Nevaro Capital Corp Aktie

Good morning, everyone, and thank you for attending today's call.

I'd like to note that in our commentary today, there will be forward-looking financial information and that our actual results may differ materially from the expected results due to various risk factors and assumptions. These risk factors and assumptions are summarized in our first quarter MD&A and press release dated May 7, 2026 and in our Annual Information Form dated March 10, 2026.

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 first quarter MD&A and investor presentation posted on our website.

At this time, I'd like to turn the call over to Tony Aulicino, Executive Vice President and Chief Financial Officer. You may now go ahead, please.

Good morning, everyone, and thank you for attending today's call. I'd like to note that in our commentary today, there will be forward-looking financial information and that our actual results may differ materially from the expected results due to various risk factors and assumptions. These risk factors and assumptions are summarized in our first quarter MD&A and press release dated May 7, 2026, and in our Annual Information Form dated March 10, 2026.

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 first quarter MD&A and investor presentation posted on our website.

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 first quarter 2026 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 a summary of Q1 performance overall followed by divisional updates for Canada and the U.S. 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.

As always, I will start my comments today by highlighting some of the major financial accomplishments we achieved in Q1 of 2026. Our quarterly highlights include our second consecutive all-time record quarterly revenue of $681.5 million, which was an improvement of 8% over last year's Q1.

Our second highest quarterly EBITDA ever of $111.7 million, which was an improvement of 12% over last year's Q1. Q1 EBITDA margin of 16.4%, total debt to trailing 12 months EBITDA of 1.18x. Cash conversion cycle days in Q1 of 93 days, which represented our lowest quarterly level ever. Working capital as a percentage of annualized revenue was 25.7%, our lowest level ever. Our fifth consecutive quarter of record-setting U.S. quarterly revenue as well as our all-time best Canadian quarterly revenue.

With regard to capital allocation plans, I am pleased to report the following: Consistent with our prior messaging, we intend to address the dividend once per year while reporting Q4 or Q1 of each year. as was demonstrated by the 29% increase to the dividend per share announced during our March update. We will continue to support the business with the necessary investments required to provide acceptable growth and returns, this includes the current CapEx plan for 2026 of $95 million, spread equally between maintenance and growth.

We will continue to research and execute on strategic acquisition opportunities, which support vertical integration or interrelated business lines or geographies where we believe we can add value and grow returns. We will continue repurchasing shares while staying within our current debt to trailing 12-month EBITDA range of 1x to 1.5x as previously communicated.

Now for a summary of our Q1 performance overall. Today, our rig count on North American land stands at 194 rigs out of the 648 currently listed as operating on land in North America. This represents an industry-leading and our all-time highest ever market share of 29.9%.

During Q1, 64% of CES revenue was generated in the United States and 36% in Canada. Also of note is that quarterly revenues in each country were at all-time high levels in Q1 of 2026. This speaks to the strength of the entire business currently. Cost pressures and supplies challenges due to the follow-up from the Iran conflict were felt across the business during March of Q1 and have continued into April and May. Although at directionally mitigated levels as our initiatives begin to take effect.

In spite of this instability, we have managed to achieve margins at the top end of our guided range of 15.5% to 16.5% during the quarter. We continue to work diligently with our customers and our suppliers to find reliable replacements and redundant sources for all affected products and inputs. As well, we are working with customers to adjust pricing where necessary. We do not expect these fluctuations to cause meaningful or sustained margin erosion. There is simply a little timing lag between realizing the increased cost due to inflation and resourcing and then passing them through to our customers.

We are actively managing the challenges as we have during previous cost escalations, and we do not expect any material impact to our revenues or our margins going forward. We remain very confident in our stated margin guidance of 15.5% to 16.5%.

In Canada, the Canadian drilling fluids division continues to lead the WCSB in market share. Today, we are providing service to 42 of the 123 jobs listed as underway in Canada or a 34% market share. The overall active drilling rig count in Canada in Q1 was trending consistently lower than in 2025 by approximately 10% year-over-year.

In contrast to that, as previously noted by our record revenues, the service intensity phenomenon continues to more than offset the reduction in the number of rigs. Although firmly in the annual slow season of breakup in Canada today, we are very optimistic about activity levels throughout the remainder of 2026. We anticipate higher activity levels due to recently added takeaway capacity from infrastructure projects as well as vastly improved futures pricing for energy products due to the aforementioned Iran conflict and its associated follow.

PureChem, our Canadian production chemical business continued its run of record results in Q1. PureChem continues to grow as all of the business lines continue to perform at record levels. We anticipate experiencing further revenue and earnings growth at PureChem due to our consistent market penetration combined with higher activity levels throughout 2026.

The previously announced trials in the heavy oil sector of the market continued throughout Q1 and will progress into the second half of 2026. In the United States, AES, our U.S. drilling fluids group is currently providing chemistries and service to 152 of the 525 rigs listed as active in the U.S.A. land market today for a continually widening in AES record-setting #1 market share of U.S. land rigs at 29%. The number of rigs drilling in the U.S.A. is down slightly by 7 rigs since we last reported in March.

However, in spite of this, AES is actually up by 12 rigs during that span due in large part to a significant RFP win in the Permian. Although there are still 241 rigs working in the Permian, the same as in March, our rig count has gone from 87 rigs to 98 rigs. This takes our market share to 48.6%, and which is our highest market share ever in the Permian Basin. Our market shares throughout the U.S.A. land market continue to grow as natural grass drilling continues to accelerate.

Today, I'm very proud to report that we are on 17 of the 58 rigs working in the Haynesville. This represents a market share of over 29%. Over the past year, we have constructed a blending plant and distribution facility, including a rail siding strategically located within the basin. We have also developed some highly technical products and systems, specifically for the high-temperature, high-pressure challenges within the Haynesville play. We continue to anticipate further growth in this area as activity continues to ramp up in the coming months and years.

As a reminder, at the beginning of 2024, there were 33 rigs working in the Haynesville. Today, just over 2 years later, there are 58. Finally, our U.S. production chemical division, Jacam Catalyst continues its steady trend of growing market share and profitability. The division remains focused on further market penetration in all areas in which they operate on land in the United States as well as in the offshore market.

As a follow-up to the previously announced land-based RFP awards, I will confirm that we have now fully taken over the vast majority of the awarded locations and the business is now seamlessly operating at this higher revenue run rate level.

Also, as previously referenced, Jacam Catalyst has been optimizing manufacturing, developing products and hiring some technical specialists in order to become an increasingly relevant supplier in the Gulf of America. Although a long and steep learning curve, we are continuing to make progress as evidenced by the fact that we are now fully treating our fourth deepwater platform with all of the chemistries required and are now involved in a trial on a fifth platform. As with all prior platforms, it will take several quarters before all the testing is complete and the platform is officially awarded.

As always, I would like to reiterate the confidence and pride that I hold in our business model and the people who work at CES. Our unique business model has a countercyclical balance sheet requires minimal CapEx and returns healthy free cash flow throughout the cycles. Noteworthy as well, is that in spite of the pullback in upstream activity over the past 2 years, we have consistently experienced revenue and opportunity growth. Therefore, our strategy remains resilient, and we anticipate that our financial results will as well. The business is anchored by a determined philosophy focused on maintaining relationships with new and existing clients, while continuing to develop industry-leading products and solutions, which benefit them as well as differentiating us from our competitors.

We believe our Q4 and Q1 results are indicative of the tremendous torque we have building in the business currently. We also believe there are early indications that U.S. upstream activity will inevitably accelerate throughout 2026. In the meantime, we continue to expect this year to be another year of growth and positioning with 2027 now looking even stronger for North America as the oil market has achieved economically attractive futures pricing and natural gas demand accelerates due to LNG and AI development.

With regard to USA tariffs and the suggested Canadian counter tariffs, these continue to have little to no direct effect on our business in their current state. However, we have taken significant steps to restructure our manufacturing and supply chain in order to minimize future exposure as much as possible.

I will say it again for clarity that as noted a year ago on our Q1 2025 earnings call, the impact from tariffs to date continues to be immaterial to our overall business.

As a final thought, 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. Due to the growth we are still experiencing as well as anticipate experiencing, we have increased our total number of employees at CES by 1.6% from 2,707 employees on January 1, 2026, to 2,752 employees at the end of Q1 2026.

Thank you. I will now pass the call over to Tony for the financial update.

Thank you, Ken. In the first quarter, CES delivered record quarterly revenue and record first quarter adjusted EBITDAC and demonstrated a continuation of strong margins, funds flow from operations and high-quality earnings. These results underpin the unique resilience of CES' 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.

In Q1, CES generated record revenue of $682 million, representing an annualized run rate level of approximately $2.7 billion and an 8% increase over the prior year's $632 million. I would also note that this is the second consecutive quarter that has generated an annualized revenue run rate of approximately $2.7 billion, demonstrating the impacts of market share gains, large new business wins and prudent deployment of capital to realize attractive organic growth.

Revenue generated in the U.S. set a new record at $438 million representing 64% of total consolidated revenue. These results compare to revenue of $435 million in Q4 2025 and $402 million in Q1 2025. Revenue generated in Canada also set a new quarterly record at $244 million compared to $230 million in both Q4 and Q1 2025. Revenue levels continued to benefit 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, encountered declines in industry rig counts illustrating the resilience and attractiveness of our business model.

Adjusted EBITDA in Q1 came in at $111.7 million compared to $113.2 million in Q4 and $99.9 million in Q1 2025. Q1's adjusted EBITDAC margin of 16.4% came in at the high end of our targeted 15.5% to 16.5% range and compared to 17% in Q4 and 15.8% in Q1 2025. These results were achieved despite transitory margin compression from increased input costs in March associated with the high WTI environment.

This is being addressed through indexed pricing mechanisms, product substitution efforts and pass-through of higher cost to customers. During the quarter, CES generated $69 million in cash flow from operations compared to $108 million in Q4 and $60 million in Q1 2025. The decrease in cash flow from operations relative to last quarter was driven primarily by timing of tax expenses and timing of unrealized derivative gains associated with our equity hedging program.

Since inception of the employee cash settled stock-based compensation plan in 2020, CES has maintained an effective equity hedging program to mitigate the potential cash related financial impact from movements in the company's share price, as illustrated in Q1, during which our PSU expense of $25.5 million was offset by an unrealized derivative gain of $21.6 million.

Funds flow from operations, which isolates the effect of working capital fluctuations, but includes the effects of realized FX movements, current tax, expense timing and cash settled stock-based compensation was $62 million in Q1 compared to $84 million in Q4 and $78 million in Q1 2025. Free cash flow was $33 million in Q1 compared to $78 million in Q4 and $26 million in Q1 2025.

As measured by a free cash flow to adjusted EBITDA conversion rate, this equates to approximately 30% in the current quarter and 42% for the trailing 12 months. CES maintained a prudent approach to capital spending through the quarter with CapEx spend net of disposals of $28 million, representing 4% of revenue. We will continue to adjust plans as required to support existing business and attractive growth throughout our divisions.

For 2026, we expect cash CapEx to be approximately $95 million split evenly between maintenance and expansion capital to support incremental accretive business development opportunities and current record revenue levels. During the quarter, the company adopted a measured pace for share buybacks despite consistently strong current and projected free cash flow. This shift reflects a disciplined response to increased volatility on the macro front and targeted acceleration of buybacks as opportunities present themselves.

While remaining committed to its NCIB, CES is ensuring that repurchases are executed strategically to maintain long-term shareholder value. Consequently, the company repurchased 1.3 million common shares at an average price of $13.01 per share for a total investment of $16.7 million representing 0.6% of the shares outstanding as of January 1, 2026. Subsequent to the quarter, we purchased 240,000 shares at an average price of $17.81 per share for a total of $4.3 million.

This brings the total purchases under our current NCIB to 51% of the 18.9 million shares available. Since the inception of the NCIB program in 2018, CES has purchased 88 million shares representing 33% of the outstanding shares at that time at an average price of $4.53 per share. We ended the quarter with $492 million in total debt, representing a decrease of $4 million from December 31, 2025. Total debt was primarily comprised of the $275 million in senior notes. In addition to a net draw on the senior facility of $102 million, and $94 million in lease obligations.

