pure Chem, our Canadian production chemical business, had very strong results once again in Q4. Like J. Chem Catalyst, Pure Chem continues its outsides growth versus the general activity increases.
Tony I'll: All of the business lines within Pure Chem continue to grow significantly as we continue to take market share, win bids and optimize formulations.
Tony I'll: The revenue and earnings from our primary business production treating continues to drive the growth in Canada as we consistently strive to deliver superior products and service combined with competitive market pricing.
Tony I'll: We believe all these positive results make us the clear number one provider of production chemistry of the Canadian conventional market and we are now participating in meaningful business in the heavy oil market as well Thank you very much.
Kenneth Zinger: In the United States, AES, our U.S. drilling fluids group, is providing chemistries and service to 138 of the 593 rigs listed as active on USA Land Market today, for a continued number one market share of USA Land Rigs at 23.2%. This marks the highest ever market share by AES of the U.S. Land Market. The number of rigs drilling in the U.S.A. is up by about 6% since we reported in November. We continue to anticipate a slow but steady uptick in rig count in the U.S.A. for the remainder of 2025, and we look forward to focusing on turning that into a higher rig count and market share for AES.
Tony I'll: In the United States, AES, our U.S. drilling fluids group is providing chemistries and service to 138 of the 593 rigs listed as active on U.S.A. land market today. For continued number one market share of U.S.A. land rigs at 23.2%. This marks the highest ever market share by AES of the U.S. land market.
Tony I'll: The number of rigs drilling in the USA is up by about 6% since we reported in November. We continue to anticipate a slow but steady uptick in rig count in the USA for the remainder of 2025, and we look forward to focusing on turning that into a higher rig count and market share for AES.
Kenneth Zinger: We're also currently enjoying a basin leading 100 rigs out of the 316 listed as working in the Permian Basin, or 31.6%. The Permian industry rig count is up slightly quarter over quarter by approximately 4%. As well, service intensity continues to demonstrate its presence in our numbers for drilling fluids throughout North America.
Tony I'll: We're also currently enjoying a basin leading 100 rigs out of the 316 listed as working in the Permian Basin, or 31.6%.
Kenneth Zinger: Finally, the integration of our recent acquisition HydroLite into AES completion services. is now fully complete and utilizing the full AES team and infrastructure to support the business in every possible way.
Tony I'll: Finally, the integration of our recent acquisition, Hydrolite, into AES Completion Services is now fully complete and utilizing the full AES team and infrastructure to support the business in every possible way. Thank you very much.
Kenneth Zinger: Last but definitely not least, the JCCAM Catalyst division continues its trend of strong growth throughout 2024 and into 2025. We are consistently winning more business, growing revenue, and taking market share at JCCAM Catalyst. We remain confident that we are not only the number one provider by market share in the Permian Basin, but also have strong presence in the Rockies, the Bakken, South Texas, and to a lesser degree, Gulf of America. We are focused on growth in the number one production chemical company in the United States as well as North America.
Last, but definitely a lot at least.
Tony I'll: The JKAM Catalyst Division continues its trend of strong growth throughout 2024 and into 2025. We are consistently winning more business, growing revenue and taking market share of JKAM Catalyst.
Tony I'll: We remain confident that we are not only the number one
Tony I'll: Provider by market share in the Permian Basin, but also have strong presence in the Rockies, the Bach and South Texas into a lesser degree Gulf of America.
Tony I'll: We are focused on growth in the division and that means everywhere in the US. Our eyes are keenly focused on becoming the number one production chemical company in the United States as well as North America.
Kenneth Zinger: I would like to now reiterate the resilience of our business model in the current tariff environment and touch on implications from associated exchange rate pressure on the Canadian dollar. Our current outlook does not anticipate a meaningful impact on our business from tariffs. The most immediate impact we can clearly identify revolves around exchange rate and the depressed Canadian dollar. In our Canadian businesses, starting with currency, the roughly 8% decline over the past few months in the value of Canadian dollar versus the US dollar is causing us to have to revisit pricing with customers on certain product lines.
Tony I'll: I would like to now reiterate the resilience of our business model in the current tariff environment and touch on implications from associated exchange rate pressure on the Canadian dollar . .
Tony I'll: Our current outlook does not anticipate a meaningful impact on our business from tariffs. The most immediate impact we can clearly identify revolves around exchange rate and the depressed Canadian dollar.
Tony I'll: In our Canadian businesses, starting with currency, the roughly 8% decline over the past few months in the value of Canadian dollar versus the US dollar is causing us to have to revisit pricing with customers on certain product lines. These are for products sourcing the US and abroad in US dollars. Due to the increased cost of goods, help.
Kenneth Zinger: These are for products sourced in the US and abroad in US dollars. Due to the increased cost of goods, how or due to the increased cost of goods. However, our view is that this pressure is not unique to CES and that all of our competitors in Canada are feeling the same pressure. Therefore, we have been adjusting pricing as is possible since this became an issue a few months ago. Like in 2022, the impact lies primarily during Q1 due to the timing lag from requesting increases to implementing increases. Unlike in 2022, the overall increases are much smaller and widespread by comparison.
Tony I'll: Due to the increased cost of goods. However, our view is that this pressure is not unique to CES and that all of our competitors in Canada are failing the same pressure. Therefore, we have been adjusting pricing as is possible since this became an issue a few months ago.
Tony I'll: Like in 2022, the impact lies primarily during Q1 due to the timing lag from requesting increases to implementing increases. Unlike in 2022, the overall increases are much smaller and less widespread by comparison. I will also note the Canada accounts for approximately a third of our overall corporate revenue.
Kenneth Zinger: I will also note that Canada accounts for approximately a third of our overall corporate revenue. With regard to Canadian counter tariffs, I will just broadly state that so far of the counter tariffs imposed by the Canadian government on March 4th, the impact was insignificant. Based on our early assessment of the Phase 2 list scheduled for March 25th, the tariff exposure to CES would be higher than the Phase 1 impact, but still insignificant. Regardless, we and our peers will provide the Canadian government with input in order to attempt to support the exclusion of some of these items. If certain items remain on the list, price increases will have to be implemented by ourselves and our competitors to the operators in order to counter the effects.
Tony I'll: With regard to Canadian counter-terrorists, I will just broadly state that so far of the counter-terrorist imposed by the Canadian government on March 4th, the impact was insignificant.
Tony I'll: Based on our early assessment of the phase 2 list, scheduled for March 25th, the tariff exposure to CES would be higher than the phase 1 impact but still insignificant.
Tony I'll: Regardless, we and our peers will provide the Canadian government with input in order to attempt to support the exclusion of some of these items If certain items remain on the list, price increases will have to be implemented by ourselves and our competitors to the operators in order to counter the effect
Kenneth Zinger: I will also state that we believe we will have an advantage should this take place because we do have reacting and production capabilities at SeaAlco in Vancouver that none of our competitors in Canada have. We are currently looking at switching more production of products for Canadian consumption from the U.S. to Canada as it is possible.
Tony I'll: I will also state that we believe we will have an advantage should this take place because we do have reacting and production capabilities at CLCO and Vancouver that none of our competitors in Canada have.
Tony I'll: We are currently looking at switching more production of products for Canadian consumption from the US to Canada as it is possible. I will note that this is not a flip the switch transition though, it is complicated and will take time.
Kenneth Zinger: I will note that this is not a flip the switch type transition though, it is complicated and will take time.
Kenneth Zinger: Now for our U.S. businesses.
Kenneth Zinger: Since we report in Canadian dollars, the obvious currency impact we anticipate would be slightly elevated financial reporting, including capex spending on in Canadian dollars on the U.S. businesses. When it comes to exchange rates on products going from Canada to the USA, insignificant volumes are currently bought or manufactured in Canada for U.S. consumption. Therefore, we currently see this risk is almost zero.
