Q3 2025 CES Energy Solutions Corp Earnings Call

Speaker #1: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the CES Energy Solutions Corp 3rd Quarter 2025 Results Conference Call.

Speaker #1: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad.

Speaker #1: To withdraw your question, press star one again. I'd now like to turn the conference over to Tony Aulicino, Chief Financial Officer. Please go ahead.

Speaker #2: Good morning, everyone, and thank you for attending today's call. I'd like to note that in our commentary today, there will be forward-looking financial information, and that our actual results may differ materially from the expected results due to various risk factors and assumptions.

Speaker #2: These risk factors and assumptions are summarized in our 3rd Quarter MD&A and press release dated November 13, 2025, and in our Annual Information Form dated March 6, 2025.

Speaker #2: In addition, certain financial measures that we will refer to today are not recognized under current generally accepted accounting principles. For a description and definition of these, please see our Q3 MD&A.

Speaker #2: At this time, I'd like to turn the call over to Kenneth Zinger.

Speaker #2: CEO. Thank you, Tony. our President and

Speaker #3: Welcome, everyone, and thank you for joining us for our Q3 2025 earnings call. On today's call, I will provide a brief summary of our financial results released yesterday, followed by an update on capital allocation, and then our divisional updates for Canada and the U.S., as well as our outlook for the remainder of 2025.

Speaker #3: I will then pass the call over to Tony to provide a detailed financial update. We will take questions, and then we will wrap up the call.

Speaker #3: As always, I will start my comments today by highlighting some of the major financial accomplishments we achieved in Q3 of 2025. Key highlights include our highest ever third quarter revenue and second highest quarterly revenue ever of $623 million.

Speaker #3: Our highest ever quarterly EBITDA of $103.3 million, which represented a 16.6% margin. Total debt to trailing 12 months EBITDA was at 1.29 times at the end of Q3 2025, which was well within our targeted range of one to one and a half times.

Speaker #3: Cash conversion cycle days in Q3 of $110 days right at the low end of our targeted range of $110 to $115 days. US revenue of $409.4 million dollars, which was our second straight all-time quarterly record.

Speaker #3: Canadian revenue of $213.8 million, which was our third-highest quarterly revenue ever. With regard to our capital allocation plans, I am pleased to report the following.

Speaker #3: Consistent with our prior messaging, we intend to address the dividend once per year while reporting Q4 or Q1 of each year. We will continue to support the business with the necessary investments required to provide acceptable growth and returns.

Speaker #3: This includes anticipated CapEx in 2026 of $85 to $90 million. We will continue to research and execute on strategic tuck-in acquisition opportunities into related business lines or geographies where we believe we can add value and grow returns.

Speaker #3: I intend to fully execute on our current We NCIB allotment of $18.9 million shares prior to its expiry in July of 2026. We will continue to target a debt level in the one to one-and-a-half times debt to trailing 12 months EBITDA range.

Speaker #3: and by division. Today, our recount on North American land I'll now move on to stands at $211 rigs out of the 716 listed as currently operating, representing an industry-leading and all-time record.

Speaker #3: North American land market share of 29.5%. This market share surpasses our prior record from last quarter of 28.4%. In Q2, 66% of CES revenue was generated in the United States, and 34% in Canada.

Speaker #3: As previously noted, this U.S. revenue result for Q3 2025 set a new all-time record as our highest U.S. revenue quarter ever. In conjunction with this, our Canadian divisions had their best-ever revenue for a 3rd quarter, as well as their 3rd best quarterly revenue ever.

Speaker #3: As noted during the Q2 call and messaged throughout the first half of the year, we expected margins to be under pressure in H1 2025, as tariff concerns, the negative macro outlook, and our overstaffing in preparation for some large RFPs all took a toll on margins in Q1 and Q2.

Speaker #3: As shown with our Q3 performance, and with the results of these new RFPs now known, we have been able to optimize metrics in order to begin to recover margins.

Speaker #3: There will also be a requirement for additional CapEx to support these business wins, as indicated by our increased CapEx estimate for 2026 of $85 million to $90 million.

Speaker #3: Although we will not be identifying exactly who the recent RFP wins were awarded by, nor the exact amount of each of them, I will note the following.

Speaker #3: revenue will begin filtering into The new results with the majority showing up in 2026. We previously indicated that Q1 and Q2 of we expected these awards to help enable our Q4 2025 EBITDA growth in the low single digits up to 10% in 2026 over 2025.

Speaker #3: Now, we estimate more confidently that in the flat activity environment, the upper end of this range is the most likely outcome. In Canada, the Canadian drilling flows division continues to lead the WCSB in market share.

Speaker #3: Today, we are providing service to 73 of the 191 jobs listed as underway in Canada, or a 38.2% market share. The overall active drilling count in Canada throughout Q3 and so far in Q4 has been trending consistently lower than 2024 by a little more than 10% year over year.

Speaker #3: In contrast to that, our current recount is only down about 5% from 2024. Additionally, due to service intensity and the mix of well-type swing drilled, our overall revenue in Canada hit an all-time record for Q3.