Total debt to adjusted EBITDAC of 1.18x at the end of the quarter compared to 1.23x at December 31, 2025, demonstrating our continued commitment to maintaining prudent leverage levels in the 1x to 1.5x range. This prudent capital structure is further illustrated by our current net draw of approximately $80 million, which has decreased by $22 million from the end of the quarter, further illustrating the cash flow generating nature of the business.

We are very comfortable with our current debt level, maturity schedule and leverage in the 1x to 1.5x range, 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.

Elevated activity levels, combined with our continued focus on working capital optimization, has led to improvements in cash conversion cycle, which ended the quarter at a record low of 93 days compared to 98 days in Q4.

This translates to an operating working capital as a percentage of annualized quarterly revenue of approximately 26% compared to our historical range of 30% to 35%. Each percentage improvement at these revenue levels represents approximately $27 million on our balance sheet. We continue to remain focused on profitable growth, acceptable margins, working capital optimization and prudent capital expenditures, which drive our key metric of return 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 23% and a return on invested capital of 19% and well above our weighted average cost of capital. The business model continues to demonstrate its cash compounding characteristics through a combination of high return metrics, low CapEx levels, strong free cash flow, leading market shares and attractive organic growth.

In this environment, CES remains in a position of strength and flexibility supporting our capital allocation priorities, which are governed by adequate return metrics. We continue to prioritize capital allocation towards supporting existing and new business through investments in working capital as required and CapEx projects that deliver internal rates of return above our internal hurdle rates.

We remain very comfortable with our dividend, which represents a yield of approximately 1.2% at our current share price and is supported by a prudent payout ratio of 16.5% on a trailing 12-month basis within our target range of 10% to 20%. Through the year, we plan to buy back at least enough shares to offset our modest equity compensation-related dilution, be in the market on a consistent basis and consider opportunistic purchases in the context of surplus free cash flow generation, implied valuation levels and adherence to our 1x to 1.5x target leverage range.

We will continue to explore prudent acquisitions with a continued focus on accretive opportunities that provide complementary products, markets, geographies and leadership in support of our strategic priorities and that can benefit from our platform to realize attractive growth.

At this time, I'd like to turn the call back to the operator to allow for questions. We are now opening the floor for question-and-answer session.

[Operator Instructions] Our first question comes from the line of Aaron MacNeil of TD Cowen.

Congratulations on the market share gains in the U.S. Given the potential positive broader macro and an inflection in activity, I'm hoping you can address any practical constraints in terms of your ability to execute on that growth from Jacam to your blending plant, slab, barite grinding, your people, where do you see the potential pinch points, if any, in a rising activity level environment? And what sort of revenue level would require meaningful investments in terms of incremental infrastructure or people?

Sure. I'll take a shot at that one. We sort of manage that risk going forward like we always have. So if you look at our numbers, we've grown by quite a bit in the last 5 years-ish. And as we go along, we have to add pieces. The major piece or the most costly piece that we have to add along the way is barite grinding. We saw this coming a year ago, so we started working towards that addition to our biggest plant, and we're well down the path on that.

Once that's done, everything else is scalable. So we have the space in all the manufacturing facilities. We always have staff on hand to be able to support. And our history has shown that when you get the business, you can find the right people if you need to hire outside, but we've always got a constant flow of new people in the company, learning our culture, learning our ways, understanding the business.

So stepping into the people side of it is fine. And then the plants, it's just adding reactors and stuff, so we don't have to do a lot of big CapEx on those. So I guess the short answer is we're always prepared for it. And yes, we're very optimistic about where we're going in '26 and into especially with the futures pricing where it is. We think there's going to be an uptick, and we don't anticipate losing any market share, and we hope to continue growing market share instead.

The other thing I would add, and it's early stages, but as you said, now that we get up to that new cruising altitude, which is much higher revenues but much higher volumes as well. The teams are finding opportunities where we're getting to critical volume levels on certain chemistries where it makes sense to investigate manufacturing those chemistries ourselves. Instead of buying them piecemeal from different -- having separate divisions by them piecemeal. So that's something that we're looking at right now that could afford us some more cost savings going forward because of that scale.

Okay. No, that all makes sense.

Next question, more strategic, I guess. CES now is a premium valuation multiple. Due to the strong performance of the business over the last several years. Do you see any opportunities to use that valuation to your advantage and look to opportunities to acquire complementary businesses, a strong accretion metrics in a way that you may not have been able to previously?

Look, we see the valuation and we're very comfortable with the valuation, which is why we're still buying back shares. But when we think about M&A, we think about M&A in the context of should we and could we? And the should we part is always strategic, right? It's Ken, myself, the rest of the executives and the Board, talking about strategy and talking about those things that we need and that we really want. And then the good part is, could we afford it because we have the balance sheet and the multiple if we need to use it.

Just make no mistake about it, we are not being more active in M&A activity just because our valuation now is starting to approach more fair values. What we are doing though is we know that, that multiple could afford us the opportunity of buying very high-quality businesses that have and should trade at higher multiples than we've seen in the past with some of the more typical oilfield service opportunities. So the way we see it is, we see it as a tool to be able to buy high-quality businesses if they came around and were very strategic.

Okay. Great. And that's exactly what I was getting at. Like, I guess I was wondering just, are there opportunities that could work today that you've always wanted that just weren't available previously?

Yes, there -- we continue to look at opportunities, and we continue to pursue markets and opportunities. There's nothing on the front burner, Aaron. But it's something that we can continue to look at because now we have the ability to do it.

Your next question comes from the line of John Daniel of Daniel Energy Partners.

Just one for me today. It feels like the rig count in the U.S., poised to move up, the majority of that in the near term is largely private operators. And I'm just curious how would you characterize your private versus public exposure? And obviously, higher activity is good, but is it really good? Or is it -- or do you think market share gains could fade just given the customer mix?

I think we're -- spread, I mean, obviously, we're spread in alignment with the industry, and there's more operators that are big these days than little. So our concentration is there, but we still have all of our same privates that we work with in smaller companies that we work with. And part of the growth that we've seen this quarter since we reported in March here, was an RFP win with a big major. But that's only half the story. The other half is all the smaller private guys that we picked up along the way, too.

Okay. And then I guess see one...

Yes, that's why I say I think that we'll market share. So if we'll continue to be 29%, hopefully, at least.

Okay. And the final question for me is just in terms of visibility, when how much lead time do you guys typically get before the rig goes out and your services are needed?

Not as much as others like I would say that we find out after the rig contractors. The first step they have to do is the licensing, permitting, identifying the locations. Once all that done, then they start lining up the big services like...

Your next question comes from the line of Tim Monachello of ATB Cormark.

First on a question just on the margins. You probably had a little bit of drag in Q1 just given the cost inflation and some time to catch up. So I think I would assume that your margins were a little bit below where they exited, which would suggest that you're operating towards the upper end or above your margin guidance? And as you scale, better penetration in some of these higher -- can you guys hear me?

Yes, go ahead. Keep going, Tim.

Okay. Yes. Better penetration, some high-margin areas of the business. So I'm just curious what you need to see before you become less conservative, I would say, on your margin guidance?

Yes. On the margin guidance, we are still in that 15.5% to 16.5% range. That's a wise observation. Had it not been for the supply chain disruptions and the higher input costs, especially for the petroleum-related products that we purchase. We would have been through the high end of that 5.5% to 6.5% range.

Q2, as you know, is always a bit lower revenue and a bit lower margins because specifically of the seasonality that we experienced in Canada. And you compound that with some of the input cost increases that we're working through, as Ken talked about, so we're not in a position to increase that right now, but we will be taking a very hard look at it after we get through Q2 for sure.

I'll just add to that, that the scale of the increases, I think, gets not recognized fully, especially by industry. So we're out right now trying to talk to everybody, show them the spreadsheets, show them the cost increases, but they're significant. Like solvents are up by 50%. They go into almost everything we make on the production chemical side, [ Polyene ],xylene products like that. They're only 20% of that mix, but still that all nets out to a 10% to 15% cost increase off the top.

And then you put 40% on fuel charges in the right off the top. And we spend a great deal of money, like $40 million a year on fuel for vehicles, just our own transportation, moving mud men around, moving production service technicians around and internal transportation. So all those things are huge impacts on our business. We've been extremely proactive in working with our customers, and our customers have been, for the most part, working with us because everybody's got this problem coming.

We can absorb some while we get the cost recovery, but others that don't see it coming yet are going to be awfully surprised in 3 months when everything is 20%, 30%, 40% more expensive. And this isn't something that's going away. This is -- this is now here. The shortfalls are there. There's manufacturing shortfalls all over the world. So it's a pretty extreme crisis that's going on.

We're doing what I would say is an excellent job of managing it, and we continue to see that kind of progress going forward. So because we're ahead of it, we think we're going to be able to manage it pretty well this time, and we don't anticipate going outside of our projected margin range.

Got it. And then it's good to hear that you guys are finding ways to be creative on finding options and substitutes and then also leveraging your scale to improve your procurement power. But are there anywhere -- is there anywhere in the business where you think now that you're scaled up, increased vertical integration could make sense perhaps like...

Tim, I think you cut out. But can you repeat that, please?

I'm just curious if there's anywhere perhaps in solvents?

I hate to ask you again, but you cut out again. Can you repeat it again? Please, Tim.

Yes. I switch the speaker. I don't know if this is better. But I'm just curious -- is there anywhere in the business where vertical integration makes more sense now that you're scaled up like in solvents or something like that, similar to what you have for barite grinding?

I mean those are things that we look at all the time, I'll say. So if an opportunity came along, we would absolutely look at it, just like we would have the last couple of years. I think the opportunities don't come along often. And we're always looking at the volumes of products that we're using to decide when it makes sense to spend that kind of capital, but that would be one of those types of products would be major investments. Probably better off buying something that exists in that space already, but the companies are all the big, big companies. So not a ton of opportunity there. But when we see them come across our desk, we definitely look hard at them.

And just to reiterate, when we do look at those things, whether they're organic or inorganic, the [indiscernible] is in the low double digits. And depending on whether it's production chemical related or drilling fluids related, those hurdle rates need to be in the high teens or low 20s.

And I'll also throw out that those solvents that related that had gone up so much in price. I didn't just -- there's not more profit to those companies. Their cost of goods is going up. So I don't think they're not making great margins much better margins, I would anticipate than they were making previously. This is all driven. You can index it right back to WTI and natural gas.

Your next question comes from the line of Jonathan Goldman of Scotiabank.

Just one for me, actually. Ken, I was wondering, you did talk about in the prepared remarks about the growth opportunities in front of you. I'm just wondering, is there one or another that you're more excited about -- and how should we think about sort of time line into these opportunities coming to fruition and when they can start maybe materially impacting results.

Starting to make -- it depends how we proceed with them. But like the heavy oil and the offshore are both very, very big markets that we don't currently participate in, in much of way at all. We have with awards either with SAGD facilities or with offshore rig or offshore production platforms. The variance there is that there's different [indiscernible], for instance, the 4 platforms we're on, which is great.

They're deepwater platforms, but they're not the high-volume big, big platforms yet. This one we're trialing on is getting to be there. And so those changes as you get into those bigger volumes, same with the SAGD facilities, we're treating a couple of smaller SAGD facilities. That's how we got the opportunity of the big one. But if we happen to get awarded one of these big ones, it can be a step change. Timing on them, I don't like -- none of that stuff moves quickly. I would anticipate the things that we have going on right now if we were going to talk about being awarded something, it probably wouldn't be until Q4.

[Operator Instructions]. Your next question comes from the line of Keith Mackey of RBC.

Apologies, my line has been cutting out a little bit as well. So hopefully, I haven't missed too much, but I just did have one question for you. Ken, on the SAGD and platform opportunities. Just curious if you could sort of put the relative size of those opportunities into context, whether it's versus your current business or versus a percentage growth rate that you think these opportunities ultimately could represent? Just trying to get a sense of what type of scale and what type of growth you could be going after here?

I'll start off with information about those markets. So the -- according to third-party reports, the chemical market is worth CAD 1 billion and that figure is about a year old, and that will be updated as activity levels continue to increase is the Canadian oil sands production chemical market. And based on some industry reports over the last couple of years, that is worth about CAD 800 million, and we are just scratching the surface on each of those end markets.