Tony I'll: Now for our US businesses. Since we report in Canadian dollars, the obvious currency impact we anticipate would be slightly elevated financial reporting including cap expending in Canadian dollars on the US businesses.
Tony I'll: When it comes to exchange rates on products going from Canada to the USA, insignificant volumes are currently bought or manufactured in Canada for US consumption. Therefore, we currently see this risk is almost zero.
Kenneth Zinger: For more information, visit www.fema.gov With regard to USA tariffs, these may have a small effect on a handful of specialty chemicals which we produce in Vancouver for use in the USA. We are currently rearranging some production schedules in order to free up some Kansas reactors to take over this production due to the USA tariffs already announced. But I will state again, the impact is expected to be insignificant. Throughout this explanation of tariff challenges, I have consistently used the word insignificant when describing the impact on our revenues and profitability. To make my definition of insignificant clear to you all, this means less than half a percent of revenue exposure total.
Tony I'll: With regard to USA Terrace, these may have a small effect on a handful of specialty chemicals which we produce in Vancouver for use in the USA. We are currently rearranging some production schedules in order to free up some Kansas reactors to take over this production due to the USA Terrace already announced.
Tony I'll: But I will state again, the impact is expected to be significant.
Speaker Change: Throughout this explanation of terror challenges, I have consistently used the word insignificant when describing the impact on our revenues and profitability. To make my definition of insignificant clarity to you all, this means less than half a percent of revenue in exposure total.
Kenneth Zinger: However, we can reduce this exposure to zero as we were able to address our manufacturing schedules to producing as much as possible for consumption within the same country as it is manufactured. Once again, the risk on this correction is simply the timing lag.
Speaker Change: However, we can reduce this exposure to zero as we were able to address our manufacturing schedules to producing as much as possible for consumption within the same country as it is manufactured. Once again, the risk on this correction is simply the timing lag. Thank you.
Kenneth Zinger: I would like to reiterate that our business has never been stronger or healthier than it is today, and that we are uniquely positioned to not only weather this tariff environment, but potentially benefit from it. We are extremely confident in our teams across North America as we believe all are best in class and battle-hardened from challenges the industry has faced over the past dozen years. We will strategically navigate this latest challenge and use this opportunity to our advantage to continue to reorganize some supply chains, grow the business, take market share, and reward shareholders.
Speaker Change: I would like to reiterate that our business has never been stronger or healthier than it is today and that we are uniquely positioned to not only whether this tariff environment but potentially benefit from it.
Speaker Change: We are extremely confident in our teams across North America as we believe all our best in class and battle hardened from challenges the industry has faced over the past dozen years.
Speaker Change: We will strategically navigate this latest challenge and use this opportunity to our advantage to continue to reorganize some supply chains, grow the business, take market share and reward shareholders.
Kenneth 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. It is rewarding to note that due to the growth that we are experiencing and anticipating in all parts of our business, we have increased our total number of employees at CES from 2,236 on January 1st of 2024 to 2,530 at the end of 2024. This represents an annual increase of 294 employees or approximately 13%.
Speaker Change: 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 is rewarding to note that due to the growth that we are experiencing and anticipating.
Speaker Change: In all parts of our business, we have increased our total number of employees at CES from 2,236 on January 1st of 2024 to 2,530 at the end of 2024. This represents an annual increase of 294 employees or approximately 13%.
Anthony Aulicino: With that, I'll pass the call to Tony for the financial update. Thank you, Ken. CES's financial results for 2024 set record levels of revenue and adjusted EBITDAC while demonstrating continued strong free cash flow and high quality earnings despite muted rate counts in the US. These results underpin the unique resilience of CES's consumable chemicals business model. CES continued to effectively deploy strong surplus free cash flow to aggressively return capital to shareholders while investing in strategic CapEx and working capital to support our record revenue and position the company for identified growth opportunities. Revenue for 2024 of $2.4 billion represented an all time high and a 9% increase to $2.2 billion in 2023.
Speaker Change: With that, I'll pass the call to Tony for the financial update.
Tony I'll: Thank you, Ken. CES has financial results for 2024 set record levels of revenue and adjusted EBITDAQ while demonstrating continued strong free cash flow and high quality earnings despite muted rate counts in the U.S.
Speaker Change: These results underpin the unique resilience of CES's consumable chemicals business model.
Speaker Change: CES continue to effectively deploy strong surplus free cash flow to aggressively return capital to shareholders while investing in strategic capex and working capital to support our record revenue and position the company for identified growth opportunities.
Speaker Change: Revenue for 2024 of $2.4 billion represented in all time high and a 9% increase is a 2.2 billion in 2023.
Anthony Aulicino: Adjusted EBITDAC of $403 million, reached record levels, presented a 28% increase over $316 million in 2023, and importantly, adjusted EBITDAC margin of 17.1% was up from 14.6% in 2023. Adjusted EBITDAC margins continue to come in above our guided 15.5 to 16.5% range in this operating environment. These impressive results have been achieved through strong contributions across all parts of the business and a confluence of increasing levels of service intensity, new product introductions and adoptions, attractive product mix, vertically integrated supply chains, and leading market share positions. These achievements were underscored by strong annual free cash flow of $187 million, enabling CES to continue its track record of consistent returns to shareholders through $27 million in dividends.
Speaker Change: Adjusted EBITDAQ of $403 million reached record levels, it was then at a 28% increase over $360 million in 2023, and importantly, Adjusted EBITDAQ margin of 17.1% was up from 14.6%
in this operating environment.
These impressive results.
Speaker Change: have been achieved through strong contributions across all parts of the business and a confluence of increasing levels of surface intensity, new product introductions and adoptions, attractive product mix, vertically integrated supply chains and leading market share positions.
Speaker Change: These achievements were underscored by strong annual free cash flow of $187 million, enabling CES to continue its track record of consistent returns to shareholders through $27 million
Anthony Aulicino: $101M in shareware purchases, $10M in strategic tuck-in M&A activity, and $45M in long-term debt repayment. Focusing on the fourth quarter, CES generated revenue of $605 million, representing a 9% increase over prior years $553 million. Revenue generated in the US was $390 million and represented 64% of total revenue. This revenue figure compared to $403 million in Q3 and increased 8% over $361 million last year. Revenue generated in Canada achieved a record high of $215 million, up from $203 million in Q3, and 12% ahead of the $192 million a year ago. adjusted EBITDA in Q4 of $103 million set an all time high representing a 22% increase from $85 million in Q4 2023.
Speaker Change: $101 million in share purchases, $10 million in strategic tuck-in M&A activity, and $45 million in long-term debt repayment.
Speaker Change: Focusing on the fourth quarter, CES generated revenue of $605 million, representing a 9% increase over prior years, $553 million. Revenue generated in the U.S. was $390 million, and represented 64% of total revenue.
Speaker Change: This revenue figure compared to 403 million in Q3 and increased 8% over 361 million last year.
Speaker Change: Revenue generated in Canada achieved a record high of 215 million up from 203 million in Q3 and 12% ahead of the 192 million a year ago.
Speaker Change: Adjusted EBITDAQ in Q4 of 103 million said in all time high, representing a 22% increase from 85 million in Q4 2023, and a 1% increase from the recent Q3 results.
Anthony Aulicino: and a 1% increase from the recent Q3 results. Q4's adjusted EBITDA margin of 17.0% was 1.7% ahead of prior year's margins of 15.3% and in line with 16.9% in Q3. Including investments in working capital, CES generated $62 million in cash flow from operations in the quarter, compared to $73 million in Q3 and $39 million in Q4 2023. For the year, CES generated $305 million, compared to $302 million during 2023. The continued strong cash flow from operations resulted from record financial performance with higher contribution margins on associated activity levels. partially offset by increases to working capital heading into the Canadian winter drilling season to support record revenue levels.
Speaker Change: Q4's Adjusted Ebitaque margin of 17.0%, was 1.7% ahead of prior years margins of 15.3% and in line with 16.9% in Q3.