Speaker #3: We remain very optimistic about the prospects for 2025 due to the completion and full startup of infrastructure projects and their associated takeaway capacity. We continue to view the WCSB as a base that is in a great position to not only weather the macro pressure, but also to benefit significantly when those pressures subside.

Speaker #3: PureCam, our Canadian production chemical business, continued its run of very strong results in Q3. PureCam continued its impressive growth trajectory, and all of the business lines performed at extremely high levels.

Speaker #3: The revenue and earnings from our continued market penetration and market share growth continued to accelerate in Q3. Additionally, we have begun achieving access to larger opportunities in the attractive heavy oil safety market.

Speaker #3: This is a market we have been focused on penetrating for the past 10 years. Although it is a long and complicated process to break into this market, we have persistently worked to find effective solutions over the past year or two.

Speaker #3: We have finally been able to achieve some wins in treating SAGD production for a couple of the smaller operators and plants in the region.

Speaker #3: This has now given us the data to demonstrate to the larger operators that not only do we have the capability to service the production reliably, but we can also provide severe, superior results compared to the status quo.

Speaker #3: This is a high-volume, high-revenue, and very sticky business due to its complexity and cost of change. We liken this business to the offshore business in the USA.

Speaker #3: Different chemistry and problems, but with large rewards if you can penetrate and execute on them. In the United States, AES, our US drilling flows group, is providing chemistries and services to 138 of the 525 rigs listed as active in the US land market today, contributing to our continually widening number one market share of US land rigs at 26.3%.

Speaker #3: At AES, we truly believe we have a unique structure within the drilling flows space in North America. We believe we have superior technical capabilities, procurement teams, as well as manufacturing and logistics people and facilities.

Speaker #3: All of which are focused on bringing value to our customers. The number of rigs drilling in the USA is flat since we last reported in August, but down by about 7.5% year over year.

Speaker #3: However, AES is actually up by 18 rigs year over year, or 15%. Currently, we enjoy a base in leading 93 rigs out of the 251 listed as working in the Permian Basin, or 37.1% of the market.

Speaker #3: Very close to our highest market share ever in the Permian. I would also like to note that AES Completion Services, formerly Hydrolite, continues to make significant penetration into the clean-out, drill-out market in the Permian and South Texas regions.

Speaker #3: In partnership with AES, this business unit is delivering material revenue and EBITDA contributions significantly above pre-acquisition levels. As well, the fossil fluids group that we acquired in Oklahoma during Q2 of 2025 is already running at much higher levels than prior to our purchase.

Speaker #3: Fossil is an impressive niche drilling fluids company that we know very well. Their specialization in the increasingly attractive Cherokee Shale hybrid oil and gas play provides us with exposure to another growing basin and aligns with the strong trends currently being experienced in the North American land gas market.

Speaker #3: Finally, I will note that our market shares throughout the USA land market continue to grow as natural gas production continues to garner attention. Two years ago, during our November 2023 earnings call, I noted that we intended to begin putting an emphasis on getting back into the Haynesville play as gas was starting to become relevant again.

Speaker #3: Seven of the 40 rigs are currently working in Haynesville, with two more moving in over the next three weeks. This represents a market share of over 21%.

Speaker #3: Over the past year, we have constructed a blending plant and distribution facility strategically located within the basin, while also developing some niche products and systems specifically for the high-temperature, high-pressure challenges that Haynesville wells are notorious for.

Speaker #3: We anticipate further growth in this area as activity continues to ramp up in the coming months and years. One year ago, there were 33 rigs working in the Haynesville.

Speaker #3: Today, there are 40, which represents year-over-year activity growth of almost 20%. As well, today we are currently servicing 14 of the 37 rigs in the northeastern USA.

Speaker #3: And we have recently been awarded two more, which will be moving in the next couple of weeks. This gives us close to a 40% market share in this gas-rich region, which includes the Marcellus and Utica shale plays.

Speaker #3: All of these results speak to the quality of the business we are operating throughout North America. Our focus on execution of strategy, service to customers, along with unmatched technical and logistical capabilities, all explain why we now service almost 30% of all the rigs in North America.

Speaker #3: We have meaningful market shares in every base in which we are targeting. Finally, our U.S. production chemical division, JCAM Catalyst, continues its friendly, steady trend of growing market share and profitability.

Speaker #3: The division remains focused on further market penetration in all the areas in which they operate. As noted on the quarterly earnings call in August, JCAM Catalyst continued to invest in CapEx and personnel during the first half of 2025 to support not only its high activity levels but also several potential upcoming business opportunities.

Speaker #3: It is important to note that JCAM's business, like PureCam's, is almost entirely leveraged to production-related spending by EMPs, and therefore the revenue and earnings are extremely durable through any cycle.

Speaker #3: As noted earlier in my comments, JCAM Catalyst has now been awarded some of the major RFP wins we were preparing for during the first half.

Speaker #3: In the coming months, we will transition into this new business as it is possible. This will be evidenced by the increased revenue, EBITDA, and CapEx that we previously discussed and forecasted for 2026.