And you've seen what we've been able to do in other markets. It took years, but we're able to grow into the double digits 20-plus market share levels. And we don't see that happening in the short term, but those are the targets over the next few years. And I would also reiterate that those markets are higher margins, higher EBITDA margins than our corporate average. They're typically in the 20% to 30% range.

Got it. That's super helpful. And then, Tony, just maybe on the capital allocation, I noticed your buyback commentary today kind of sounded maybe a little bit more conservative buying back shares to offset dilution and being opportunistic about it. And that makes me think maybe you're going to use that cash for something else, whether it be growth or reducing the leverage on the balance sheet.

So can you just kind of run us through? Am I correct in what I've picked up there? And just how would you allocate incremental free cash flow in this market today?

Yes. The incremental cash flow goes to the highest return opportunities that we have, whether they're organic or buybacks or investments, working capital investments to grow the business. With the NCIB in particular, our first priority is always to offset executive stock-based compensation, and we easily already took care of that during the first quarter -- first calendar quarter of the year. So we're through that already.

And I don't know if conservative is the right word. It's more strategic. We spend a lot more time now, not necessarily just being in the market blindly every day with the NCIB program. What we do instead is we wait for opportunities. And you're following the macros and the tweets as much as we are. And on those days where our stock is down 5% or 6% because of some macro piece of information or a tweet, we're in there. We're buying as much as we can that day. And when there's the opposite we're holding off.

What I would say, though, back to the leverage comment that you alluded to is we are not going to use the bank's money to buy back shares unless there was a significant dislocation between price and value. So what you will see is you'll see us staying well within the 1 to 1.5x range. And based on some of the noise that's out there in the markets these days, you'll see us continue to be at the lower end of that. But you won't see us not in the market at all buying back shares.

Thank you. I'd now like to hand the call back to Ken Zinger for closing remarks.

Thank you. Thanks to everyone who came to join us here today. We appreciate your time and look forward to speaking with you all again on our Q2 update call on August 7, 2026.

Thank you for attending today's call. You may now disconnect. Goodbye.

Hello, and welcome to the CES Energy Solutions Fourth Quarter 2025 Results Conference Call. [Operator Instructions]

I would now like to turn the conference over to Tony Aulicino, Executive Vice President and CFO. You may begin.

Good morning, everyone, and thank you for attending today's call. I'd like to note that in our commentary today, there will be forward-looking financial information and that our actual results may differ materially from the expected results due to various risk factors and assumptions. These risk factors and assumptions are summarized in our annual information form, fourth quarter MD&A and press release dated March 10, 2026. 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.

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 and full year 2025 earnings call. On today's call, I will provide a brief summary of our financial results release yesterday, followed by an update on capital allocation and then our outlook for 2026 and finally, our divisional updates for Canada and the U.S. 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.

As always, I will start my comments today by highlighting some of the major financial accomplishments achieved in Q4 of 2025. These highlights include our highest ever quarterly revenue of $664.5 million, beating our prior record from Q1 of 2025 by almost 5%. Our highest-ever quarterly EBITDA of $113.2 million, beating our prior record from last quarter by 9%. Fourth quarter EBITDA margin of 17%, total debt to trailing 12 months EBITDA was at 1.23x at the end of Q4 2025, which was almost dead center with our targeted range of 1x to 1.5x. Cash conversion cycle days in Q4 was 98 days, well below our targeted range of 110 to 115 days and our lowest quarterly level ever.

The 2025 full year annual financial highlights include all-time record revenue of $2.5 billion, which was up 6% over the prior record from 2024, all-time record EBITDA of $404.6 million and 7.5% of our outstanding shares were repurchased during the year at an average price of $8.20.

With regard to our capital allocation plans, I am pleased to report the following: consistent with our prior messaging, we intend to address the dividend once per year while reporting Q4 or Q1 of each year. So on that note, we are happy to report that we are increasing our quarterly dividend by 29% to $0.055 per share beginning for shareholders of record on March 31, 2026.

We will continue to support the business with the necessary investments required to provide acceptable growth and returns. This includes the previously announced CapEx in 2026 of $85 million to $90 million. We will continue to research and execute on strategic tuck-in acquisition opportunities, which support vertical integration or into related business lines or geographies, where we believe we can add value and grow returns.

We will continue repurchasing shares while staying within our current debt to trailing 12 months EBITDA range of 1x to 1.5x as previously communicated. Although there has been negativity surrounding oil prices since April of 2025 due to the forecasted oversupply expected to appear in the market in late 2025 and early 2026. This oversupply still has not materialized. The fear of it appearing has served to keep oil prices lower during the past 9 months, but not down to the feared level of $50 or less. This has led to only slightly reduced exploration and production in 2025.

As a result of the Middle East situation and spiking oil prices, there is fresh optimism that severely constrained production out of the Middle East may actually serve to offset the impending oversupply concerns or if it drags on for a few weeks, even outpace the supply and instead create a shortage. Although this is not currently represented in our outlook, it is possible.

Needless to say, prolonged inventory deficits that could result in oil prices at anything north of $65 to $70 could materially affect the industry outlook in both the short and medium terms, leading to increased activity levels and resulting in further upside in our operation and financial performance.

Obviously, we have tremendous torque stored in the company performance. I would predict that any activity move to the upside would translate to outsized participation in activity, revenues and earnings by CES. We'll have to wait and see what the next few weeks brings us in the way of short- and medium-term supply-demand dynamics and pricing.

Now for a summary of our Q4 performance overall and by division. Today, our rig count on North American land stands at 221 rigs out of the 745 listed as currently operating on land in North America, representing an industry-leading and an all-time record North American land market share of 29.7%. This market share surpasses our prior record from last quarter of 29.5%. In Q4, 65% of CES revenue was generated in the United States and 35% in Canada. As previously noted, quarterly revenues by countries and by divisions were at all-time highs in Q4. That speaks to the strength of the entire business currently. These results were driven by outperformance across the Board, not just by one division or national jurisdiction.

As noted during the Q3 call and messaged throughout the first half of the year, we expected margins to be under pressure during the first half of 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. As shown in our Q3 performance of 16.6% margins and then emphasized in our Q4 results with the 17% margins, the business has been dialed back in and is now operating at an extremely high efficiency level.

We have staffed up even further throughout the second half of 2025 as we continue to gradually take on the full workload from the RFP wins. We expect the full realization of the awarded revenues to show up completely in the financials by the end of Q2.

In Canada, the Canadian drilling fluids division continues to lead the WCSB in market share. Today, we are providing service to 81 of the 213 jobs listed and underway in Canada or a 38% market share. The overall active drilling rig count in Canada throughout Q4 and so far in Q1 has been trending consistently lower than 2024 by approximately 10% year-over-year. In contrast to that, as previously noted by our record revenues, the service intensity phenomenon continues to more than offset the reduction in the number of rigs.

We remain very optimistic about the prospects for 2026 due to the completion and full start-up of infrastructure projects and their associated takeaway capacity. We continue to view the WCSB as a basin, which is in a great position to not only weather the macro pressure, but also to benefit significantly if and when those pressures subside.

PureChem, our Canadian production chemical business, continued its run of record results in Q4. PureChem continued its impressive growth trajectory as all of the business lines continued to perform at record levels. We experienced further revenue and earnings from our continued market penetration and market share growth in Q4. Additionally, we have recently begun achieving access to larger opportunities in the attractive heavy oil thermal market. This is a market we've 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 work to find effective solutions.

Over the past year or 2, we have finally been able to achieve some wins in treating thermal production for a couple of the smaller operators and plants in the regions. This has now given us the data to demonstrate to the larger operators that not only do we have capability to service the production reliably, but we can also provide superior results in the status quo. This is high-volume, high revenue and very sticky business due to its complexity and due to the cost of change. We liken this business to the offshore business in the United States, different chemistry and problems with large rewards if you can penetrate and execute on them.

Now for the United States. AES, our U.S. Drilling Fluids group, is providing chemistries and service to 140 of the 532 rigs listed as active in the U.S. land market today for a continually widening and AES record tying #1 market share of U.S. land rigs at 26.3%. The number of rigs drilling in the U.S.A. is slightly up since we last reported in November, but down by just over 10% year-over-year. In spite of this, AES is actually up by 2 rigs year-over-year. And currently, we enjoy a basin-leading 87 rigs out of the 241 listed as working in the Permian Basin or a #1 market share of 36%, 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 cleanout drill-out market in the Permian and South Texas regions. In partnership with AES, this business unit is delivering material revenue and EBITDA contributions significantly above the pre-acquisition levels.

As well, Fossil Fluids Group that we acquired in Oklahoma during Q2 of 2025 is also running at a much higher revenue and profitability level than prior to our purchase. Their specialization in the increasingly attractive Cherokee Shale hybrid oil and gas play provides us with more exposure to another growing basin with alignment to the strong trends currently being experienced in the North American natural gas market.

Our market shares throughout the U.S.A. land market continue to grow as natural gas production continues to garner attention. A little over 2 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. At that time, we had 0 rigs in the Haynesville. Today, I'm very proud to report that we are on 15 of the 53 working in the Haynesville. This represents a market share of over 28%, which is up from 21% when we reported 3.5 months ago.

Over the past year, we have constructed a blending plant and distribution facility, including a rail siding strategically located within the basin. We have also developed some highly technical products and systems specifically for the high-temperature, high-pressure challenges within the Haynesville play. We anticipate further growth in this area as activity continues to ramp up in the coming months and years.

At the beginning of 2024, there were 33 rigs working in the Haynesville. Today, there are 53, which represents year-over-year activity growth of close to 30% per year as LNG exports and AI continue to drive demand and growth in both the Haynesville as well as the Northeast U.S.A.

Finally, our U.S. production chemical division, Jacam Catalyst continues its steady trend of growing market share and profitability. The division remains focused on further market penetration in all the areas in which they operate. As noted on the prior quarterly earnings calls in 2025, Jacam Catalyst invested in CapEx and personnel during the first half of 2025 in order to support not only its growing activity levels, but also to support several potential meaningful business opportunities. It is important to note that Jacam's business like PureChem is almost entirely leveraged to production-related spending by the E&Ps, and therefore, the revenue and earnings are extremely durable through any cycle.

As noted earlier in my comments, Jacam Catalyst has now been awarded some of the major RFP business and have been actively onboarding this business since late November. In the coming few months, we will complete the transition to servicing this new opportunity. There will be -- this will be evidenced by the increased revenue, EBITDA and CapEx that we have previously discussed and forecasted for 2026.

Also, as noted on the Q2 earnings call, Jacam's Catalyst has been optimizing manufacturing, developing products and hiring some technical specialists in order to become a relevant supplier in the Gulf of America. Our initial targets in this region are the 54 deepwater platforms to be followed by the 6 ultra-deepwater platforms in the Gulf. These types of platforms experience extreme technical conditions and require high-volume treatment and superior technical support. These conditions allow for specialized chemical solutions, which, although different from land-based chemistries, present opportunities for product development and solution differentiation.

Although a long and steep learning curve, we are making progress as evidenced by the fact that we have recently begun treating our fourth platform with all of the chemistries required and have now been awarded a trial on a fifth platform to start testing chemical applications. As with prior platforms, it will take several months to a few quarters before all testing is complete, and we are fully treating the platform with the full suite of chemicals.

As always, I would like to reiterate the confidence I have in the resilience of our business model in the face of any market conditions possible. Our business is countercyclical, requires minimal CapEx and demonstrates high free cash flow throughout the cycles. Noteworthy as well is that in spite of the pullback in upstream activity, we have consistently experienced revenue and opportunity growth throughout 2025 and into 2026. Therefore, our strategy remains the same, anchored by a cautious focus on maintaining relationships with existing clients while continuing to develop products and solutions which benefit them as well as differentiating us from our competitors.

We believe our Q4 results are an early indicator of the tremendous torque we have building in our business right now. We also believe that U.S. upstream activity will inevitably accelerate at some point in 2026 or 2027. In the meantime, we continue to expect 2026 to be a year of growth and positioning with 2027 potentially looking even stronger in North America as the oil market seems headed towards a more positive structure and natural gas demand accelerates due to LNG and AI development.