Speaker Change: including investments in working capital, CES generated $62 million in cash flow from operations in the quarter compared to $73 million in Q3 and $39 million in Q4 2023.
Speaker Change: for the year CES generated $305 million compared to $302 million during 2023. The continued strong cash flow from operations resulted from record financial performance with higher contribution margins on associated activity levels.
Speaker Change: Partially offset by increases to working capital heading into the Canadian winter drilling season to support record revenue levels.
Anthony Aulicino: Funds flow from operations or FFO, which isolates the effect of seasonal working capital builds with $69 million in Q4 compared to $89 million in Q3 and $68 million in Q4 2023. For the year, FFO totaled $293 million compared to $252 million in 2023. The year-over-year improvements were driven by strong financial performance with higher contribution margins on associated activity levels relative to comparable periods. Free cash flow was $35 million for Q4, compared to $15 million a year ago. For the full year, CES generated $187 million of free cash flow compared to $212 million in 2023. This continues to demonstrate CES's high quality earnings as measured by free cash flow to adjusted EBITDA conversion rate of 46% for the year.
Speaker Change: Funds flow from operations or FFO which isolates the effect of seasonal working capital builds was $69 million in Q4 compared to $89 million in Q3 and $68 million in Q4 2023.
Speaker Change: For the year, FFO total 293 million compared to 252 million in 2023.
Speaker Change: The year-over-year improvements were driven by strong financial performance with higher contribution margins on associated activity levels relative to comparable periods.
Speaker Change: Free Cash Flow was $35 million for Q4, compared to $15 million a year ago. For the full-year CES generated $187 million a free cash flow, compared to $212 million in 2023.
Speaker Change: This continues to demonstrate CS's high quality earnings as measured by a free cash flow to adjusted EBITDAQ conversion rate of 46% for the year.
Anthony Aulicino: CES maintained a prudent approach to capital spending through the quarter with CapEx spend net of disposal proceeds of $18 million, representing 3% of revenue for an aggregate spend of $81 million in 2024. We will continue to adjust plans as required to support existing business and attractive growth throughout our For 2025, we expect cash capex to be approximately $80 million, split evenly between maintenance and expansion capital to support incremental accretive business development opportunities and current record revenue levels. During the fourth quarter, we were active in our NCIB program purchasing 4.6 million common shares at an average price of $8.19 per share for a total cash outlay of $37.7 million.
Speaker Change: CES maintained a proven approach to capital spending through the quarter with CAPEX spend net of disposal proceeds of $18 million, representing 3% of revenue for an aggregate spend of $81 million in 2024.
Speaker Change: We will continue to adjust plans as required to support existing business and attractive growth
Speaker Change: For 2025, we expect cash capex to be approximately $80 million split evenly between maintenance and expansion capital to support incremental accretive business development opportunities and current record revenue levels.
Speaker Change: During the fourth quarter, we were active in our NCIB program, purchasing 4.6 million common shares at an average price of $8.19 per share for a total cash outlier of $37.7 million.
Anthony Aulicino: For 2024, CES repurchased 15.2 million shares at an average price of $6.69 per share for a total cash outlay of $101.5 million and representing 6% of outstanding shares at January 1st, 2024. We have repurchased approximately 11 million of the 19.2 million available shares under our current NCIB at an average price of $7.98 per share. And since inception of the NCIB program in July of 2018, CES has repurchased 70 million shares, representing 26% of the outstanding shares at that time, for an average price of $3.51 per share. So far in 2025, our NCIB activity has been deliberately more muted during our extended blackout period.
Speaker Change: for a total cash outlay of $101.5 million and representing 6% of outstanding shares at January 1st, 2024.
Speaker Change: We have repurchased approximately $11 million of the $19.2 million available shares under our current NCIB at an average price of $7.98 per share.
Speaker Change: and since inception of the NCIB program in July of 2018, CES has repurchased 70 million shares representing 26% of the outstanding shares at that time for an average price of $3.51 per share.
Speaker Change: So far in 2025, our NCIB activity has been deliberately more muted during our extended blackout period.
Anthony Aulicino: buying back only 900,000 shares at an average price of $8.97 per share. We intend to revisit NCIB activity and repurchase opportunities at current share price levels once we exit our blackout period on Tuesday, March 11. We ended the quarter with $453 million in total debt, representing an increase of $13 million from the prior quarter and a decrease of $17 million year over year. Total debt is primarily comprised of $200 million in senior notes, a net draw on the senior facility of $149 million, and $92 million in lease obligations. Total debt to adjusted EBITDAC of 1.12 times at the end of the quarter compared to 1.14 times at September 30th and approximately 1.5 times at December 31st, 2023, demonstrating our continued commitment to maintaining prudent leverage levels.
Speaker Change: buying back only 900,000 shares at an average price of $8.97 per share.
Speaker Change: We intend to revisit NCIB activity and repurchase opportunities at current share price levels once we exit our blackout period on Tuesday, March 11th.
Speaker Change: We ended the quarter with $453 million in total debt, representing an increase of $13 million from the prior quarter and a decrease of $17 million year-over-year.
Speaker Change: Total debt is primarily comprised of $200 million in senior notes, a net draw on the senior facility of $149 million and 92 million in lease obligations.
Speaker Change: and approximately 1.5 times at December 31, 2023, demonstrating our continued commitment to maintaining prudent leverage levels.
Anthony Aulicino: This prudent capital structure is further illustrated by our current net draw of $160 million, which has increased by $11 million from the end of the quarter, primarily as a result of our quarterly dividend payment and NCIB spend. We are very comfortable with our current debt level maturity schedule and leverage at the lower end of the 1 to 1.5 range, thereby enabling strong return of capital to shareholders and prioritizing a sustainable dividend and opportunistic share buyback.
Speaker Change: This prudent capital structure is further illustrated by our current net draw of $160 million, which has increased by $11 million from the end of the quarter, primarily as a result of a quarterly dividend payment and NCIB spending.
Speaker Change: We are very comfortable with our current debt level maturity schedule and leverage at the lower end of the one to 1.5 range, thereby enabling strong return of capital to shareholders and prioritizing a sustainable dividend and opportunistic share buybacks.
Anthony Aulicino: In accordance with that view, I am pleased to announce that on March 6, the company's board of directors approved a 42% increase to the quarterly dividend from 3 cents per share to 4.25 cents per share. This represents a dividend yield of 2.4% on an annualized basis at yesterday's closing price and a conservative annual payout ratio of approximately 16%.
Speaker Change: In accordance with that view, I am pleased to announce it on March 6th.
The company's Board of Directors approved a 42%
Increased to the quarterly dividend. Anthony Aulicino,
Speaker Change: from $3 per share to $4.25 per share. This represents a dividend yield of 2.4% on an annualized basis at yesterday's closing price and a conservative annual pay-over ratio of approximately 16%.
Anthony Aulicino: Thank you for your time.
Anthony Aulicino: I appreciate it. On an annualized basis, the 42% increase to the quarterly dividend will only cost the company an additional $11 million. underscoring another ancillary benefit of share buybacks by reducing the share count and mathematically increasing returns to shareholders. Our continued focus on working capital optimization has led to sustained improvements in cash conversion cycle, which ended the quarter at 111 days. This also translates to a reduction in operating working capital as a percentage of annualized quarterly revenue to 28% from 29% Each percentage improvement at these revenue levels represents approximately $24 million on our balance sheet.
Speaker Change: On an annualized basis, the 42% increase to the quarterly dividend will only cost the company an additional $11 million dollars.
Speaker Change: underscoring another ancillary benefit of share buybacks by reducing the share account and mathematically increasing returns to shareholders.
Speaker Change: Our continued focus on working capital optimization has led to sustained improvements in cash conversion
Speaker Change: Each percentage improvement at these revenue levels represents approximately $24 million on her balance sheet.