Speaker #3: Also, as noted on the Q2 earnings call, JCAM Catalyst has been optimizing manufacturing, developing products, and hiring technical specialists in order to become a relevant supplier in the Gulf of America.

Speaker #3: Our initial targets in this region are the 54 deep-water platforms in the Gulf, meaning those that are in over 1,000 feet of water.

Speaker #3: These types of platforms experience technically challenging conditions and require high-volume treatment. These conditions allow for specialized chemical solutions which, although very different from land-based chemistries, present opportunities for product development and solution differentiation.

Speaker #3: Although a long and steep learning curve, we are making progress, as evidenced by the fact that we have recently been awarded a fourth platform.

Speaker #3: And in the coming months, we will take over providing the full suite of treatments for it. This now puts us on four of the 54 targeted deepwater platforms for our market share of approximately 7.5 percent.

Speaker #3: I want to reiterate the confidence I have in the resilience of our business model in the face of the current market uncertainty. Our business is countercyclical and requires minimal CapEx, especially during times of disruption in our industry.

Speaker #3: Noteworthy as well is that, in spite of the pullback in upstream activity, we have consistently experienced revenue and opportunity growth throughout 2025. Therefore, our strategy remains the same.

Speaker #3: Anchored by a cautious focus on maintaining relationships with existing clients, while continuing to develop products and solutions that benefit them as well as opening doors with new clients and markets for us.

Speaker #3: We believe our Q3 results are an early indicator of the tremendous torque we have building in the business right now. We also believe that U.S. upstream activity will inevitably accelerate, more than likely during the second half of 2026.

Speaker #3: In the meantime, we continue to expect 2025 to be a year of growth and positioning, with 2026 looking even stronger in North America as the oil market seems headed toward a more positive structure and natural gas demand continues to grow.

Speaker #3: With regard to U.S. tariffs and the suggested Canadian counter-tariffs, these continue to have little to no direct effect on our business in the current state.

Speaker #3: However, we have made significant progress in restructuring our manufacturing and supply chains in order to minimize future exposures as much as possible. Where possible, we will manufacture products within the same country in which they are being sold.

Speaker #3: We will continue with this strategy until we have insulated the business as much as possible from future tariff risks. I will state again for clarity that, as noted clearly on our first Q1 call, the impact from tariffs announced to date continues to be immaterial to our overall business.

Speaker #3: As always, I want to extend my appreciation to each and every one of our employees for their commitment to the business, culture, and success of CES.

Speaker #3: Due to the growth we are still experiencing, as well as anticipating, we have increased our total number of employees from 2,530 on January 1, 2025, to 2,675 at the end of Q3.

Speaker #3: With that, I will pass the call to Tony for the financial update.

Speaker #2: Thank you, Ken. CES's third quarter delivered record Q3 revenue and record adjusted EBITDA, demonstrating a continuation of strong revenue, margin expansion, funds flow from operations, and high-quality earnings, despite lower rate counts and WTI price-related and market volatility.

Speaker #2: These results underpin the unique resilience of CES's consumable chemicals business model and sustained profitable growth as our customers continue to adopt chemical-related improved efficiencies and require higher treatment levels for increasingly prolific wells.

Speaker #2: CES continued to effectively deploy strong surplus cash flow to return capital to shareholders while investing in strategic CapEx and working capital levels to support our current revenue run rate and position the company for identified growth opportunities.

Speaker #2: In Q3, CES generated revenue of $623 million, representing an annualized run rate of approximately $2.5 billion and a 3% increase over the prior year's $607 million.

Speaker #2: Revenue generated in the U.S. set a new record of $409 million, representing 66% of total consolidated revenue. These results compare to revenue of $406 million in Q2 and $403 million in Q3 2024.

Speaker #2: Revenue generated in Canada set a third quarter record at $214 million, compared to $168 million in Q2, and was 5% ahead of the $204 million generated a year ago.

Speaker #2: Revenue levels benefited from recent acquisition contributions and elevated service intensity and production chemical volumes driven by increasingly complex drilling programs. Customer emphasis on optimizing production through effective chemical treatments benefited both countries and countered declines in industry rate counts, illustrating the resilience and attractiveness of our business model.

Speaker #2: Adjusted EBITDA in Q3 came in at $103.3 million compared to $88.3 million in Q2 and $102.5 million in Q3 2024. Q3's adjusted EBITDA margin of 16.6% came in at the high end of our targeted 15.5% to 16.5% range, versus 15.4% in Q2 and 16.9% in Q3 2024.

Speaker #2: This improving margin trend reflects the onset of growing into a cost structure supporting higher revenue levels. Strong contributions from accretive tuck-in acquisitions and an attractive product mix.

Speaker #2: CES generated $52 million in cash flow from operations in the quarter, compared to $66 million in Q2 and $73 million in Q3 2024. The decrease in cash flow from operations was driven by increases in working capital requirements to support record revenue levels, offset by strong funds flow from operations.