With regard to U.S.A. tariffs and the suggested Canadian counter tariffs, these continue to have little to no direct effect on our business in their current state. However, we have taken significant steps to restructure our manufacturing and supply chain in order to minimize future exposures as much as possible. I will state again for clarity that as noted clearly on our Q1 2025 earnings call, the impact from tariffs to date continues to be immaterial to our overall business.

Finally, 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. Due to the growth we are still experiencing as well as anticipate experiencing, we have increased the total number of employees at CES by 7% from 2,530 on January 1, 2025, to 2,707 at the end of 2025.

I will now pass the call over to Tony for the financial update.

2025 represented a pivotal year for CES as we continued and accelerated our unwavering focus on surplus free cash flow generation, return on capital employed, attractive returns and financial discipline. During the year, these financial attributes were recognized by credit rating agencies through DBRS' upgrade to BB low with a stable outlook and S&P's upgrade to B high with a stable outlook. These upgrades, combined with our consistently strong financial results, facilitated a $75 million addition to our high-yield bond at an attractive implied yield of 5.6%.

Our delivery of consistent and strong financial results has also led to acknowledgments by the equity markets, including CES' inclusion into the S&P TSX Dividend Aristocrat Index on January 13, 2026, and last Friday's announcement by FTSE for inclusion in the FTSE Canadian Small Cap Index effective March 20, 2026. CES' credit quality, conservative capital structure and attractive cost of capital allow us to effectively return capital to shareholders while executing our business plan, including expansion opportunities such as the Haynesville drilling fluids market and the sizable production chemical markets in the Gulf of America and the Canadian oil sands.

CES' financial results for the fourth quarter and full year set record levels of revenue and adjusted EBITDAC and demonstrated a continuation of strong free cash flow and high-quality earnings despite muted rig counts in the U.S. and Canada. These results underpin the unique resilience of CES' consumable chemicals business model. Revenue for 2025 of $2.5 billion represented a new all-time high and a 6% increase over $2.4 billion in 2024. Adjusted EBITDAC of $404 million reached record levels and compared to $403 million in 2024 and adjusted EBITDAC margin for the year of 16.2% compared to 17.1% in 2024. Adjusted EBITDAC margins continue to come in near the top end of our 15.5% to 16.5% guidance and should remain constructive given the current operating environment.

These impressive results were achieved through strong contributions across all parts of the business amid increasing levels of service intensity, vertically integrated supply chains and leading market share positions. Strong annual free cash flow of $166 million enabled CES to continue its track record of consistent returns to shareholders through $35 million in dividends and $140 million in share repurchases.

Focusing on the fourth quarter, CES delivered record quarterly revenue and adjusted EBITDAC and demonstrated a continuation of margin expansion, strong funds flow from operations and high-quality earnings despite lower rig counts and WTI price-related and market volatility. These results underpin the unique resilience of CES' 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.

In Q4, CES generated record revenue of $665 million, representing an annualized run rate of approximately $2.7 billion and a 10% increase over prior year's $605 million. Revenue generated in the U.S. set a new record at $435 million, representing 65% of total consolidated revenue. These results compared to revenue of $409 million in Q3 2025 and $390 million in Q4 2024.

Revenue generated in Canada also set a new quarterly record at $230 million compared to $214 million in Q3 and $215 million in 2024. Revenue levels continue to benefit 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 rig counts, illustrating the resilience and attractiveness of our business model.

Adjusted EBITDAC in Q4 came in at $113.2 million compared to $103.3 million in Q3 and $103.2 million in Q4 2024. Q4's adjusted EBITDAC margin of 17.0% came in above our targeted EBITDA margin range and compared to 16.6% in Q3 and 17% in Q4 2024. This continued trend of improving margins reflected the onset of growing into a cost structure supporting higher revenue levels, strong contributions from accretive tuck-in acquisitions and an attractive product mix.

CES generated $108 million in cash flow from operations, setting a new all-time record in the quarter compared to $52 million in Q3 and $62 million in Q4 2024. The increase in cash flow from operations was driven by strong funds flow from operations, combined with a working capital harvest in the quarter. Funds flow from operations, which isolates the effect of working capital fluctuations was $84 million in Q4 compared to $86 million in Q3 and $69 million in Q4 2024. Free cash flow was $78 million in Q4 compared to $27 million in Q3 and $35 million in Q4 2024.

As measured by a free cash flow to adjusted EBITDAC conversion rate, this equates to approximately 69% in the current quarter and 41% for 2025. Excluding investments in working capital, CES realized a conversion rate of 49% for the quarter and 51% for 2025. CES maintained a prudent approach to capital spending through the quarter with CapEx spend net of disposals of $18 million, representing 3% of revenue.

We will continue to adjust plans as required to support existing business and attractive growth throughout our divisions. And for 2026, we expect cash CapEx to be approximately $90 million, split evenly between maintenance and expansion capital to support incremental accretive business development opportunities and current record revenue levels. CES maintains the flexibility to alter spending levels commensurate with changes in end markets and required support levels.

During the quarter, we continued to be active in our NCIB program, purchasing 4.9 million common shares at an average price of $10.28 per share for a total cash outlay of $50.4 million, representing 2.2% of outstanding shares at July 1, 2025. For the full year 2025, we purchased 16.8 million shares at an average price of $8.20 per share, representing 7.5% of outstanding shares as at December 31, 2024. Subsequent to the quarter, we purchased 1.3 million shares at an average price of $13.01 per share for a total of $16.7 million. This brings the total purchases under our current NCIB to 50% of the 18.9 million shares available. Since the inception of the NCIB program in 2018, CES has purchased 87 million shares, representing 32% of the outstanding shares at that time at an average price of $4.49 per share.

During the quarter, CES completed a private placement of an additional $75 million in senior notes due May 24, 2029, at a premium of 103%, M&A representing an implied yield of 5.6%, acknowledging the credit quality of the business model. This issuance in conjunction with the Q2 2025 amendment and extension of our senior facility leaves us with significant financial flexibility and no near-term maturities.

We ended the quarter with $497 million in total debt, representing a decrease of $14 million from the prior quarter and an increase of $44 million from December 31, 2024. Total debt was primarily comprised of the $275 million in senior notes, a net draw on the senior facility of $109 million and $99 million in lease obligations. Total debt to adjusted EBITDAC of 1.23x at the end of the quarter compared to 1.29x at September 30, demonstrating our continued commitment to maintaining prudent leverage in the 1x to 1.5x range.

This prudent capital structure is further illustrated by our current net draw of approximately $123 million, which has increased by $14 million from the end of the quarter, primarily as a result of our quarterly dividend payment and timing of procurement-related spends. We are very comfortable with our current debt level, maturity schedule and leverage in the 1x to 1.5x range, thereby enabling strong return of capital to shareholders and prioritizing a sustainable dividend and share buybacks in addition to tuck-in strategic acquisition opportunities.

In accordance with that view, I'm pleased to announce that on March 10, the company's Board of Directors approved a 29% increase to the quarterly dividend from $0.0425 per share to $0.055 per share. This represents an annualized dividend yield of 1.3% at yesterday's closing price and a conservative annual payout ratio of approximately 19%. The 29% increase to the quarterly dividend will only cost an incremental $11 million annually, underscoring another ancillary benefit of share buybacks by reducing the share count and increasing returns to shareholders.

Elevated activity levels, combined with our continued focus on working capital optimization has led to improvements in cash conversion cycle, which ended the quarter at a record low of 98 days compared to 110 days in Q3. This translates to an operating working capital as a percentage of annualized quarterly revenue of 26% compared to our historical range of 30% to 35%. Each percentage improvement at these revenue levels represents approximately $27 million on our balance sheet.

We continue to remain focused on profitable growth, acceptable margins, working capital optimization and prudent capital expenditures, which drive our key metric of return 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 23%. At current levels of activity, market share and service intensity, CES remains in a position of strength and flexibility supporting our capital allocation priorities, which are governed by adequate return metrics.

We continue to prioritize capital allocation towards supporting existing and new business through investments in working capital as required and CapEx projects that deliver internal rates of return above our internal hurdle rates. We remain very comfortable with our dividend, which represents a yield of approximately 1.3% at our current share price and is supported by a prudent 19% payout ratio and to 20%. Through the year, we plan to buy back at least enough shares to offset our modest equity compensation-related dilution, be in the market on a consistent basis and consider opportunistic purchases in the context of surplus free cash flow generation, implied valuation levels and most importantly, in adherence of our 1x to 1.5x target leverage range.

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.

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

[Operator Instructions]

Your first question comes from John Gibson of BMO Capital Markets.

Just maybe starting on the margins. Obviously, the business is performing very well here. And just given the positive outlook and now 2 quarters of strong margin performance. I guess what would you need -- what would it take to -- additionally from here to potentially revisit that the guidance maybe later in the year?

Yes. I think it's something we talk about every quarter, John. And absolutely, we like the trends. And when you look at the setup that Ken laid out from a positioning perspective, we're very optimistic. However, we put up the 17%. It was the first one in 4 quarters, almost 5 quarters. And we like the way Q1 is shaping out so far.

However, Q1 typically has a couple of one-timers that we should note that do affect the quarter. Number one is breakup in Canada. So breakup has started, and it's a little bit steeper and faster than we were expecting. And it's no surprise to anybody on the call that we and everybody has started seeing cost increases for anything petroleum related over the last week because of the spike in WTI, and that's transportation-related costs, diesel, et cetera. These are all things that the guys have structured into agreements that we will be able to pass on, but that's not going to happen immediately. Had it not been for those couple of things, we would have taken a more serious look at increasing that range, but we're going to stay here, obviously, for at least this quarter, and we'll revisit next quarter depending on where we are and where we're going. I hope that helps.

No, that's very helpful. I appreciate it. Then last one for me. In terms of market share in U.S. production chemicals, you've obviously had some nice wins here. What inning are we in, in terms of where this business could go? Or I guess, in other words, what is the magnitude of additional RFPs you're looking at now versus what you've recently won?

Yes, sure. It's -- if you're going by inning, like we like to look at the businesses, each of the business divisions as being possible to get 30% to 35% market share before you kind of hit a point where you're getting enough pressure from operators because they want to keep diversification of supply, too. So the last year's Kimberlite report had us at 21% of the market in the U.S. land production chemicals. So that sort of gives you the number. 21% is where we're at, 30% of 35% is where we think we can go.

As far as pace goes, yes, we're on pretty much every RFP that comes out. But we have a real focus on taking care of the customers we already have, first and foremost, and then trying to pick up some of the new business. So it will continue to be steady growth, we hope. That's what's been the case for the last 10 years or barring COVID, that's sort of been the pace we're on, and that's what we're hoping to continue both sides of the border in all business lines.

Your next question comes from Keith MacKey with RBC.

Definitely heard the commentary on tuck-in M&A in the prepared remarks, done a couple of tuck-in acquisitions over the last little while. Just curious if you can speak to the opportunity set of potential targets that are out there now. Is there still a very large pool of potential candidates that would meet your hurdle returns -- hurdle rates and required returns. Just curious for how you're thinking about going about incremental tuck-in M&A from that standpoint? And generally, what is out there in the market?

So I'll start, Keith. So nothing has changed. So you're right, we have the team has put up the numbers that have been recognized that have led to a lot of the great financial results that have been recognized by the markets. And yes, our multiple is higher and our capital structure is very prudent, but that's not changing our approach at all. It's really interesting. We're not chasing M&A for growth for sure. As we've always said, we're looking for specific opportunities with specific technologies, maybe geographies and absolutely good people. Those deals that the team did over the last couple of years, those were really originated by the divisions where they saw some really good people and good opportunities, and that's the way they came in.

We know everything that's out there that could be out there, but we're not chasing them aggressively. What we would say is obviously -- we have the ability to do things that would be very easy to do if they came up just given our size and capital structure and obviously, valuation. But that doesn't mean we're going to be more aggressively looking for stuff or pay significantly higher than we otherwise would have.

Yes. I'll jump in and just say that we definitely have target markets that we're looking for opportunities in, and we have some general vertical integration stuff that we're investigating as well. But those things to get quality businesses that you can fit -- you want to bring into your culture is a tough road. So we're looking at stuff in some specific areas, just haven't found the right ones yet.