Anthony Aulicino: Internally, we have continued to focus on return on average capital employed metrics at the divisional level. This approach has led to a cultural adoption of key Roche maximizing factors such as profitable growth, strong margins, working capital optimization, improving capital expenditures. I am proud to report that the resulting consolidated trailing 12 month Roche is now 24% compared to 22% a year ago. I would like to emphasize that from a financial perspective, our business model and financial management philosophy provides structural resilience to potential tariff implications. As a reminder, two thirds of our business operates in the US and one third in Canada, and each country possesses domestic manufacturing capabilities through independent vertical integration.
Speaker Change: Internally, we have continued to focus on return on average capital employed metrics at the Divisional Levels.
Speaker Change: Strong margins, working capital optimization and prudent capital expenditures. I am proud to report that the resulting Consolidated Trailing 12-month roachy is now 24% compared to 22% a year ago.
Speaker Change: I would like to emphasize that from a financial perspective, our business model and financial management philosophy provides structural resilience to potential tariff implications.
Speaker Change: As a reminder, two-thirds of our business operates in the U.S. and one-third in Canada and each country possesses domestic manufacturing capabilities through independent vertical integration.
Anthony Aulicino: Current intercompany cross-border sales are negligible, with identified potential to move to local domestic production, and our U.S. operations procure very little input products from tariff-affected countries such as Canada, Mexico, and China. Our Canadian operations purchased some US third party inputs that may be included in future tariff lists. However, a significant component of Canadian revenue is relatively insulated through index pricing and cost plus pricing. And the impact of relevant proposed tariff items is very minor as articulated by From a financial management perspective, the tariff threat-induced Canadian dollar devaluation prompted CES to proactively hedge a significant portion of U.S.
Speaker Change: Current Inter company cross-border sales are negligible, with identified potential to move to local domestic production, and our US operations procure very little input products from affected countries such as Canada, Mexico, and China.
Speaker Change: Our Canadian Operations purchased some U.S. Third-party inputs that may be included in your tariff lists. However, a significant component of Canadian revenue is relatively insulated through index pricing and cost plus pricing.
Speaker Change: and the impact of relevant proposed tariff items is very minor as articulated by Ken.
Anthony Aulicino: dollar requirements related to input purchases by Canadian operations at attractive rates compared to current spot level. As demonstrated through our record results, CES is bigger, stronger, and more resilient than ever before, enabling strong surplus-free cash flow generation and providing valuable optionality for return of capital.
Speaker Change: had a significant portion of US dollar requirements related to input purchases by Canadian operations at attractive rates compared to current spot levels.
Speaker Change: As demonstrated through our record results, CES is bigger, stronger and more resilient than ever before, enabling strong surplus free cash flow generation and providing valuable optionality for return of capital.
Operator: At this time, I'd like to turn the call back to the operator to allow for questions. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed, and you would like to withdraw your question, please press star and then 2.
Speaker Change: At this time I'd like to turn the call back to the operator to allow for questions.
Thank you.
Speaker Change: We will now begin the question and answer session. To ask the question, you may press star, then one on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed, and you would like to withdraw your question, please press star and then two. At this time we will pause for a moment to assemble our roster.
Operator: At this time, we will pause for a moment to assemble our roster.
Aaron MacNeil: And your first question today will come from Aaron MacNeil with TD Cowen. Please go ahead. Hey, morning all. Thanks for taking my questions. In the prepared remarks, you mentioned the potential for M&A. And you also said you were comfortable with leverage. To the extent that I think an SIB could be on there.
Speaker Change: And your first question today will come from Aaron MacNeil with PD Cowan. Please go ahead.
Unknown Attendee: Unknown Attendee, Aaron MacNeil, Keith MacKey, John Gibson, Unknown Attendee, Aaron MacNeil, M&A or comparing with M&A, what do you think would be a more attractive? Risk Adjustment. Unknown Attendee, Aaron MacNeil, Tim Monachello, Keith MacKey, John Gibson, Kyle Kitagawa, Yeah, I can start with that. On the SIB, as we've said before, we're The business model is demonstrating its resilience. Our current leverage level is at a very comfortable level to be able to withstand any fluctuations in end markets as we've seen during downturns in the past where working capital is harvested. So we're very comfortable with where we are and our ability to tap into available funds for something like an SIB.
Speaker Change: Where we are and our ability to tap into available funds for something like an S. A b, but as we've said before we would only seriously consider an S. I b in an event, where there was a very logical a dislocation in the value of the shares in the <unk>.
Unknown Attendee: But as we've said before, we would only seriously consider an SIB in an event where there was a very logical dislocation in the value of the shares in the company and what the driving factors are that are causing the share price to decline or stay at low level. And that sounds like a fancy narrative, but we had this discussion once before. And it was a few years ago when Silicon Valley Bank was failing. And there was a down draft on all stocks right across the board. And we determined that the biggest exposure was to the regional banks in the US.
Speaker Change: Company and and what the driving factors are that are causing the share price to decline or stay at low levels and that sounds like a fancy narrative.
Speaker Change: We are we had this discussion once before and there was a few years ago when when Silicon Valley Bank was failing and there was a downdraft on all stocks right across the board and we determined that the biggest exposure was to the regional banks in the U S and we got together with our <unk>.
Unknown Attendee: And we got together with our partners in the US to confirm that we did not have exposure to those potential losses or failures. And our US presidents confirmed that they're very comfortable with our customers that are bigger and don't use those sources of funding. And during the month after that failure, we basically did a very large set of NCIB purchases by maximizing our weekly block exemption. If that had continued for a much longer time, and we saw more devaluation, and we knew that we were going to put up the big cash flow numbers that we thought we would, and we ultimately did, we would consider it.
Speaker Change: <unk> in the U S to confirm that we did not have exposure to those potential losses are failures and our U S. President's confirm that they are very comfortable with our customers that are bigger and don't use those those sources of funding and during the month after that failure, we basically did a very.
Speaker Change: Any large set of NCI be purchases by maximizing our daily arent sorry, Your weekly block exemption if.
Speaker Change: If that had continued for a much longer time, and we saw more devaluation and we knew that we were going to put up the big cash flow numbers that we thought we would and we ultimately did we'd consider it but Aaron we're not in that environment right. Now if you saw the stock.
Unknown Attendee: But Aaron, we're not in that environment right now. If you saw the stock continue to decline below the current 5.2 level, well into the fours or below, for no apparent reason, you could see us stepping in. So that's the SIB.
Speaker Change: <unk> continued to decline below the current five point to a level.
Speaker Change: Well into the fours or below for no apparent reason you could see us stepping in and so that's the S. A b on the M&A front, we don't look at it in terms of comparing.
Unknown Attendee: On the M&A front, we don't look at it in terms of comparing M&A strategy versus things like SIB. When we find or come across significant M&A opportunities, we ask ourselves two questions. Number one is, could we do it? And number two is, should we do it? Up until about a year ago, a year and a half ago, the answer was no to the could for bigger M&A because we didn't have the balance sheet, we didn't have our bonds refinanced, we didn't have the consistent free cash flow generation. And then the next question is, should we do it?
Speaker Change: M&A strategy versus things like S. S N b, when we find or come across significant M&A opportunities. We ask ourselves two questions number one is could we do it and number two is should we do it up until about a year ago year and a half ago. The answer was no to that.
Speaker Change: Good for bigger M&A, because we didn't have the balance sheet, we didn't have or bonds refinanced we didn't have the consistent free cash flow generation.
And then the next question is should we do it we always talk about it strategically, but I will emphasize and underscore that we have no intention even now that things are a bit better than our valuations have been better and our capital structure is very solid we have no intention in swing for the fences large.
Aaron MacNeil: We always talk about it strategically, but I will emphasize and underscore that we have no intention, even now that things are a bit better and our valuation is a bit better, and our capital structure is very solid, we have no intention and swing for the fences, large M&A, just to become much bigger, where it's not very strategic and extremely accretive. Does that help Aaron? Yeah, that's great. Thank you.