Speaker #2: Funds flow from operations, which isolates the effect of working capital fluctuations, was $86 million in Q3 compared to $77 million in Q2 and just below the record $89 million set in Q3 2024.

Speaker #2: Free cash flow was $27 million in Q3, compared to $35 million in Q2 and $40 million in Q3 2024. As measured by a free cash flow to adjusted EBITDA conversion rate, this equates to approximately 26% in the current quarter and 30% year to date.

Speaker #2: Excluding investments in working capital, CES realized a conversion rate of 59% for the quarter and 52% year-to-date. CES maintained a prudent approach to capital spending throughout the quarter, with CapEx spend net of disposal proceeds of $13 million, representing 2% of revenue.

Speaker #2: We will continue to

Speaker #1: For 2025, we still expect cash CapEx to be approximately $80 million, weighted towards expansion capital to support higher levels of activity and business development opportunities for 2026.

Speaker #1: We are currently expecting a range of $85 to $90 million, and CS maintains the flexibility to alter spending levels commensurate with changes in end markets and required support levels.

Speaker #1: During the quarter , we continued to be active in our NCIB program , purchasing 4.4 million common shares at an average price of $8.09 per share , for a total cash outlay of $35.4 million , representing 2% of outstanding shares .

Speaker #1: As at July 1st , 2025 . Subsequent to the quarter , we purchased 3.2 million shares at an average price of $9.36 per share , for a total of $29.9 million .

Speaker #1: This brings the total purchases under our current NCIB program to 34% of the 18.9 million shares available year to date. We purchased 15.1 million shares at an average price of $7.77 per share, representing 6.7% of outstanding shares.

Speaker #1: As at December 31st , 2024 . Since the inception of the NCIB program in 2018 . CS has purchased 84 million shares , representing 31% of the outstanding shares at that time , at an average price of $4.21 per share .

Speaker #1: We ended the quarter with $510 million in total debt, representing an increase of $19 million from the prior quarter and $58 million from December 31, 2024.

Speaker #1: Total debt was primarily comprised of $200 million in senior notes, a net draw on the senior facility of $204 million, and $98 million in lease obligations.

Speaker #1: Total debt to adjusted EBITDA of 1.29 times at the end of the quarter , compared to times 1.25 at June 30th . Demonstrating our continued commitment to maintaining prudent leverage levels 1 to 1 and a half in the times range the .

Speaker #1: Quarter subsequent to, CS completed a private placement of an additional $75 million in senior notes due May 29, 2029, at a premium of 103 and an eighth.

Speaker #1: Acknowledging the credit quality of the business model, this issuance, in conjunction with last quarter's amendment and extension to our senior facility, leaves us with significant financial flexibility and no near-term maturities.

Speaker #1: This additional liquidity allows us to comfortably support recent significant business awards that can be outlined in addition to identified growth opportunities as Rs enters its next phase of potential growth. This prudent capital structure is further illustrated by our current net draw of $125 million, which has decreased by $79 million from the end of the quarter, reflective of the private placement of $75 million in additional senior notes.

Speaker #1: We are very comfortable with our current debt level , maturity schedule and leverage in the 1 to 1 and a half times range .

Speaker #1: Thereby enabling a strong return of capital to shareholders and prioritizing a sustainable dividend and share buybacks, in addition to strategic tuck-in acquisition opportunities.

Speaker #1: Our continued focus on working capital optimization has led to improvements in the cash conversion cycle, which ended the quarter at 110 days compared to 112 days in Q2.

Speaker #1: This translates to an operating capital as a working percentage of annualized quarterly revenue of 28.8%, compared to our historical range of 30% to 35%.

Speaker #1: Each percentage improvement at these revenue levels represents approximately $25 million on our balance sheet . We continue to remain focused on profitable growth , acceptable margins , working capital optimization , and prudent capital expenditures , which collectively drive our key metric of return .

Speaker #1: On average , capital employed . This approach has led to a cultural adoption of these key factors , allowing us to maintain a strong , trailing 12 month RoCE of 21% at current levels of activity , market share and service intensity , Rs remains in a position of strength and flexibility supporting our capital allocation priorities , which are governed by adequate return metrics .

Speaker #1: We continue to prioritize capital allocation towards supporting existing and new business through investments in working capital, as required CapEx and projects that deliver above our internal hurdle.

Speaker #1: Rates. We intend to purchase up to the maximum common shares permitted under our current NCIB. We remain very comfortable with our dividend, which represents a yield of approximately 1.7% at our current share price and is supported by a prudent 13% payout ratio.

Speaker #1: Well within our target range of 10 to 20% . We will continue our annual practice of revisiting our dividend level when we report Q4 or Q1 in early 2026 , and we will continue to explore prudent acquisitions with a continued focus on accretive tuck ins , providing complementary products , markets , geographies , and leadership that can benefit from our platform to realize attractive growth .

Speaker #1: At this time, I'd like to turn the call back to the operator to allow for questions.

Speaker #2: We will now begin the question and answer session. In order to ask a question, simply press star followed by the number one on your telephone keypad.

Speaker #2: We'll take our first question from the line of Erin MacNeil with TD Cowen. Please go ahead.