Yes. And just to close the loop there, we're always talking about specific opportunities that may come up typically through the guys that run the divisions. But if we found like unicorns that could help us accelerate the things that we've been talking about and targeting, we would obviously act on something like that. Like the Fossil Fluids and HydroLite were great examples of that where we saw those markets, wanted to expand, and those were excellent opportunities to do so.

Got it. No, that all makes perfect sense. I guess maybe just broadening it out in terms of capital allocation. Definitely gave some comments around how you're thinking about buybacks at these levels. Tony, maybe could you just take the opportunity here to kind of flesh out what your buyback strategy is? Is it strictly the keeping debt within the target leverage ratio? Or how much does current valuation of the stock play into how many shares you might buy back? Or is it more just an availability of capital and a leverage question?

It's really a hybrid, right, with an emphasis on the latter. So again, to reiterate, job #1 is maximizing surplus free cash flow. And the guys are doing a great job at the divisions, and you can see the consolidated results. After that, we have our dividend that we were able to increase by 29% on a dividend per share basis, but it's only costing us an extra $11 million per year. And then after that, if we find some tuck-ins, great. If not, we're just going to keep buying back shares. However, we're aiming to be in the market every single day and be governed by staying within that 1x to 1.5x leverage range. And that allows us to be opportunistic on certain days.

If we do see some softness, we will accelerate and increase our buying those days. And what that means is that we're not led to necessarily exhausting any given NCIB program like the one that runs out on July 22. We're through 50% of that program and we're going to continue to eat away at it. But our plan is to be in the market for almost every day during the year and buy quantities that allow us to maintain that 1x to 1.5x leverage range.

In terms of valuation, you know the attributes of the company and you see the financial results. And we're not the experts of picking a multiple. But what we do know is when we spend that money and we compare it versus the returns elsewhere, it's the right place to be putting the money in. Just repeating what we've heard from investors, they're looking at the company differently now. They're looking at the consistent ROCE in the low to mid-20s. They're looking at the significant CAGR in FFO per share since IPO. They're looking at the high free cash flow generation, margin expansion, market share expansion. And they're looking at the company differently than they did before. And that's been acknowledged by some of the indexes that we've been added to.

[Operator Instructions]

Your next question comes from Jonathan Goldman with Scotiabank.

Maybe just congratulations to you and all the employees at CES for all the great work over the past several years. It's nice to see it showing up in the results and the share price. I guess my first question is maybe on the working capital, another quarter of solid improvement there, keeps trending down. I was just wondering if there's anything that happened in the quarter, maybe onetime that would make those results look better than they were? Or how should we think about the sustainability of the working capital investment rate from Q4 on?

Yes. Number one was it was a confluence of excellent activity on all 3 levels, right, DSI, DSO and DPI. So when we look at the range that we want to be in, we're still at that 110 to 115, which we think is sustainable. That 98 was an excellent accomplishment. But as we've talked about, you should use that range, probably the lower end of that range going forward. And hopefully, over the next couple of quarters, just like we're going to revisit the margin range, maybe we'll revisit that range as well.

Okay. That's good color. And then since you brought it up, Tony, on the margin range, you talked about Q1 and some of the puts and takes there. But as we move into '26 and '27, you guys are growing. Is it fair to assume we can expect some degree of operating leverage as you just ramp the revenues and you kind of hold the cost base and the employee base stable as you've already invested last year?

Yes.

There are no further questions at this time. I'll turn the call to Ken Zinger for closing remarks.

Well, thank you, everyone, for joining us for the call today. Appreciate the time, and we look forward to speaking with you all again during the Q1 update call on May 8, 2026.

This concludes today's conference call. Thank you for joining. You may now disconnect.

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. Third Quarter 2025 Results Conference Call. [Operator Instructions]

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

Good morning, everyone, and thank you for attending today's call. I'd like to note that in our commentary today, there will be forward-looking financial information and that our actual results may differ materially from the expected results due to various risk factors and assumptions. These risk factors and assumptions are summarized in our third quarter MD&A and press release dated November 13, 2025, and in our annual information form dated March 6, 2025.

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 third quarter MD&A.

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 third quarter 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. 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.

As always, I will start my comments today by highlighting some of the major financial accomplishments we achieved in Q3 of 2025. These highlights include our highest ever third quarter revenue and second highest quarterly revenue ever of $623 million; our highest-ever quarterly EBITDA of $103.3 million, which represented a 16.6% margin. Total debt to trailing 12 months EBITDA was at 1.29x at the end of Q3 2025, which is well within our targeted range of 1 to 1.5x. Cash conversion cycle days in Q3 of 110 days, right at the low end of our targeted range of 110 to 115 days. U.S. revenue of $409.4 million, which was our second straight all-time quarterly record. Canadian revenue of $213.8 million, which was our third highest quarterly revenue ever.

With regard to our capital allocation plans, I'm pleased to report the following. 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. This includes anticipated CapEx in 2026 of $85 million 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. We intend to fully execute on our current 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 1 to 1.5x debt to trailing 12 months EBITDA range.

I'll now move on to summarize Q3 performance overall and by division. Today, our rig count on North American land stands at 211 rigs out of the 716 listed as currently operating, representing an industry-leading and all-time record 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. 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 third quarter as well as their third best quarterly revenue ever.

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. 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. 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.

Although we will not be identifying exactly who the recent RFP wins were rewarded by nor the exact amount of each of them, I will note the following. The new revenue will begin filtering into our Q4 2025 results, with the majority showing up in Q1 and Q2 of 2026. We previously indicated that we expected these awards to help enable EBITDA growth in the low single digits up to 10% in 2026 over 2025. We now estimate more confidently that, in a flat activity environment, the upper end of this range is the most likely outcome.

In Canada, the Canadian drilling fluids division continues to lead the WCSB in market share. 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 rig 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. In contrast to that, our current rig count is only down about 5% from 2024. Additionally, due to service intensity and the mix of well types being drilled, our overall revenue in Canada hit an all-time record for a Q3.

We remain very optimistic about the prospects for 2025 due to the completion and full start-up of infrastructure projects and their associated takeaway capacity. We continue to view the WCSB as a basin which is in a great position to not only weather the macro pressure, but also to benefit significantly when those pressures subside.

PureChem, our Canadian production chemical business, continued its run of very strong results in Q3. PureChem continued its impressive growth trajectory as well as all of the business lines continued to perform at extremely high levels. 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 the larger opportunities in the attractive heavy oil SAGD market. 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 2, 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. 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 superior results than the status quo.

This is 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 U.S.A. Different chemistry and problems but with large rewards, which we can penetrate and execute on them.

In the United States, AES, our U.S. drilling fluids group, is providing chemistries and service to 138 of the 525 rigs listed as active in the U.S.A. land market today, for continually widening #1 market share of U.S. land rigs at 26.3%. At AES, we truly believe we have a unique structure within the drilling fluids space in North America. We believe we have superior technical capabilities, procurement teams as well as manufacturing and logistics people and facilities, all of which are focused on bringing value to our customers.

The number of rigs drilling in the U.S.A. is flat since we last reported in August, but down by about 7.5% year-over-year. However, AES is actually up by 18 rigs year-over-year or 15%. Currently, we enjoy a basin leading 93 rigs out of the 251 listed as working in the Permian Basin or 37.1% of the market, 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. 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. Fossil is an impressive niche drilling fluids company that we knew very well. Their specialization in the increasingly attractive Cherokee shale, hybrid oil and gas play provides us with exposure to another growing basin and with alignment to the strong trends currently being experienced in the North American land gas market.

Finally, I will note that our market share throughout the U.S.A. land market continued 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. Currently, we are up to 7 of the 40 rigs working in the Haynesville, with 2 more moving in the next 3 weeks. This represents a market share of over 21%.

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 which Haynesville wells are notorious for. 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, 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 U.S.A. and we have recently been awarded 2 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.

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 while we now service almost 30% of all the rigs in North America. We have meaningful market shares in every basin which we are targeting.

Finally, our U.S. production chemical division, Jacam Catalyst, continues its steady trend of growing market share and profitability. 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, Jacam Catalyst continued to invest in CapEx and personnel during the first half of 2025 in order to support not only its high activity levels, but also to support several potential upcoming business opportunities. It is important to note that Jacam's business, like PureChem's, is almost entirely leveraged to production-related spending by E&Ps and, therefore, the revenue and earnings are extremely durable through any cycle.

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

Also as noted on the Q2 earnings call, Jacam Catalyst has been optimizing manufacturing, developing products and hiring some technical specialists in order to become a relevant supplier in the Gulf of America. Our initial targets in this region are the 54 deepwater platforms in the Gulf, meaning those are that are in over 1,000 feet of water. 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, presents opportunities for product development and solution differentiation.

Although a long and steep learning curve, we are making progress as evidenced by the fact that we have recently been awarded our fourth platform, and in the coming months, we will be taking over providing the full suite of treatments for it. This now puts us on 4 of the 54 targeted deepwater platforms for a market share of approximately 7.5%.

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. 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: anchored by a cautious focus on maintaining relationships with existing clients while continuing to develop products and solutions which benefit them, as well as opening doors with new clients and markets for us. And we believe our Q3 results are an early indicator of the tremendous work 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. 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 teams headed towards a more positive structure and natural gas demand continues to grow.

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

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

With that, I'll pass the call to Tony for the financial update.

Thank you, Ken. CES' third quarter delivered record Q3 revenue and record adjusted EBITDAC, demonstrating a continuation of strong revenue, margin expansion, funds flow from operations and high-quality earnings despite lower rig counts and WTI price related and market volatility. These results underpin the unique resilience of CES' 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.

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.

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

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

Adjusted EBITDAC 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 EBITDAC margin of 16.6% came in at the high end of our target of 15.5% to 16.5% range, versus 15.4% in Q2 and 16.9% in Q3 2024. 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.

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.

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. 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 EBITDAC conversion rate, this equates to approximately 26% in the current quarter and 30% year-to-date. 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 through the quarter with CapEx spend net of disposal proceeds of $13 million, representing 2% of revenue. We will continue to adjust plans as required to support existing business and attractive growth throughout our divisions. For 2025, we still expect cash CapEx to be approximately $80 million, weighted towards expansion capital to support higher activity levels and business development opportunities. For 2026, we are currently expecting a range of $85 million to $90 million, and CES maintains the flexibility to alter spending levels commensurate with changes in end markets and required support levels.

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 as at July 1, 2025 -- representing 31% of the outstanding shares at that time at an average price of $4.21 per share.

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. 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. Total debt to adjusted EBITDAC of 1.9x at the end of the quarter, compared to 1.25x at June 30, demonstrating our continued commitment to maintaining prudent leverage levels in the 1 to 1.5x range.

Subsequent to the quarter, CES completed a private placement of an additional $75 million in senior notes due May 29, 2029 at a premium of $1,031.25, 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. This additional liquidity allows us to comfortably support recent significant business awards that Ken outlined, in addition to identified growth opportunities as CES 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. We are very comfortable with our current debt level, maturity schedule and leverage in the 1 to 1.5x range, thereby enabling strong return of capital to shareholders and prioritizing a sustainable dividend and share buybacks in addition to strategic tuck-in acquisition opportunities.

Our continued focus on working capital optimization has led to improvements in cash conversion cycle, which ended the quarter at 110 days compared to 112 days in Q2. This translates to an operating working capital as a percentage of annualized quarterly revenue of 28.8% compared to our historical range of 30% to 35%. 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 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, CES remains in a position of strength and flexibility supporting our capital allocation priorities, which are governed by adequate return metrics. We continue to prioritize capital allocation towards supporting existing and new business through investments in working capital as required and CapEx projects that deliver IRRs above our internal hurdle 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, 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.

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

[Operator Instructions] We'll take our first question from the line of Aaron MacNeil with TD Cowen.

Tony, maybe I'll start with you. I just heard you say in the prepared remarks that you prefer the buyback here. However, CES, its valuation multiple has 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? And more specifically, do organic growth or opportunities or the potential for more tuck-in M&A start to look more attractive when compared against the buyback?