Speaker Change: <unk> just to become much bigger.
Speaker Change: Where it's not not very strategic and extremely accretive.
Does that help earn yeah, that's great. Thank you.
Aaron MacNeil: Maybe switching gears a bit. You know, can you speak Offshore International, stepping into the Haynesville. Any other issues? Yeah, I mean, the ones you just listed, Aaron, I think, cover it. The offshore market we've spoken about quite a bit. We're actively pursuing other customers there. We're involved in some testing. I can't get too deep into it, but we're doing everything we can to try and grow that piece of business down in the Gulf of America. We've recently picked up some business for a specialty product that we're selling into Argentina. So we're, you know, it's not meaningful revenue, but it's a first step that way.
Maybe switching gears a bit.
Speaker Change: Can you speak to some of the business development opportunities.
Speaker Change: Blake.
Speaker Change: Offshore international stepping into the Haynesville or any other initiatives that you may want to flag.
Speaker Change: Any updates you could provide there would be helpful.
Speaker Change: Yes, I mean, the ones you just listed are and I think cover at the offshore market, we've spoken about quite a bit where we're actively pursuing other customers there where we're involved in some testing I can't get too deep into it but we're doing everything we can to try and grow that piece of business down in the Gulf of America.
Speaker Change: We've recently picked up some business for a specialty product that we're selling into Argentina. So we're you know it's not meaningful revenue, but its a first step that way.
Unknown Attendee: So every opportunity that comes along, we look at it for sure. And if the margins are right and the risk is right, we'll take a shot at it. And then over the past couple of years, we've spoken a lot about Middle East and South America as potential spots where we may want to grow to. And we're looking at something right now in the Middle East. We have a JV partner in Kuwait and we're actively involved with an RFP process over there. So who knows what comes out of that, but we're taking our first real shot at one as we speak.
Speaker Change: So every opportunity that comes along we'd look at it for sure and if the margins are right and the risk is right. We will take a shot at it.
Speaker Change: And then over the past couple of years, we've spoken a lot about middle East.
Speaker Change: And South America as potential spots, where he may want to grow to and we're looking at something right now in the middle East we have a JV partner in Kuwait and we're we're actively involved with that RFP process over there so who knows what comes out of that but we're taking our first real shot at one as we speak and then.
Speaker Change: And there is just opportunity all over the place and in North America honestly I mean, that's it's we talk about these things that are outside of the scope of what we're doing right now is being growth but.
Unknown Attendee: There's just opportunity all over the place in in North America, honestly. I mean, that's it's we talk about these things that are outside of the scope of what we're doing right now is being growth. But the growth for us or the opportunities for us is in every basin. Like we just we're constantly winning more and more work. And that's really what the day to day focus is. It's just continuing to grow within the basins we're already playing.
Speaker Change: The growth for us so the opportunities for us as in every basin like we just we're constantly winning more and more work and that's really what the day to day focus is just continuing to grow within the basins, we're already playing in.
Speaker Change: Okay great.
Unknown Attendee: Unknown Speaker Okay, great. Unknown Speaker Hey, just to just to follow up, follow up on that.
Speaker Change: Just a follow up follow up on that.
Unknown Attendee: The the sale that we're doing that ultimately gets to Argentina is not in Argentina. So there's not, there's no risk of repatriation or any any noise along those lines. Unknown Speaker Same as it's the same as what we've been doing when we do these single product kind of sales. Same thing we're doing in Africa, we sell the containers at the port before they leave the country. Make Sense.
Speaker Change: The sale that we're doing that ultimately gets to Argentina is not in Argentina, So theres not.
Speaker Change: There is no risk of repatriation Rooney any noise along those lines, saying is its the same as what we've been doing when we do these single product sales.
Speaker Change: Same thing we're doing in Africa, we sell the containers at the port before they leave the country.
Speaker Change: Makes sense.
Operator: Happy to serve. Again, if you have a question, please press star and then one.
Speaker Change: Mac.
Speaker Change: Again, if you have a question. Please press star and then one.
Jonathan Goldman: And your next question today will come from Jonathan Goldman with Scotiabank. Please go ahead.
Jonathan Goldman: And your next question today will come from Jonathan Goldman with Scotiabank. Please go ahead. Hey, good morning, guys. Thanks for taking my question. Maybe start off with you. Morning guys.
Jonathan Goldman: Hey, good morning, guys. Thanks for taking my questions.
Speaker Change: Living Sterno, Jonathan Thank you good.
Jonathan Goldman: Ken, maybe just to start off with a question for you, have you noticed any change in the competitive dynamics in the Permian Basin recently? Um No, I would say not. I mean, it's always been really competitive, and everybody's always been really focused on it. And there's a stable number of rigs there. I think that the biggest thing that's changed there is all the amalgamation and acquisitions that have happened have really concentrated the business and the number of rigs, the There's not as many privates to go chase after. So maybe some of the we're noticing that we have a bigger us and Halliburton have a bigger share of that than the privates did.
Speaker Change: Good morning, guys can maybe just to start off with a question for you have you noticed any change in the competitive dynamics in the Permian Basin.
Speaker Change: Recently.
Speaker Change:
Speaker Change: No I would say not I mean, that's always been really competitive and everybody has always been really focused on it and there is a stable number of rigs are I think the biggest thing thats changed there is all the amalgamation and acquisitions that have happened have really.
Speaker Change: Concentrated the business and the number of rigs the.
Speaker Change: There's not as many privates to go chase after so maybe some of the.
Speaker Change: We're noticing that we have a bigger.
Speaker Change: Boston Halliburton have a bigger share of that than the privates did so there seems to be as the as we move to having more majors involved in that drilling and more public companies involved in that drilling it's it's.
Kenneth Zinger: As we move to having more majors involved in that drilling and more public companies involved in that drilling, it's trending well for us and Halliburton. On the production chemical side, it's the same. Like we were number one there on the production chem side. And honestly, with our facility in Gardendale, it just continues to. to be the highest growth business we have in the company.
It's trending well for us in and Halliburton.
Speaker Change: On a production vehicle side.
Speaker Change: It's the same like we were number one there on the production Chem side and honestly with our facility in garden Dale It just continues to.
Speaker Change: To be the the highest growth business, we have in the company.
Speaker Change: Okay. That's great color and then I guess another one on can you just go over your margin comments for Q1 again I'm not sure if I caught it and if you can tease out the sort of level of compression youre expecting and then I have a follow up.
Kenneth Zinger: Okay, that's great color. And then I guess another one. Can you just go over your margin comments for Q1 again? I'm not sure if I caught it. And if you can tease out the sort of level of compression you're expecting. And then I have a follow up. Yeah, I mean, we've been talking about this 15 and a half to 16 and a half range being our range for quite a while and for the last bunch of quarters we've been at or near 17%. So I think guys keep thinking we're sandbagging a bit, but we really mean the 15 and a half to 16 and a half.
Speaker Change: Yeah, I mean, we've been talking about this 15 and a half to 16 and a half range being our range for quite a while and for the last bunch.
Speaker Change: A bunch of quarters, we've been at or near 17%. So I think guys keep thinking we're sandbagging a bit but we really mean, the 15, 5% to 16 and a half that's there's always seems to be something coming up every quarter that pushes us up over 17, and I would say this in Q1, we think with the exchange rate softness starting in Q.
Kenneth Zinger: That's, there's always seems to be something coming up every quarter that pushes us up over 17. And I would say this in Q1, we think with the exchange rate, softness starting in Q4, we have inventory, so it doesn't hit the books immediately, but it'll it's going to bear its It's going to make itself obvious in Q1 and I think we're talking somewhere in the upper half of that range we gave in the 15.5 to 16.5 range. Okay, interesting.