Speaker #3: Hey , good morning guys . Tony , maybe I'll start with you . I just heard you say in the prepared remarks that you prefer the buyback here .

Speaker #3: You know , however , CS is its valuation multiple ? Is increased , at least based on our estimates . So assuming you also agree with the premise of my question , how do you think about capital allocation in that context ?

Speaker #3: And more specifically, do organic growth opportunities or the potential for more tuck-in M&A start to look more attractive when compared against the buyback?

Speaker #1: Yeah, that's a really good question. So just like stating the facts and weaving them into the company's philosophy, we will always prioritize supporting the business.

Speaker #1: So, supporting the business by investing in working capital and CapEx to maintain and support current, as well as potential, business opportunities.

Speaker #1: The guiding principle , though , that underpins that is maintaining a leveraged level within that targeted 1 to 1 and a half times range .

Speaker #1: And after that , it's maximizing of free flow cash to allow us to pay a sustainable dividend , which we're very comfortable with right now in the in the low end of our 10 to 20% payout ratio level .

Speaker #1: And then after that , you're left with surplus free cash flow to allocate accordingly . We track the stock as price everybody does , but what we really focus on is the the implied valuation multiple given where , where the street was most recently .

Speaker #1: And I'm sure some of the the numbers were updated at that at that level of of EBITDA of estimate for 2026 . The , the implied multiple was in the in the mid sixes when we look at at what we've talked about and and what Ken mentioned is going to happen to EBITDA absent any significant impacts , external impacts that that that are beyond our control , that multiple is is much lower , lower , probably in the in the low sixes range , depending on what happens with FX .

Speaker #1: So from a relative valuation perspective , we're trading in the in the low maybe mid sixes depending on estimates . And and that compares to our closest comp that had a multiple put out on it which was champion X .

Speaker #1: And that was a a nine times forward EV to EBITDA multiple . So we look at that . But fundamentally what we do is we take a look at what the returns are on that dollar or those millions of dollars invested .

Speaker #1: If we could be earning a significantly higher return by executing on tuck-in M&A or by executing on some more significant CapEx projects by our divisions that are providing returns that are superior to buybacks, then we'll support that as well.

Speaker #1: But it'll be governed by that 1 to 1 and a half times leverage . And based on where we're trading and where we believe the business is going , you're not going to see a significant slowdown in NCIB at this point .

Speaker #3: Fair enough. And that makes sense, Ken. Maybe one for you: you mentioned in your prepared remarks EBITDA growing in that 10% range.

Speaker #3: I don't want to , you know , put words in your mouth , but you know , if historically , capital spending levels largely correlated with revenue growth , youve got capital spending increasing by 9% at the midpoint , and so should we think about that growth in EBITDA as purely revenue driven , or is it a combination of revenue and margin ?

Speaker #3: And , you know , again , if you agree with the premise , like , is there a potential based on higher revenues for you to exceed what you've sort of outlined today ?

Speaker #4: The question , thanks , Erin . It's the latter . And we are that is our forecast is sort of that 10% EBITDA growth .

Speaker #4: If margins are better or , you know , more importantly , if the operations of the business required in order to be able to to perform the work at a level that our customers expect , we will spend the money to make that happen .

Speaker #4: And I mean, that'll back in the other way into the overall CapEx. Currently, we're looking at it in order to execute on the business.

Speaker #4: We've achieved . We've got a few bigger projects that we were we knew were on the horizon , that we were kind of waiting to do , but because of the recent awards and even the growth in the existing business , we're going to accelerate those .

Speaker #4: One of them is the Pecos Barite facility we built. That was not that long ago, but we only built half of it.

Speaker #4: was the building We it was built to house two grinding units . We only put one in it because that was the sort of level we were running at .

Speaker #4: But due to the growth outside of this stuff that we're talking about, that we've achieved over the last couple of quarters here, we're maximizing our use of barite and we're almost to the capacity of that one as well.

Speaker #4: So, we've started construction and moved that spend project ahead, all kind of in anticipation of a stronger market towards the end of next year.

Speaker #4: As we’ve talked about, the rigs that we’re picking up and the business we’re picking up, specifically in drilling fluids in the U.S., require more barite than the rigs.

Speaker #4: We have different barite requirements because they're gas. If they're coming in from the Northeast or if they're coming in from the Haynesville, the barite requirements for those can be like double to triple of what the barite requirements are for a Permian rig.

Speaker #4: So that's why we have to sort of update some of our infrastructure to accommodate it.

Speaker #3: Gotcha . And I can appreciate that my the premise of my question was , was oversimplified . So I appreciate the responses . Thanks , guys .

Speaker #3: I'll turn it back .

Speaker #1: Thanks , Erin .

Speaker #2: Our question comes from the line of Keith Mackey with RBC Capital Markets. Please go ahead.

Speaker #5: Hey , thanks and good morning . Just wanted to start out on the the contract wins that you announced for this quarter . Just just to confirm are the are the contracts that you were chasing like the relatively large ones in the RFP process ?