Yes. That's a really good question. So just like stating the facts and weaving into the company's philosophy, we will always prioritize supporting the business. So supporting the business by investing in working capital and CapEx to maintain and support current as well as potential business opportunities. The guiding principle though that underpins that is maintaining a leverage level within that targeted 1x to 1.5x range. And after that, it's maximizing the free cash flow to allow us to pay a sustainable dividend, which we're very comfortable with right now in the low end of our 10% to 20% payout ratio level. And then after that, you're left with surplus free cash flow to allocate accordingly.

We track the stock price, as everybody does. But what we really focus on is the implied valuation multiple. Given where The Street was most recently, and I'm sure some of the numbers were updated at that level of EBITDA estimate for 2026, the implied multiple was in the mid-6s. When we look at what we've talked about and what Ken mentioned is going to happen to EBITDA, absent any significant impacts, external impacts that are beyond our control, that multiple is much lower, lower -- probably in the low 6s range depending on what happens with FX.

So from a relative valuation perspective, we're trading in the low, maybe mid-6s, depending on estimates. And that compares to our closest comp that had a multiple put out on it, which was ChampionX. And that was a 9x 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 billions of dollars invested. 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. But it will be governed by that 1 to 1.5x 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.

Fair enough and makes sense. Ken, maybe one for you. You mentioned in your prepared remarks EBITDA growing in that 10% range. I don't want to put words in your mouth. But if historically, capital spending levels largely correlated with revenue growth, you've 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? And 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?

Good question. Thanks, Aaron. It's the latter. And we are -- that is our forecast, is sort of that 10% EBITDA growth if margins are better or, more importantly, if the operations of the business required, in order to be able to perform the work at a level that our customers expect, we will spend the money to make that happen. And I mean that will all back in the other way into the overall CapEx. Currently, we're looking at it in order to execute on the business 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. One of them, the Pecos barite facility, and we built that not that long ago, but we only built half of it. It was -- the building was built to house 2 grinding units. We only put 1 in it, because that was the sort of level we were running at.

But due to the growth outside of this RFP 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. So we've started construction and move that spend project ahead. All kind of in anticipation of a stronger market towards the end of next year, as we 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 we have because they're gas -- if they're coming in the Northeast or if they're coming in the Haynesville, the barite requirements for those ones can be like double to triple of what barite requirements are for a Permian rigs. So that's why we have to sort of update some of our infrastructure to accommodate them.

Got you. And I can appreciate that my -- the premise of my question was oversimplified. So I appreciate the responses.

Our next question comes from the line of Keith MacKey with RBC Capital Markets.

I just wanted to start out on the contract wins that you announced for this quarter. Just to confirm, are the contracts that you were chasing, like the relatively large ones in the RFP process, have those all concluded and you won some and didn't win others? Or are there still more that could potentially be announced?

So the ones that we were referring to that we were having to like over-hire for and get prepared for just to even be able to have a shot at them, there was 2 of those companies conducting that exercise, and they're done. We did really well at one of them. When they do those bids, they -- the RFPs, they do it by area that they operate in. So there's like 6 or 7 RFPs inside an RFP, 1 RFP. They're done. We did really well with one, not as well with the other, and the result of that is how we described it.

But I will say that our RFP/tender list is longer than it normally is, and we've been doing really well at it. So when you're looking -- we keep -- we were at fault for pointing to those 2 large ones as being big drivers, 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 chem has been having some wins. U.S. production chem has -- 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. So there's a lot going on right now, it's pretty exciting.

Yes. Got it. And just secondly, maybe turning to the financials. Pretty decent increase in accounts receivable year-over-year and quarter-over-quarter was actually larger than the revenue growth in terms of total dollars. 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?

I think you'll see a much flatter year-over-year working capital level. If we do realize the increased revenue, you'll see a bit of an increase year-over-year, but not as much as you saw year-over-year Q3 2024 to Q3 2025. One thing 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. 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, but that was a big factor.

And the other big factor, the team provided this update that we looked at during the Board meetings, when you look at the FX delta going from 1 spot 3499 to 1 spot 3921 over that period, the FX effect alone on our AR was $10.7 million. So it's really those 2 things: having a very, very strong cash conversion cycle figure a year ago and also getting hit by FX a bit on the AR. But the FX part is unpredictable, and we'd like to get back down below 110, if possible, but we're pretty comfortable with what we've been doing with working capital. And to sum it all up, we should not see that significant an increase year-over-year going forward, unless there's a big boost in revenue.

Our next question will come from the line of Tim Monachello with ATB Capital Markets.

Just a quick follow-up. Did you say you're not expecting a big increase in working capital investment in '26? It sounds like you're expecting significant revenue growth alongside some of the wins that you've had.

Yes. So you should use the same math we typically lead you guys towards. So you'll have your estimate on what's going to happen with revenue. Ken provided some narrative around the anticipated EBITDA dollar increase and also provided some color about expecting to be in the higher half of the 15.5% to 16.5% level. So you could back into what you think your revenue would be at the end of next year. And then just use the regular math, which is take that assumed quarterly revenue in a year from now and annualize that. And historically, you'd multiply it by 30% to 35%. But based on what we're doing, you should probably use something like 29%.

Great. Okay. That's helpful. I guess most of my questions have been answered, but I want to think about how the year has gone so far. Like 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 you are today that significantly outperformed the market. And then you look at '26, and you talked these long tender list of opportunities that you're converting on and you add $85 million to $90 million of CapEx in '26 suggests that you probably see significant growth as well there.

And then sort of pairing that with your margin expectations, which are already above that normalized range in this quarter, I'm just trying to figure out how do we balance that against increasing scale efficiencies to the fact that some of your new work is higher intensity and in higher-margin areas like the Gulf of America and you have a higher production chemicals mix going forward. Should we not be thinking about 16.5% being probably the lower end of the range as we go forward?

At this point, just like last year, when we were putting up the 17s, those 17s were driven by excellent execution at all of the predictable levels. But what was unpredictable at that time was the contribution that we got from novel, new well-designed, well-accepted and adopted products, that got us through the high end. 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 reported around 15.5% for each of the last 2 quarters before this one. And I think it would be disingenuous for us 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 high end of that range, i.e. 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 have Q4 and December in particular behind us, when we see the real impact of the new business. But I think it's premature.

Okay. Fair enough. I don't want you to put expectations that aren't achievable out there. It seems like we're trending in that direction. And then on -- on the CapEx for '26, understanding Pecos expansion. But can you talk about what -- how much of that is allocated in the growth portion and where else that might be going?

Yes. It's still about 50-50, Tim. 50-50 growth and maintenance.

So of the growth, you got Pecos in there. Is there anything other than else that's notable?

So Pecos expansion is notable. There is some tweaking we're going to be doing at some of the manufacturing facility infrastructure to -- again, we don't have a broad-based utilization figure that we look at. If you look at broad-based, we're still like in the 60s. But occasionally, there are opportunities where there is significant demand for a specific type of reaction that is -- that requires the use of a specific reactor. And in cases like that, we'll be adding one or a few more.

I can add to that too. There's -- like for specific projects, we're doing an upgrade to our scavenger plant in Edmonton. 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 project. We also recently have decided to do the blending plant in El Campo, that one, we recently had it inspected and decided that we better move ahead and get to an upgrade to that facility. That's a few million dollars.

And then we also are putting in barite infrastructure in Canada in order to be able to self-support the market here as we continue to make market share gains 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. So there's a whole bunch of things that are a couple of $3 million, $4 million that are adding up that are, I'll call them, onetime expenses that, when we make them, we won't have to do them again for a long time.

Are these sort of onesies and twosies margin enhancing or more necessary to meet the capacity of your -- of the growth expectations in terms of activity levels?

It's the latter. Most of them are the latter. And sometimes you get the benefit of allowing -- or using that infrastructure to piggyback off of existing business. But it's mostly the latter.

Great quarter, guys.

Our next question comes from the line of John Gibson with BMO Capital Markets. John, your line might be on mute.

Our next question will come from the line of Jonathan Goldman with Scotiabank.

Congratulations on the quarter and congratulations on the RFIP wins. Just circling back to the margins -- yes, 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 15s earlier. Previously, you did call out over-staffing levels, and it seems like that has persisted into Q3. Obviously, the new work hasn't started up. So what do you think drove the rebound in the margins on a sequential basis?

Yes. When we look back at Q3, it's those things that we itemized. So number one was attractive product mix. Number two was significant contributions from the tuck-ins that we executed over the last year, both Hydrolite and Fossil Fluids, that are small, but because of their contribution margin profile, had a measurable impact on the consolidated results. And number three was some of the divisions doing a good job of containing head count additions and, in some cases, rightsizing some parts of the business to streamline SG&A and labor as it relates to COGS to improve margins.

Yes. And we also, I've 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 the U.S. production chem space, the other businesses picked it up, and that helped to offset some of that.

Okay. That's good color. And I guess circling back to RFPs 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?

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 ProFlow 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. So on a couple of these, until you can get into the Gulf of Mexico and prove that you can be competent and have some business servicing rigs there, you can't bid on the stuff on land. So it wasn't directly because of the ProFlow relationships or the ProFlow business that we got on to these bid lists, but it was because of the expertise we've acquired since acquiring ProFlow.

[Operator Instructions] Our next question will come from the line of Michael Bunyaner with TLF Capital.

Congratulations on outstanding results to you and your colleagues, especially in the environment when the rig count is down as much as it is. A couple of questions. Operationally, could you just expand on the opportunity in the SAGD and focus on both the value added that you're bringing to the clients and the length of the business that may be an opportunity for you there?

Sure. Yes. So the SAGD 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 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, call it.

So back in the day, they developed that stuff. And they went with the suppliers they chose and the cost of change or the potential risk of a change is enormous because if you can't treat the production, you have to shut down the entire facility. And to shut that down requires 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. 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 player and we've 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. 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.

And that's kind of the phase we're in now. It's -- we talked about this back in 2012, '13, '14 when we were getting into production chems in Canada as being 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. But the reason I pointed it out on the call is because we are actually starting to make some progress there.

And you're starting to make progress in terms of being included in production or just being considered?

Considered. Doing some trials at plants.

Congratulations. That's excellent. And it's obviously a very large opportunity. And in terms of gas opportunity in the U.S., 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?

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

Excellent. And one financial question. Tony, you were 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. Can you just expand a little bit what that means to you? And if you're able to use that in winning more business?

Yes, of course. So like one of the parts of the technical calculation of that cost of capital obviously is debt. And we have a leverage level that we're very comfortable with, that 1 to 1.5x range. And as we demonstrated publicly through third-party investors when we did that recent raise, our cost of debt is a lot lower than people thought, as demonstrated by our -- the implied yield of that raise, $75 million on top of the $200 million. So that's on the debt side.

And then on the other side, absolutely, our cost of capital comes down, that opens up the doors to more projects, tuck-in acquisitions and uses of capital to expand the business or find new business that are able to provide incremental value because the delta between that return and the lower cost of capital or decreased WACC becomes bigger, and we're just creating more value by doing the same things that we're doing before because you're comparing them to a lower cost of capital.

And are there any discussions among your customers to give you more business because the competitors are either focusing elsewhere too much or financially less stable than you are?

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 pullback in activity, 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. Guys are looking around a little bit and we're doing very well in that environment.

Congratulations again to you and your colleagues, and thank you so much for excellent results.

And that will conclude our question-and-answer session. I'll hand the call back over to Ken for closing comments.

I just want to 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 11.

This concludes today's call. Thank you all for joining. You may now disconnect.

Good day, and welcome to the CES Energy Solutions Second Quarter 2025 Results Conference Call and Webcast. [Operator Instructions] The conference is being recorded.

[Operator Instructions] I would now like to turn the conference over to Tony Aulicino, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Good morning, everyone, and thank you for attending today's call. I'd like to note that in our commentary today, there will be forward-looking financial information and that our actual results may differ materially from the expected results due to various risk factors and assumptions. These risk factors and assumptions are summarized in our second quarter MD&A and press release dated August 7, 2025, and in our annual information form dated March 6, 2025. 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 second quarter MD&A.

At this time, I'd like to turn the call over to Ken Zinger, our President and CEO.