Speaker Change: Four we have inventory so it doesn't hit the books immediately but it'll it's going to bear. It's it's a it's going to make itself obvious in Q1, and I think we're talking somewhere in the upper half of that range. We gave in the 15, 5% to 16 and a half range.
Speaker Change: Okay, and then maybe one more I guess and the same thing on the working capital I'm not sure. If I caught the comments that I think you mentioned a built.
Kenneth Zinger: And maybe one more, I guess, in the same vein on the working capital. I'm not sure if I got the comments, but I think you mentioned a build. Is that sort of safety stock tariff related? Or is there an FX component to there as well? primarily what I was referring to is the the tariff related stuff. We're just trying to get ahead of it. And I'll go. Yeah, that that's primarily what I was talking about.
Is that sort of safety stock tariff related or is there an FX component there as well.
Speaker Change: Primarily what I was referring to is the tariff related stuff. We're just trying to get ahead of it.
Speaker Change: And all that.
Speaker Change: Primarily what I was talking about.
Speaker Change: Okay.
Unknown Attendee: Unknown Attendee There was also another effect like when I was when I was talking about margin Jonathan also on the on the large number of drilling rigs that moved that also had an impact on on working capital and it had a little bit of an impact on on Unknown Attendee Yeah, on Pretty sure we're not going to see a 17 margin in Q1, but that doesn't mean we don't get back there later. Okay, that makes a lot of sense. Thanks, guys.
Speaker Change: In fact like when I was when I was talking about margin Jonathan I'm also on the on the large number of drilling rigs that moved that also had an impact on on working capital and it had a little bit of an impact on on.
Speaker Change: On the margin because the sections of the wells that theyre drilling when they started on a pad or all the easier.
Speaker Change: There's still a decent revenue, but its non specialty products. So the margins aren't quite as good but as those rigs get into the into the production line and start drilling Horizontals then it all catches up so there was a bit of a lag there in January from that as well so all of those things a confluence of things happening that.
Speaker Change: Pretty sure we're not going to see a 17 margin in Q1.
Speaker Change: But that doesn't mean, we don't get back there later.
Speaker Change: Okay that makes a lot of sense. Thanks, guys.
Speaker Change: Yeah.
Speaker Change: Your next question today will come from Keith Mackey with RBC capital markets. Please go ahead.
Keith Mackey: Your next question today will come from Keith MacKey with RBC Capital Markets, please go ahead. Hey, good morning. We have some pretty clear numbers on your market share in drilling fluids. But production chemicals, of course, is a little bit less.
Keith Mackey: Hey, good morning.
Speaker Change: We have some pretty clear numbers on your market share in drilling fluids.
Speaker Change: But production chemicals of course is a little bit less.
Unknown Attendee: earlier, can you maybe just talk to us, how much market share do you think you've gained Unknown Attendee, Aaron MacNeil, Tim Monachello, Keith MacKey, John Gibson, Unknown Attendee, Yeah, we, when we found in meetings with investors and even reading some research, especially in the US, many people quote market share figures from a third party research firm called Kimberlite. So take it for what it's worth. We know Kimberlite, they do very good work. We subscribe to their publications as well. But we've seen quoted in reports, having our US production chemicals business. at 21% of the land production chemical market with Champion X at 24%.
Speaker Change: Clear can you maybe just talk to us how much market share do you think you gained.
Speaker Change: In production chemicals over the last year end and how much more do you think you could gain over the next year, if things keep going in the direction they're going.
Speaker Change: Yeah, we win.
Speaker Change: When are we found in meetings with investors and even reading some research, especially in the west.
Speaker Change: Many people quote.
Speaker Change: Market share figures from a third party research firm called Kimberlite, So take it for what it's worth we know can relate they do very good work, we subscribe to their their.
Speaker Change: There are publications as well, but we've seen quoted in and reports.
Speaker Change: Having our U S production chemicals business.
Speaker Change: 21% of the land production chemical market.
Speaker Change: With champion X at 24% and Baker would be in the high teens.
Unknown Attendee: And Baker would be in the high teens. We would estimate that that 21% was probably closer to 17-18% over the last couple of years. And, and in Canada, similarly, using that as a reference point, we would be tied for number one or probably more likely number one with a market share for production chemicals in Canada for north of 30% and Champion would be right beside us or right below us and Baker would be below.
Speaker Change: We would estimate that that 21% was probably closer to 17, 18% over the last couple of years.
Speaker Change: And in Canada, Similarly, using that as a reference point.
Speaker Change: We would be.
Speaker Change: Tied for number one or probably more likely number one with a market share for production chemicals in Canada of north of 30% and champion and champion would be rate right beside us cerebral Lewis and big who would be below in terms of going forward.
Unknown Attendee: In terms of going forward, we don't know the answer to that question. If you would have asked us that question about AES drilling fluids when they were in the mid-teens five years ago and they're now pushing 22-23%, we wouldn't have been able to predict that significant increase. Similarly, for production chemicals businesses, as we've said publicly before, both of those divisions in the U.S. and Canada are taking their outside share of growth capex and they're putting it to good use to support the market share growth that they've seen. I think the jury's out on how the dust settles.
Third we don't know the answer to that question. If you would have asked us that question about a S drilling fluids when they were in the mid teens five years ago, and they're now pushing 22, 23%, we wouldnt have been able to predict that significant increase and similarly for our production chemicals businesses.
Speaker Change: We've said publicly before that division both of those divisions in the U S and Canada are taking there are there.
Speaker Change: They are outside share of growth capex, and they're putting it to good use to support the market share growth that they've seen.
Speaker Change: Thank the jury's out on a on how the dust settles.
Unknown Attendee: through this Lombardia acquisition of Champion X, but even besides that, our divisional presidents on both sides of the country are going full steam ahead and they're putting up the growth results as I've just quoted, and we expect more of the same. got it.
Speaker Change: Through the the Schlumberger acquisition of of Champion X.
Speaker Change: But even besides that our divisional presidents on both sides of the country are going full steam ahead, and they're putting up the the growth results as of just quoted and we expect more of the same.
Speaker Change: Got it and just to follow up on that what what.
Unknown Attendee: And just to follow up on that, what, what would you estimate is your approximate facility utilization and some of your key, key facilities, whether it's Gardendale or Sterling or some of the Canadian, Canadian facilities? Like is there lots of capacity in your current footprint to support, to support the realistic growth you might expect through 25 and potential? Yeah, I mean, when we talk about outsized CAPEX and production chems, production chems are the homes in our, in our financials, production chems covers the manufacturing facilities as well. And though a lot of the CAPEX is just constantly evolving those, those buildings, reactors, equipment, and we are always ahead of it, I'd say we're always running at about 75%, call it at any one facility.
Speaker Change: Would you estimate is your approximate facility utilization in some of your key key facilities, whether it's garden, Dale or sterling or some of the Canadian Canadian facilities. Like is there is lots of capacity when your current footprint to support.
Speaker Change: To support.
Speaker Change: The realistic growth you might expect through 'twenty, five and potentially 2006.
Speaker Change: Yes, I mean, when we talk about outsized capex in production chems production chems or the homes in our in our financials production cams covers the manufacturing facilities as well and a.
Speaker Change: A lot of the Capex is just constantly evolving those those buildings reactors equipment and we are always ahead of it I'd say, we're always running at about 75% call. It at any one facility, but whenever a product line or a specific chemistry needs.
Unknown Attendee: But whenever a product line or a specific chemistry needs, approaches capacity, we just, it's just a matter of buying another reactor or buying some storage or blending tanks or adding a piece on to the facility. So the reacting facility in Vancouver is a little bit different in that it's, it's doesn't have a lot of room for expansion. So we don't use it as a full blown production facility. We know we have a set volume we can work with there just due to the footprint. But in Kansas, we're sitting on 100 and some acres down there, there's tons of room and we just keep growing it as we need to grow it.