Speaker #5: Those have all concluded, and you won some and didn't win others, or are there still more that could potentially be announced?

Speaker #4: So the ones that we were referring to, that we were having to like overhire for and get prepared for just to even be able to have a shot at them.

Speaker #4: There was two of those conducting that companies exercise , and they're done . We did really well at one of them . When they do those bids , they the RFP , they do it by area that they operate in .

Speaker #4: So there are like six or seven RFPs inside one RFP. They're done. We did really well with one, not as well with the other.

Speaker #4: And the result of that is how we described it . I will But say that our our RFP slash tender list is longer than it normally is .

Speaker #4: And we've been doing really well at it . So when you're looking , you know , we keep we we were at fault for pointing to those two large ones as being big drivers .

Speaker #4: But we've also got a whole bunch of other RFPs going on inside the business that we're faring really well on: Canadian production.

Speaker #4: Kim has been having some wins , US production , Kim has been have been having wins outside of the RFPs . And then , as you can see by rig count , we're having some good success there as well .

Speaker #4: So it's—there's a lot going on right now. It's pretty exciting.

Speaker #5: Got it. And just secondly, maybe turning to the financials, there's a pretty decent increase in accounts receivable year over year and quarter over quarter, which was larger than the actual revenue growth in terms of total dollars.

Speaker #5: Can you just comment on really why that happened and what we should expect for working capital going through 2026 as you continue to grow EBITDA?

Speaker #1: I think you'll see a a much flatter year over year working capital level . If we do realize the the revenue , you'll see a bit of an increase year over year , but not as much as as you saw year over year .

Speaker #1: Q3 2024 to Q3 2025 , one thing that that that you should note that I probably should have included in my prepared remarks is if you look at the year over year figures , our cash conversion cycle a year ago in Q3 2024 was 101 .

Speaker #1: Our typical targeted range is 110 to 115. So that 101 was really an outlier. Hopefully, we'll work our way back down towards that.

Speaker #1: But that was a big factor. And the other big factor, the team provided this update that we looked at during the board meetings.

Speaker #1: When you look at at the the FX Delta going from one spot three , four , nine , 9 to 1 spot , three nine , two one over that that period , the FX effect alone on our AR was $10.7 million .

Speaker #1: So it's really those two things: having a very, very strong cash conversion cycle figure a year ago, and also getting hit by FX a bit on AR. But the FX part is unpredictable, and we'd like to get back down below 110 if possible.

Speaker #1: But we're pretty comfortable with what we've been doing with working capital . And to sum it all up , you should not see that significant an year over increase going forward , unless there's a big boost in revenue .

Speaker #5: Understood. I'll leave it there.

Speaker #1: Thanks. Is that okay?

Speaker #2: Our next question will come from the line of Tim Monticello with ATB Capital Markets. Please go ahead.

Speaker #6: Thanks . Just a up quick follow . Did you say you're not expecting a big increase in working capital investment in 26 ? Sounds like you're expecting significant revenue growth alongside some of the wins that you've had .

Speaker #1: Yeah . So you should use the the same math we typically lead you guys towards . So you'll have your estimate on on what's going to happen with revenue .

Speaker #1: Can you provide some narrative around the anticipated EBITDA dollar increase? Also, please provide some color about expecting to be in the higher half of the 15.5 to 16.5 level.

Speaker #1: So, you can back into what you think your revenue would be at the end of next year. And then just use the regular math, which is to take that.

Speaker #1: That assumed quarterly revenue in a in a year from now . And , and annualize that and historically you'd multiply it by 30 to 35% .

Speaker #1: But based on what we're doing, you should probably use something like 29%.

Speaker #6: Right ? Okay . That's that's helpful . I guess . You know , most of my questions have been answered , but I want to think about , you know , how the year's gone so far , there's been some significant wins that you probably wouldn't have seen coming and then some singles and doubles along the way that have got you to where today .

Speaker #6: you are That's significantly outperformed the market . And then you look to 26 and you talked about , you know , these long , tender list of opportunities that you're converting on and you add 85 to 90 million of cash in 26 suggests that you probably see significant growth as well .

Speaker #6: There . And then sort of pairing your margin that with expectations , which are already above that range in normalized this quarter . I'm just trying to figure out how do we balance that against , increasing scale efficiencies .

Speaker #6: The fact that, you know, some of your new work is higher intensity and in higher margin areas like the Gulf of Mexico, and you have a higher production chemicals mix going forward.

Speaker #6: Should we not be thinking about 16.5 being probably the lower end of the range as we go forward?

Speaker #1: You know, at this point, just like last year when we were putting up the seventeens, those seventeens were driven by excellent execution at all of the predictable levels.

Speaker #1: But what was unpredictable at that time was the the contribution that we got from novel new well , well-designed , accepted and adopted products that got us through the the high end .

Speaker #1: It's been similar where we've had a very attractive product mix that we experienced in Q3 and next year . You should see an increase in margins , but let's not forget we were we were reported around 15.5% for each of the last two quarters before this one .