Thank you, Tony, and welcome, everyone, and thank you for joining us on the second quarter 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. 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.

As always, I will start my comments today by highlighting some of the major financial accomplishments we achieved in Q2 of 2025. These highlights include: Quarterly revenue of $574 million, which was 3.5% higher than Q2 of 2024; quarterly EBITDA of $88.3 million, which represented a 15.4% margin; total debt to trailing 12 months EBITDA was at 1.25x at the end of Q2 2025, which was exactly at the midpoint of our targeted range of 1x to 1.5x; cash conversion cycle days in Q2 of 112 days, also midpoint of our targeted range of 110 to 115 days; all-time record quarterly U.S. revenue of $405.6 million; record revenue for Q2 in Canada of $168.4 million.

I am pleased to report that as of July 18, 2025, CES completed its stated goal of repurchasing the entire 19.2 million shares allowed under our prior NCIB. For 2025, 2026, CES has once again renewed our NCIB for the full 10% of the public float or 18.9 million shares.

By way of update on our capital allocation plans, I am pleased to report the following: Consistent with our prior messaging, we intend to address the dividend once per year in Q4 or Q1 of each year, as evidenced by the recent 42.5% increase in dividend per share announced in March of 2025. We'll continue to support the business with the necessary investments required to provide acceptable growth and returns. This includes anticipated CapEx in 2025 of $80 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. We once again intend to fully execute on our current NCIB of 18.9 million shares prior to its expiry in July of 2026. We will continue to target a debt level in the 1x to 1.5x debt to trailing 12 months EBITDA range.

I will now move on to summarize Q2 performance overall and by division. Today, our rig count on North American land stands at 198 rigs out of the 702 listed as running currently, representing an industry-leading North American market share of over 28.2%. I want to highlight that this is our highest market share ever.

In Q2, 71% of CES revenue was generated in the United States and 29% in Canada. As previously noted, I will highlight again that our U.S. revenue for Q2 2025 set a new all-time record as our highest U.S. revenue quarter ever. In conjunction with this, our Canadian division set a new all-time record revenue for our second quarter. We are very proud of this accomplishment, especially in light of the slowing activity throughout the year-to-date.

As we have been referencing for the past few months, margins in the first half of 2025 were expected to be adversely affected by a variety of headwinds, the most notable being persistent tariff and counter tariffs uncertainty, which has caused significant restructuring of our supply chain as we attempt to purchase and manufacture as much as possible within the same country as it is being sold. Margins are also being affected by our current staffing versus revenue levels as we have been aggressively hiring throughout our production chemical businesses in North American land as well as offshore. These costs assures our staffing and supply capabilities should we win some of the larger tenders that we are currently in the final stages of selection. We have been told to expect the results of these tenders over the next few months. Then we will get to work to optimize headcounts as soon as we have certainty on the outcomes. We would expect the financial impact of these opportunities to begin showing up in late Q3 and into Q4, should we be awarded this business. We will provide an update on these opportunities when we report in November.

The Canadian Drilling Fluids division continues to lead the WCSB in market share. Today, we are providing service to 67 of the 177 jobs listed as underway in Canada or a 37.8% market share. After a good start in Q1, the active drilling rig count in Canada, throughout Q2 and so far in Q3, has been trending consistently lower than in 2024 by approximately 20% year-over-year. I will also note that our current rig count is only down by about 10% from 2024 versus 20% by the industry.

Additionally, due to service intensity and the mix of well types being drilled, our overall Q2 revenue in Canada hit an all-time record for Q2. We remain very optimistic about the prospects for 2025 due to the completion and start-up of infrastructure projects and their associated takeaway capacity. Although not immune from low oil prices, the WCSB is still in a very good position to weather any storm should it materialize. And of course, the basin is currently in a great position when it comes to natural gas.

PureChem continued its impressive growth trajectory as all of the business lines continued to perform at a high level. The revenue and earnings from our primary business production treating continues to drive growth in Canada as we consistently strive to deliver superior products and service combined with competitive market pricing. Although we believe there may be a pullback in completion activity in Canada during the second half of 2025, I will point out again that fracking remains an important but small contributor to our overall PureChem revenue.

In the United States, AES, our U.S. drilling fluids group, is providing chemistries and service to 131 of the 525 rigs listed as active in the USA land market today for a continually widening #1 market share of U.S. land rigs at 25%. At AES, we truly believe we have a unique structure within the drilling fluids space in North America. We believe we have superior technical capabilities, procurement teams as well as manufacturing and distribution people and facilities, all of which are laser-focused on bringing value to our customers.

The number of rigs drilling in the United States is down by 7.5% since we last reported in May and also by 7.5% year-over-year. However, AES is actually up by 4 rigs year-over-year or 3%. Currently, we enjoy a basin leading 97 rigs out of the 259 listed as working in the Permian Basin or 37.5% of the market, our highest share in this basin ever. I would also like to note that AES Completion Services, formerly HydroLite, continues to operate at a much higher level than when we acquired them.

On June 1, CES Energy Solutions closed a small deal to acquire Fossil Fluids in Oklahoma. Fossil is an impressive niche drilling fluids company that we knew very well. The specialization in the increasingly attractive Cherokee Shale hybrid oil and gas play provides us with exposure to yet another growing basin with alignment to the strong trends in the current natural gas environment. We are very happy to welcome owner, Martin Kelley, and all the employees of Fossil Fluids to our team here at CES Energy Solutions.

Finally, our Jacam Catalyst division continues its trend of growth during the past few years and into 2025. The division is focused on further market penetration in all areas in which they operate. Jacam Catalyst has continued to invest in CapEx and personnel during the first half of the year in order to support its high activity levels and also to support upcoming business opportunities. It is important to note that Jacam's business, like PureChem, is almost entirely leveraged to production-related spending by E&Ps and is, therefore, not as sensitive to the same activity-related uncertainty that upstream revenues can face.

Recent and potential future RFP opportunities, along with some recent consolidation in the North American production chemical space, have us extremely optimistic about continuing our march toward being the #1 provider of production chemistry and service to the entire United States land market. As previously noted, we are already the #1 production chemical provider to the Permian Basin, and we are now taking steps in hiring specialists in order to become a relevant supplier in the Gulf of America as well.

At this time, I would like to reiterate the confidence we 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. Noteworthy as well is that in spite of the pullback in upstream activity, we are still experiencing revenue and opportunity growth in 2025. Therefore, our current strategy is a cautious focus on maintaining relationships with current clients and continuing to pursue potential new clients and markets.

Our goal is to exit this short-term activity pullback in an even stronger position than when we entered it. And as history has shown, we have a solid record of achieving this stated goal even through some of the worst financial times for our industry like 2009, 2015, and 2020. Obviously, the somewhat sluggish market we are currently experiencing is no comparison to those years named. However, we believe we have tremendous torque in the business right now. And whenever U.S. upstream activity inevitably accelerates, we are in a strong position to once again benefit from this recovery. In the meantime, we continue to expect 2025 to be a year of growth with 2026 looking even stronger as the oil market seems headed towards a more positive structure and natural gas demand continues to grow.

With regard to USA tariffs and the suggested Canadian counter tariffs, these continue to have little to no direct effect on our business in their current state. However, we remain committed to the goal of 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. Although this is a long and complicated process, significant progress has already been made. 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 Q1 call, the impact from tariffs announced to date are not material to our overall business.

Finally, I want to comment that our business has never been stronger or healthier than it is today and that we are uniquely positioned to not only weather these current market headwinds, but also to benefit from it as we have in the past. We intend to accomplish this by utilizing our NCIB to strategically repurchase and cancel shares at what we believe is currently an attractive multiple. At the same time, we will also be supporting our current business and customers while keeping a watchful eye out for more tuck-in type consolidation wherever we see value.

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. Due to the growth we are still experiencing as well as the growth we anticipate experiencing, we have increased our total number of employees at CES from 2,530 on January 1 of this year to 2,692 at the end of Q2. Although there may be more uncertainty in the markets today, we continue to position ourselves to provide the same industry-leading support to our customers for the business we currently have direct line of sight on.

With that, I'll pass the call to Tony for the financial update.

Thank you, Ken. CES' financial results set a new second quarter record for revenue and demonstrated a continuation of strong adjusted EBITDAC funds flow from operations and high-quality earnings despite typical Q2 seasonality, lower rig count and WTI price-related end market volatility. These results underpin the unique resilience of CES' consumable chemicals business model as our customers continue to adopt chemical-related improved efficiencies and require higher treatment levels for increasingly prolific wells.

CES continued to effectively deploy strong surplus cash flow to return capital to shareholders while investing in strategic CapEx, accretive tuck-in M&A and working capital levels to support our current revenue run rate and position the company for identified growth opportunities.

In Q2, CES generated revenue of $574 million, representing an annualized run rate level of approximately $2.3 billion, and a 4% increase over the prior year's $553 million. Revenue generated in the U.S. set a new all-time record and came in at $406 million and represented 71% of total revenue compared to $402 million in Q1 2020, $91 million. Revenue generated in Canada set a second quarter record at $168 million compared to $230 million in Q1 and was 4% ahead of $162 million generated a year ago.

Elevated service intensity and production chemical volumes continued in the quarter driven by increasingly complex drilling programs. Customer emphasis on optimizing production through effective chemical treatments benefited both countries and countered declines in rig counts and the depreciating U.S. dollar, illustrating again the resilience of our business model.

Adjusted EBITDAC in Q2 came in at $88.3 million compared to $99.9 million in Q1 and $95.4 million in Q2 2024. Q2's adjusted EBITDAC margin of 15.4% came in near the low end of our targeted 15.5% to 16.5% range as was expected and communicated compared to prior year and prior quarter margins of 17.3% and 15.8%, respectively. This margin reflected investments in key personnel to support new business initiatives that Ken went through, variations in product mix and the impact of wildfires in Canadian operations and some temporary pricing softness during the quarter when WTI dipped into the $50s.

Including investments in working capital, CES generated $66 million in cash flow from operations in the quarter compared to $60 million in Q1 and $83 million in Q2 2024. The decrease in cash flow from operations year-over-year was driven by an increase in working capital requirements to support record revenue levels, offset by very strong [ finance ]. As measured by free cash flow to adjusted EBITDAC conversion rate, this equates to approximately 40% in the current quarter. The year-over-year decrease in free cash flow was primarily driven by higher investments in working capital to support these records commensurate with the changes in end markets and required support levels.

During the quarter, we continue to be active in our NCIB program, purchasing 4.8 million common shares at an average price of $6.36 per share [ 4.8 million] shares at April 1, 2025. Subsequent to the quarter, we completed the NCIB program by repurchasing the remaining 1.1 million shares at an average price of $7.18 per share for a total of $7.7 million of $7.46 per share.

On July 22, 2025, we renewed the previous NCIB to repurchase for cancellation up to 18.9 million shares, representing 10% of the public float at the time of renewal. Since the inception of the NCIB program in 2018, CES has repurchased 78 million shares, representing 29% of the outstanding shares at that time at an average price of $3.82 per share.

We ended the quarter with $491 million in total debt, representing an increase of $22 million from the prior quarter and $38 million in senior notes, a net draw on the senior facility of $177 million and $97 million in lease obligations. Total debt to adjusted EBITDAC of 1.25x at the end of the quarter compared to 1.17x at March 31 and 1.12x at December 31, 2024, demonstrating our continued commitment to maintaining prudent leverage levels in the 1x to 1.5x range. This prudent capital structure is further illustrated by our current net draw of $168 million, which has decreased by $9 million from the end of the quarter.

During the quarter, we closed the amendment and extension of our senior facility, which included an increase to the Canadian facility by $100 million for a total facility size of approximately $550 million. The new deal provides improved pricing, rightsized definitions and negative covenants and an extended term out to November 2028. This amendment in conjunction with last year's issuance of senior notes due May 2029 leaves CES with no near-term maturities.

The upsized credit facility and improved terms are consistent with the increased size, scale, and credit profile of CES. The new credit facility provides ample liquidity, optionality on return of capital opportunities and flexibility to repay and refinance the senior notes on our own schedule on suitable terms over the coming years. We are very comfortable with our current debt level, maturity schedule and leverage in the 1x to 1.5x range, thereby enabling strong return of capital to shareholders and prioritizing a sustainable dividend and share buybacks in addition to strategic tuck-in acquisition opportunities.