Speaker Change: Approaches capacity, we just it's just a matter of buying another reactor buying some storage or blending tanks or adding a piece on to the facility.
Speaker Change: No.
Speaker Change: Reacting facility in Vancouver is a little bit different in that it's it's doesn't have a lot of room for expansion. So we don't use it as a full blown production facility.
Speaker Change: We have a set volume we can work with there just due to the footprint, but in Kansas, We're sitting on 100 and some acres down there there's tons of room and we just keep growing it as we need to grow it.
Speaker Change: Okay, and just just finally.
Unknown Attendee: And just finally, how is the relative growth trends between the two segments, drilling fluids and chemicals, trended over the last year? And roughly what is the revenue split today, if you can say that as well?
How is the relative growth trends between the two segments drilling fluids and chemicals trended over the last year end.
And roughly what is the revenue split today.
Speaker Change: You can if you can say that as well.
Speaker Change: Yeah, well I'll say that because it's been a while since we provided an update so.
Unknown Attendee: Yeah, we'll, we'll say that, because it's been a while since we've provided an update. So, so the, the numbers in Q2, that represent relative percentages of revenue were 53% for production chemicals, and 47% for drilling fluids. And you've seen a steady uptick from about 50-50 a year and a half ago.
Speaker Change: So the the numbers in Q2.
Speaker Change: That represent relative percentages of revenue were <unk>.
Speaker Change: 53% for production chemicals, and 47% for drilling fluids, and you've seen a steady uptick from about 50 50.
Speaker Change: A year and a half ago.
Speaker Change: Okay. Thanks very much.
Unknown Attendee: Okay, thanks.
Speaker Change: And your next question today will come from Tim Monticello with ATB capital markets. Please go ahead.
Tim Monachello: And your next question today will come from Tim Monachello with ATB Capital Markets. Please go ahead. I missed the beginning of the call, so apologies if some of the stuff's been covered, but... Part of the reason that I think that you've seen such strong margin improvement over the last couple years has been the penetration of higher margin specialty formulations, you know, particularly higher quality, you know, specialty lubricants, rheology modifiers, and other things in the production chemicals space. Can you talk a little bit about how that penetration's going currently and if there's other products that you're adding to the market that might help to Unknown Attendee, Kyle Kitagawa, Cole Pereira, Matthew Bell, Kenneth Zinger, Unknown Attendee, Aaron MacNeil, Keith MacKey, John Gibson, Unknown Attendee, CES Energy Solutions Corp.
Speaker Change: Okay.
Speaker Change: I missed the beginning of the course.
Speaker Change: Also policies.
Think of it.
Speaker Change: Yeah.
Speaker Change: Part of the reason that I think that you're seeing such strong margin improvement.
Speaker Change: The last couple of years has been the penetration of higher margin specialty formulations.
Speaker Change: Kelly.
Speaker Change: Higher.
Speaker Change: Specialty lubricants rheology modifiers and other things in the chemical space.
Speaker Change: Can you talk a little bit.
Speaker Change: How about penetrations going.
Speaker Change: Currently and if there is other products.
Speaker Change: Well youre, adding to the market that might help too.
Speaker Change: Continuing with that trend.
Speaker Change: Yeah.
Unknown Attendee: Yeah, it.
Speaker Change: It's it's a treadmill Tim that's it.
Kenneth Zinger: It's a treadmill, Tim. We're constantly evolving. So let's just take a thing like lubricant because it's easy and everybody knows what that does. I mean, we're constantly finding new ones and our competitors are constantly finding new ones and one-upping each other. So we find a good one that works in a specific application on a specific reservoir with a specific system. And then we'll run the table on it and we can charge a great margin because it's the best thing that's out there. But eventually, we don't stop working on it there. Let's put it that way.
Speaker Change: We're constantly evolving so let's just take thing like a lubricant because it's easy and everybody knows what that does.
Speaker Change: We're constantly finding new ones and our competitors are constantly finding new ones and one lumping. Each other so you can you know we have we find a good one that works in a specific application on a specific reservoir with a specific system.
Speaker Change: And then we will run the table on it and we can charge a great margin because it's the best thing that's out there, but eventually either ASO, we don't stop working on it there, let's put it that way like once we get that went into production and into use.
Kenneth Zinger: Once we get that one into production and into use, that's great. But the whole time it's in use, we're looking for the next one. The scientists, the guys in the lab, the guys in the facilities, we're trying to evolve and find the next one, but so are our competitors. So it's a treadmill and it's like that on every single product. Everybody's always trying to find the most efficient, best, lowest cost product because that's how you get better margins and take market share. So I don't think there's an end to it, it's just going to continue to be an evolution.
Speaker Change: That's great, but the whole time, it's in use we're looking for the next one the scientists the guys in the lab the.
Speaker Change: The guys in the facilities, we're trying to evolve and find the next one but solar books or our competitors. So it's a treadmill and it's like that on every single product like a everybody's always trying to find the most efficient best lowest cost product because that's how you get better margins and take market share.
Speaker Change: So I don't think there is an end to it it's just going to continue to be an evolution.
Speaker Change: I guess asking asked another way.
Kenneth Zinger: I guess asking asked another way, like how, what percentage of your product sales, or if you want to slice it a different way, are are higher margin formulations now, and what would that have been a couple of years ago? We talk sometimes about the percentage of our product that is specialty versus more commodity based. And I'm not going to quote specific internal numbers, but suffice it to say that that first number, the vertically integrated, more proprietary, higher margin specialty product has grown probably about 10% over the last three years. from where it was still representing 10% more than it did at that You think that that has enabled market share growth or are there other factors that are played?
Speaker Change: Like how what percentage of your product.
Speaker Change: Sales.
Speaker Change: Are you on a slightly different way.
Speaker Change: Our.
Speaker Change: Our higher margin formulations, now and what would that have been a couple of years ago.
Speaker Change: We talk sometimes about.
Speaker Change: Yeah.
Speaker Change: About the.
Percentage of our product that is specialty versus.
Speaker Change: Versus a more commodity based and I'm not going to quote specific internal numbers, but suffice it to say that.
Speaker Change: That first number the vertically integrated proprietary higher margin specialty product has grown probably about.
Speaker Change: 10% over the last three years.
Speaker Change: From where it was until representing 10% more than it did at that time.
Speaker Change: Do you think that that has enabled market share growth or are there other factors that are at play.
Speaker Change: Yes.
Speaker Change: It's it's definitely done that Tim like that's that's the differentiator anything anything we can do that we can make ourselves that everybody can't just go buy and resell and compete with us on as a win that's that's what makes us different from everybody else and that's the whole idea is to have not not just be different but how products that are better.
Kenneth Zinger: It's definitely done that, Tim. Like that's, that's the differentiator, anything, anything we can do that we can make ourselves that everybody can't just go buy and resell and compete with us on is is a win. That's, that's what makes us different from everybody else. And that's the whole idea is to have not not just be different, but have products that are better. And when when you sew that narrative together, Tim, it reconciles with the margin expansion, and we're not going to live at 17. But up until a few years ago, we were living in the 13.5 to 14.5% margin range.
Speaker Change: And when when you so about narrative together, Tim it reconciles with the margin expansion and we're not going to live at 17.
Speaker Change: Up until a few years ago, we were living in the 13 five to 14, 9% margin range.
Kenneth Zinger: And yeah, we were just under right around 17% for all of last year. But what you just heard helps explain why that margin is where it is.
Speaker Change: Yeah, we were.
Speaker Change: Just under right around 17% for all of last year.
Speaker Change: But.
Speaker Change: What you just heard helps explain why that margin is where it is.
Speaker Change: Yes, it wasn't that long ago, and 17 wasn't even on the table. So.
Kenneth Zinger: Yeah, it wasn't that long ago when 17 wasn't even on the table. So certainly impressive.
Speaker Change:
Speaker Change: Certainly impressive.