Speaker #1: And and I think it would be disingenuous for us to to change that range at this point . We went as far as saying helping you guys a little bit by saying we're expecting to be in the that high end of range .

Speaker #1: I.e., the high end of the 15.5 to 16.5 range. But to go beyond that at this point will be tough. We might be able to give more color after we and us.

Speaker #1: The real impact behind business. I think it's Q4 premature.

Speaker #6: Okay . Yeah . Fair enough . I wouldn't want you to , you know , put expectations that aren't achievable out there , but seems like we're trending in that direction .

Speaker #6: then And just around 2026 . Yeah , around the CapEx for 26 , understanding Paco's expansion . But can you talk about what how much of that is allocated in the growth portion and where else that might be going ?

Speaker #1: Yeah, it's still about 50/50, Tim. 50% growth and 50% maintenance.

Speaker #6: So of the you got , growth Paco's in there . Is there anything other else that's notable ?

Speaker #1: So Paco's expansion is notable . There's there's some tweaking . We're going doing at some to be of the manufacturing facility infrastructure to , to again , we don't have a , a broad base utilization figure that that we look at .

Speaker #1: at Broad If you look Base , we're still like in the 60s . But occasionally there are opportunities where there's significant demand for a specific type of reaction that that is , is that requires the , the , the use of a specific reactor .

Speaker #1: And in cases like that, we'll be adding one or a few more.

Speaker #4: I can add to that too. There's, like, for specific projects, we're doing an upgrade to our scavenger plant in Edmonton.

Speaker #4: That's a couple of million dollars . That was kind of on the books before . And planned for 26 , but something that we're that's a bigger that project .

Speaker #4: We also recently have decided to do the blending plant in El Campo . That one , the the we recently had it inspected and decided that we better move ahead and get do an upgrade to that facility .

Speaker #4: That's a few million dollars. And then we are also putting in barite infrastructure in Canada in order to be able to self-support the market here.

Speaker #4: As we continue to make market share gains and and the work here gets tougher using more barite . So there's a few million dollars that's recently been added in for that project as well .

Speaker #4: So you know , there's those there's a whole bunch of things that are a couple three , $4 million that are adding up that are I'll call them one time expenses that when we make them , have to do them we won't again for a long time .

Speaker #6: Are these sorts of ones and twos margin-enhancing, or are they more necessary to meet the capacity of your growth expectations in terms of activity levels?

Speaker #1: latter . It's the Most of them are the latter . And sometimes you get the benefit of of allowing or using that infrastructure to piggyback off of existing business .

Speaker #1: But it's mostly the latter. Got it.

Speaker #6: Okay, thanks so much. I appreciate all the details, and great quarter, guys.

Speaker #1: Yeah good questions .

Speaker #4: Thanks , Tim .

Speaker #2: Our next question comes from the line of John with Gibson BMO Capital Markets. Please go ahead. Hi, John. Your line might be on mute.

Speaker #2: Our next question will come from the line of Jonathan Goldman with Scotiabank. Please go ahead.

Speaker #7: Hey good morning guys . Congratulations on the quarter . And congratulations on the RFID wins . Just circling back to the margins . Yeah .

Speaker #7: Well done. Well deserved. Maybe circling back to margins in the quarter. Nice recovery from earlier in the year; 16.6%, I guess it was in the 15% earlier.

Speaker #7: Previously, you did call out overstaffing levels, and it seems like that has persisted into Q3. Obviously, the new work hasn't started up.

Speaker #7: So, what do you think drove the rebound in the margins on a sequential basis?

Speaker #1: Yeah, when we look back at Q3, it's those things that we itemize. So, number one was an attractive product mix.

Speaker #1: Number two was significant contributions from the tokens that we executed over the last year, both Hydralyte and fossil fluids that are small.

Speaker #1: But because of their contribution margin profile, it had a measurable impact on the consolidated results. And number three was that some of the divisions were doing a good job of containing headcount.

Speaker #1: Additions . And in some cases right sizing . Some parts of the business to to streamline and and labor as it relates to Cogs to improve margins .

Speaker #4: Yeah . And we also I mentioned earlier like we picked up some work that we weren't really anticipating through the quarters , even though we were overstaffed a little bit in , in the US production , chem space .

Speaker #4: The other businesses picked it up, and that helped to offset some of that.

Speaker #7: Okay , that's good color . And I guess circling back to the RFP and the wins , I'm just wondering , were you able to bid on these sorts of projects in the past and if not , what has enabled you structurally now to go after these sorts of larger projects or plays or certain customers in greater scale ?

Speaker #4: Well , a couple of these , we've mentioned before are that when we got into the offshore space , part of the justification for the acquisition of Pro Flow back in 21 was getting being able to service some of these super majors everywhere in order to service them anywhere and everywhere in North America includes the Gulf of Mexico .

Speaker #4: So on. A couple of... until you can get into the Gulf of Mexico and prove that you can be competent and have some business servicing rigs there.

Speaker #4: You can't bet on the stuff on land. So it wasn't directly because of the Pro Flow relationships or the Pro Flow business that we got onto these bid lists.

Speaker #4: But it was because of the expertise we've acquired since acquiring Pro Flow.

Speaker #7: Okay, that's a great color. Thanks, guys.

Speaker #2: And just a reminder that in order to ask a question, simply press star followed by the number one on your telephone keypad.

Speaker #2: Once again, star that is one for any questions. Our next question will come from the line of Michael Bryant with TLF Capital.

Speaker #2: Please go ahead .

Speaker #8: Good morning, gentlemen, and congratulations on your outstanding results to you and your colleagues, especially in the environment, when the rig count is down as much as it is.

Speaker #8: A couple .

Speaker #8: A couple .

Speaker #1: Of Michael .

Speaker #8: Operationally, could you just expand on the opportunity in the . It and focus on both the value added that you're bringing to the clients and the length of the business that an may be opportunity for you.

Speaker #8: There .

Speaker #4: Sure . Yeah . So the sad market is very complicated and very sticky . When those projects with the majors in Canada sort of kicked off and they opened their plants , they worked with the bigger production chemical companies at the time .

Speaker #4: At the time, to treat that production, which was uniquely different from anything that had been done before because of the temperatures involved, as well as the stickiness of the oil.

Speaker #4: Call it so . Back in the day , they developed that stuff and they went with the suppliers . They chose . And it's and it's they the cost of change or the potential a risk of change is enormous because if you can't treat the production , you have to shut down the entire facility .

Speaker #4: And to shut that down requires , you know , shutting off the steam , allowing the reservoir to cool , correcting it . So it's been it's really difficult to break into those and get an opportunity to prove what you can do .

Speaker #4: You can recreate some in the lab , but what happens in the lab doesn't always happen in the field . So we've had to take the path as we've become a more relevant and we've player , hired some more expertise in that space of going to some of the smaller operators who are new and starting up new facilities and trying to get into those just to prove that we can do it .

Speaker #4: And not only prove that we can do it, but in some cases prove that we have better chemistry and better technology than our competitors, in order to open the eyes and make it worthwhile for some of the bigger operators to take the chance on us.

Speaker #4: And that's kind of the phase we're in now . It's , you know , we we talked about this back in 2012 , 13 , 14 when we were getting into production .

Speaker #4: Chemicals in Canada have been a target, and we've been working on it literally that long. It's been a much longer, harder path than we thought it would be.

Speaker #4: But the reason I pointed it out on the call is because we are actually starting to make some progress there.

Speaker #8: And you're starting to make progress in terms of being included in production or just being considered.

Speaker #4: Considered doing some trials at plants.

Speaker #8: that's Congratulations . That's excellent . And it's obviously very large opportunity . And in terms of gas opportunity in the US , especially with what you are showing both in Haynesville and Marcellus and Utica , are you seeing any of your customers outlining future demand for your services as it relates to the power generation , to support data center expansions ?

Speaker #4: I would say that's that not sort of the discussions with the we have level that we're talking to . Those companies , but you can draw the conclusion that , yes , it's related .

Speaker #8: Excellent . And one , financial question , Tony , you were in in I believe in the write up , discussed the low cost or the cost of capital , the low cost of capital position that you're in .

Speaker #8: Can you just expand a little bit? What does that mean to you? And if you're able to use that in winning more business?

Speaker #1: Yeah , of course . So like one of the , one of the , the , the parts of the technical calculation that cost of capital obviously is , is debt .

Speaker #1: And we , we have a leverage level that we're very comfortable with that , that 1 to 1 and a half times range .

Speaker #1: And as we demonstrated publicly through third party we did investors when recent raise , our cost of debt is a lot lower than people thought , as demonstrated by our the the implied yield of that raise the 75 million on top of the 200 .

Speaker #1: So that's on the debt side . And then on the other side . Absolutely . Our cost of capital comes down that that opens up the doors to to more projects , tuck in acquisitions and uses of capital to expand the business or find new business that that are able to provide incremental value because the delta between that return and the lower cost of capital or decreased WACC becomes bigger .

Speaker #1: And we're just creating more value by doing the same things that we were doing before, because you're comparing them to a lower cost of capital.

Speaker #8: And are there any discussions among your customers to give you more business? Because the competitors are there focusing elsewhere too or are much financially less stable than you?

Speaker #4: I mean , we don't I wouldn't say that we're having those discussions . I don't know what's happening inside boardrooms or inside management offices , at operators , but I will say there's been a lot more with the with the pullback in activity .

Speaker #4: That's probably what's driving the active tender list that's going on currently and presenting some of the opportunities that maybe wouldn't have been open before.

Speaker #4: We are looking at guys around a little bit, and we're doing very well in that environment.

Speaker #8: Congratulations again to you and your colleagues. Thank you so much for the excellent results.

Speaker #4: Thank you

Speaker #4: .

Speaker #2: And conclude that with our question and answer session. I'll hand the call back over to Ken for closing comments.

Speaker #4: I just want to say thank you to everyone for taking the time to join us here today. We appreciate your time and look forward to speaking with you all again during our Q4 update call on March 11th.