Speaker Change:
Second question.
Unknown Attendee: Second question, and maybe you covered this already, but Looks like you've got some strong activity growth in the U.S. relative to where you stood at the end of the year. What are your expectations for the U.S.? Early Activity, and I guess specifically for CU through the remainder of 25. But our internal forecast based on what we know today calls for just slight growth from here through the year. Maybe ending the year. sort of 3-5% higher than we currently are. But I will say that when you're talking to operators with all the tariff stuff going on, in Canada, a more muted response here, everyone's going to, from what we understand, people are planning to stick with their cap ex budgets, if tariffs and Canadian dollar end up causing enough problems to maybe affect well costs by 5 or so percent.
Speaker Change: And maybe you covered this already but.
Speaker Change: It looks like you've got some strong activity growth in.
Speaker Change: The U S relative to where you stood at the end of the year.
Speaker Change: What are your expectations for U S.
Speaker Change: Drilling activity and I guess, specifically for CEO.
Speaker Change: The remainder of 2005.
Speaker Change: But our internal forecast based on what we know today calls for just slight growth from here through the year.
Speaker Change:
Speaker Change: May be ending the year.
Speaker Change: Sort of 3% to 5% higher than we currently are.
Speaker Change: But I will say that when you're talking to operators with all the tariff stuff going on in Canada.
Speaker Change: A more muted response here everyone's going from what we understand people are planning to stick with their capex budgets, if tariffs in Canadian dollar ended up causing enough problems to maybe affect well cost by five or so percent then maybe theres five or so percent less wells drilled in Canada next year or in 2025.
Unknown Attendee: Then maybe there's 5 or so percent less wells drilled in Canada next year, or in 2025. But I can tell you in the U.S., it's like a... People are very optimistic in the U.S. These gas prices have everybody looking at what's going on. We've been talking about the Haynesville. We've had some good success there on the first few wells that we've done. There haven't been any massive amount of rigs fire up, so we haven't had an opportunity to get on a bunch more, but we did manage to get opportunity on three and we continue to have.
Speaker Change: But I can tell you in the U S. It's like a it's people are very optimistic in the U S. These gas prices have everybody I'm looking at what's going on we've been we've been talking about the Haynesville. We've had some good success. There on the first few wells that we've done there hasn't been any massive amount of rigs fire up. So we haven't had an opportunity to get on a bunch more but.
Speaker Change: We did manage to get opportunity on three and we continue to have one of them was a trial with a specialty system that went super well and could turn into a whole bunch of work. So we believe that there's 31 rigs going there today and that could go back to 50 or 60 in that second 30 rigs, we think we're going to get a good chunk of that.
Unknown Attendee: One of them was a trial with a specialty system that went super well and could turn into a whole bunch of work. We believe that there's 31 rigs going there today that could go back to 50 or 60 and that second 30 rigs, we think we're going to get a good chunk of that. Unknown Attendee You talk about the margin profile of a Hainesville job relative to your current activities. Yeah, it's good. It's they're like, they'd be the same as like Montney, DuVernay, Permian. They're good. That's why we're looking there. I mean, you've got to be in the bear right in order to make money there.
Speaker Change: You talked about the margin profile of our Haynesville job relative to your current activity.
Yes, that's good it's their like they'd be the same as like Montney Duvernay.
Permian Theyre good that's why we're looking there.
Speaker Change: I mean, you gotta be into buried in order to make money. There you have to have buried supply I mean, there's a bunch of independents that are working in there that don't have varied supply. So their margins will be less and that was what we are looking at 10 years ago. When we kind of gave up on the Haynesville and focus on the Permian because we didnt, we werent basic enough in barite in order to to.
Unknown Attendee: You have to have bear right supply. I mean, there's a bunch of independents that are working in there that don't have bear right supply, so their margins would be less. And that was what we were looking at ten years ago when we kind of gave up on the Haynesville and focused on the Permian because we weren't basic enough in bear right in order to to make really good margins, because at that time we had to give the bear right away for what we were paying for it. But today we make we make a return on bear right.
Speaker Change: Make really good margins at that time, we had to give the buried away for what we're paying for it but today we make.
Speaker Change: We make a return on buried in the Haynesville is very big barite intensive.
Unknown Attendee: And the Haynesville is very, very intense. on top of being hot and pressured. And at what level of activity in the Hainesville do you have to make a more permanent? Settlement there.
Speaker Change: On top of being hot and pressured.
Speaker Change: And our level of activity in the Haynesville.
You make a more permanent.
Speaker Change: Settlement there.
Unknown Attendee: Unknown Attendee, Aaron MacNeil, I think if we We could go as long as we wanted without actually setting up a facility, but probably we would look at doing something if we got into that 10, 15, 20 rig kind of area. So, if we got back to... If the region got back to 60 rigs working on Haynesville Wells, and if we had a good footprint there and a few good anchor customers, we might look at spending some money and you know, it'd be a couple of million dollars to put in a invert blending plant and some barite storage there.
Speaker Change: The lack of a better word.
Speaker Change: I think if we.
Speaker Change: We can go to.
Speaker Change: We could go as long as we want it without actually setting up a facility, but probably we would look at doing something if we got into that.
Speaker Change: 10, 15, 20 rig kind of area.
Speaker Change: So if we got back to.
Speaker Change: If the region got back to 60 rigs working on Haynesville wells and if we had a good footprint there in a few good anchor customers, we might look at spending some money in it would be a couple of million dollars to put in a invert blending plant and some barite storage there.
Speaker Change: Are those.
Unknown Attendee: Unknown Attendee Are those, um... Unknown Attendee Yeah, having facilities that pretends for getting an anchor customer.
Speaker Change:
Speaker Change: Yes.
Speaker Change: Having that pretends for getting of anchored essar.
Speaker Change: Okay.
Speaker Change: I missed that sorry, Jim.
Unknown Attendee: I missed that, sorry, Jim. Like having a facility in the Hainesville, do you think that's pretext for landing an acre customer like within negotiations where they say, you know, we need you to have a facility in the Hainesville to service this activity? And if you do, then we'll give you X amount of jobs. I think it helps, right? Like, I think once you're there and you're you have footprint there, it helps, but no, it's not a prerequisite. We haven't had, that hasn't been a major issue at all.
Speaker Change: Like having a facility in the Haynesville do you think thats pre tax.
Speaker Change: Sure.
Speaker Change: Lending an anchor customer like within negotiations, where they say.
Speaker Change: When you get out of a facility in the Haynesville the services activity and to do that.
Speaker Change: Jobs.
Speaker Change: I think it helps right like I think once you're there and you're you have footprint there if that helps but no. It's not a it's not a prerequisite.
Speaker Change: We haven't had that hasnt been a.
Speaker Change: Major issue at all.
Speaker Change: Okay, well I appreciate the commentary and congrats on the quarter.
Unknown Attendee: Okay, well, I appreciate the commentary and keep your ass on the court. Thank you. Thanks, Jim.
Speaker Change: Thank you thanks, Tim.
Speaker Change: Having no further questions. This will conclude our question and answer session.
Operator: Going no further questions as we'll conclude our question and answer session.
Kenneth Zinger: I would like to turn the conference back over to Ken Zinger for any closing remarks. Hey, well, thank you for everyone who took the time to join us here today. We continue to be very optimistic about the future here at CES Energy Solutions, and we look forward to speaking with you all again during our update for Q1 in May. Thank you for your time.
Speaker Change: I'd like to turn the conference back over to Ken Zinger for any closing remarks.
Ken Zinger: Okay, well. Thank you for everyone, who took the time to join US here today, we continue to be very optimistic about the future here at T. S Energy solutions and we look forward to speaking with you all again during our update for Q1 in May. Thank you for your time.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Operator: The conference has now concluded. Thank you for attending today's presentation.
Operator: You may now disconnect.
Speaker Change: Yeah.