During the quarter, we closed the tuck-in acquisition of Fossil Fluids, which incurred an upfront cash outlay of $7 million to be followed by an EBITDA-driven earn-out over the next 3 years. Under Martin Kelley's partnership with AES and CES, Fossil Fluids is already realizing results above our expectations, underscoring the accretive nature of selective M&A in this environment. We have experienced the same accretive contributions from the acquisition of HydroLite in July of 2024, where Blake Linnerud's leadership and partnership is providing stronger results than originally estimated.

Our continued focus on working capital optimization has led to maintaining improvements in cash conversion cycle, which ended the quarter at 112 days compared to 111 a year ago. This translates to an operating working capital as a percentage of annualized quarterly revenue of 29.7% at the lower end of the historical range of the 30% to 35%. Each percentage improvement at these revenue levels represents approximately $23 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 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 return on average capital employed of 22%.

As demonstrated through our results, CES is bigger, stronger and more resilient than ever before, enabling strong surplus free cash flow generation in the current environment, providing valuable optionality for business strategy and return of capital options.

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

[Operator Instructions] Our first question today will come from John Gibson with BMO Capital Markets.

Just kind of wondering if you could elaborate on the projects you're bidding. On a preamble, are these production chemicals jobs, I'm assuming? And can we infer that they would be potential market share gains against your competitors?

Yes, they are, John. It's Ken, sorry. The RFP pipeline is pretty full right now. And the unique thing about what's going on right now is there's some bigger companies running tenders that we historically have not had an opportunity to bid on. So they're kind of business that's been long term and excluded from us. So more sophisticated and it requires having people on staff to be able to list in resumes as being the ones who will service the actual work. So it's led to us having to hire. We're running pretty loose right now with a lot more staff than we would normally be carrying because we believe we are in a really good spot to win some of these bids. The beauty of the overall tender picture right now is that the bids we're looking at almost none of them are existing business of ours. Probably 75% of them are places where we're not actually at risk of losing. We only have the upside production chemical business, that's kind of how we have to judge where we're going in the rig business. Obviously, you have rig counts to keep close tabs on where you're at market share-wise. But in the production chemical side, it's kind of a very opportune time right now.

Last one for me. Can you talk about pricing in Drilling Fluids? Obviously, you've given some factor in prior downturns, which makes sense. Just wondering what magnitude you're seeing this time around, if any?

We're working with customers. I mean, where it's possible and where we have the ability, we're finding ways to help them, prefer to do it with locking in pricing and things like that. So far, unlike in 2014 when everybody had kind of elevated margins and pricing, the last 7, 8 years in oil and gas have been pretty tight. Everybody has been on tenders and bids and everyone's got a procurement department now. So there isn't a lot of room to give a whole bunch back. But definitely, as things get more competitive, you've got to find ways to bring value, and we do that through specialty products, ways we can lower overall cost versus individual product prices and things like locking pricing in, in spite of risk around tariffs and stuff. And then we just have to adapt our supply chain to ensure it ourselves.

Okay. Congrats on a good quarter.

[Operator Instructions] Our next question will come from John Daniel with Daniel Energy Partners.

This might be one of the dumber operational questions, so apologies. But when you guys buy a business such as the fossil business and have a chance to look at their chemistry, if you will, how often do you find that they're doing something different or perhaps better than what you have? Or alternatively, do you buy the business and quickly deploy your product and stop selling there? Just some color would be helpful.

Sure, yes. In the case of HydroLite, it was a different business line. So we learned a lot from those guys. In the case of Fossil, we knew them really well, like they were using a wholesaler in their market, and they -- the wells they're doing are wells that we're competing with next door. So I mean, we didn't -- I wouldn't say we actually picked up any technology. We picked up access to a unique LCM that they use that has a strong reputation and gets used a lot in that market. So we did get some value out of that. But primarily, what we can do is just lower their overall cost of goods and then start learning from the work they're doing to see what we can bring to the table for technology ourselves.

Okay. Do they typically -- like -- I mean, this is a relatively small transaction, but is there any new customer mix that they bring to bear or no?

Yes, for sure. They're strong with one of the big operators in the U.S. and that does play into it. Obviously, we weren't doing any work for them in Oklahoma. So now we are.

[Operator Instructions] And our next question will come from Jonathan Goldman with Scotiabank.

Really nice quarter. I was wondering if you can maybe help us parse out the different takes on the margins in the quarter. How much did the fires and the tariffs and the supply chain restructuring and also the front-running investments in headcount act as a drag on margins?

Yes. It's like we're -- for obvious reasons, we're not going to isolate each of those. But I would say combined, we had two things happening in Q2. One is the typical seasonality that you see in Q2 because of our Canadian operations that this quarter represented about 30% of overall revenue. And then some of those unique attributes that you mentioned would have probably been in the 30 basis points range, and that would be on top of the typical seasonality effect that we have.

And I'll throw in that the biggest factor was the overhead, the staffing.

Definitely. And obviously, people can see the rationale behind that. And then maybe just thinking -- and I don't want to minimize what you guys have accomplished already in terms of market share in the U.S., but maybe you can help us think about what's driving the share gains? And is there an upper limit at this point? Or do you see continued runway to take share?

We still see a continued runway. I mean we've been -- we've still been taking market share in the Permian Basin. I think we're unique there in our supply chain and in our infrastructure that we can provide to customers gives us a big advantage on top of the technology and the service intensity improvements we can make for them with some chemicals and some chemistry. But the reason we have room to move in the U.S. primarily is because of all the other basins.

So even though we're inching up in the Permian now, we're not doing it in leaps and bounds anymore, but we're getting more and more. But we're focused on the Haynesville. We're focused on that Cherokee Shale. We're focused on the Northeast. One of our big customers just did an acquisition up there, and we've got a handful of rigs that are going to come out of that, and those are really good jobs as well. So we're in the past. Well, now that there seems to be an appetite for gas and there seems to be egress for gas, we're definitely putting more emphasis on those plays, and that's where the growth will come from primarily. And there's lots of room to grow. You look at Haynesville today, we're at 4 rigs out of 40. So we're at a 10% market share. We got a lot of room to grow there. And I'll also point out that when gas is strong, that reservoir or that area has typically run more like 80 rigs. So not only can we go up in share, but the rig count can double.

The other thing that we noticed over the years was the natural alignment with the secular trends that we're seeing in the industry with our customers getting bigger and combining. And 10 years ago, 5 years ago, we did way less work with the bigger companies. And now, and we have this in our investor presentation, if you look at the revenue that we get from public companies, customers, which is the vast majority of our customers, about 70% of that revenue comes from companies with market caps of $10 billion to $700 billion. So naturally, as these guys continue to grow and they do M&A, and that's also an indirect way that we've been growing that market share. And I think everybody would agree that those trends are going to continue. And if that's true, those examples that Ken gave earlier about some of the bigger company business opportunities that we're looking at, that should further support market share.

Yhis will conclude our question-and-answer session. I'd like to turn the conference back over to Ken Zinger for any closing remarks.

So we're -- Ken may have just dropped. So on behalf of the company... Yes, go ahead, Ken.

Sorry, I was on mute. I didn't realize that. Thank you to everyone who took the time to join us here today. We appreciate it. We look forward to speaking with you all again during our Q3 update on November 14. Thanks.

This brings a close to today's conference call. You may disconnect your lines at this time, and thank you for participating, and have a nice day.

Hello, and welcome to the Annual Meeting of Shareholders of CES Energy Solutions Corp. Please note that today's meeting is being recorded. If you participate in today's meeting and disclose personal information, you will be deemed to consent the recording, transfer and use of same. If you disclose personal information of another person in today's meeting, you will be deemed to represent and warrant to Computershare and the corporation that you first obtain our required consents for the disclosure, recording, transfer and use of such personal information from all appropriate persons before a disclosure.

During the meeting, we'll have a question-and-answer session for shareholders who have joined the meeting as a registered shareholder or proxy holder. You can submit questions or comments at any time by clicking on the Q&A tab. It is now my pleasure to turn today's meeting over to Mr. Matthew Bell, corporate secretary for CES Energy Solutions. The floor is yours.

Thank you for joining us today. My name is Matthew Bell, and I am the Corporate Secretary for CES Energy Solutions Corp., and I will act as Secretary for the meeting. Before we begin, we would like to provide a brief overview of the Computershare virtual meeting platform. You should now see the agenda on your screen. At the top right corner of the page, you will see different tabs and icons that you may click on to access different parts of the platform. If you have accessed the meeting with a control number or invite code, you may ask a question at any time by clicking the Q&A tab as well as vote in real time if you've not already done so by clicking on the vote tab.

If you have already voted, there is no need to vote again unless you wish to change your vote. Any questions should be addressed 1 matter at a time, and we encourage you to submit questions as early as possible. Questions related to items of business will be addressed immediately before each item is put to a vote and questions of a general nature will be addressed at the end of the formal part of the meeting. The chair will determine whether the question or comment is relevant to the item of business and otherwise, whether it is appropriate. If the question or comment is relevant to the matters to be voted on, I will read the comment and the Chairman will respond to the question.

Alternatively, the comment may be presented to the entire meeting with or without further commentary at the Chairman's discretion. The broadcast tab will not be enabled for this meeting. For convenience, we have divided today's meeting into 2 parts, which will be presented by Mr. Ken Zinger, Chief Executive Officer and Director of the Corporation. The first part of the meeting will deal solely with the legal requirements, and then Ken will provide a corporate update. In order to ensure that the meeting covers the required business in an efficient manner, we have prearranged with designated shareholders and proxy holders to move and to second the motions of business. Thank you, and I will now turn it over to our meeting chair, Mr. Ken Zinger.

Thank you, Matt. Good morning, and welcome to the Virtual Annual General and Special Meeting of the Holders of Common Shares of CES Energy Solutions Corp. My name is Ken Zinger and I will act as the Chair of the meeting. I will now call to order the Annual General and Special Meeting of Shareholders of CES Energy Solutions. Mr. Bell will act as Secretary of the meeting and Ms. Jennifer Oliver of Computershare will act as scrutineer. The notice calling this meeting of shareholders was mailed to all shareholders in advance of the meeting and is dated May 8, 2025. I would suggest that the secretary keep the proof of mailing of the notice of the meeting, information circular and form of proxy to the registered shareholders of the corporation with the records of this meeting. .

The bylaws of the corporation provide that a quorum exists if at least 2 holders representing at least 5% of the shares entitled to be voted at the meeting are present in person or represented by proxy. It has been confirmed by the scrutineers that a quorum has been met and 72.13% of the issued and outstanding common shares are being represented at this meeting. Accordingly, I declare that the meeting is regularly called and properly constituted for the transaction of business. I will now explain the voting procedures to be used at today's meeting. We have received all proxy voting results for today's resolutions in advance of this meeting. Anyone in attendance today who has not yet voted and is not signed in as a guest will have an opportunity to vote online in real time using the virtual meeting platform.

Rather than hold up the business of this meeting for the final tabulation of the votes cast on each motion, I will be providing the interim results received from the scrutineer in advance of this meeting on each of the motions presented. I have directed that the final combined results of the advanced poll and the votes entered through the virtual platform on all motions today be included with the minutes of this meeting. These results will also be available in the report on voting results posted on SEDAR following the termination of this meeting.

The polls are now open. The first item of business is the presentation of the financial statements of the corporation for the fiscal period ended December 31, 2024, and the report of the auditors thereon. Copies of the financial statements, including the report of the auditors thereon are available at this meeting and have been posted on the corporation's website and filed on SEDAR. As no action is required to be taken by the shareholders on the financial statements, I now declare that the financial statements of the corporation for the fiscal period ended December 31, 2024, and the report of the auditors thereon have been received by the shareholders as submitted to this meeting. The next item of business is to fix the number of directors to be elected at the meeting. May I please have a motion to fix the number of directors to be elected at the meeting at 7.

I so move.

I second the motion.

Are there any questions on this motion?

No, there are no questions.

Seeing none, we will proceed to the scrutineer's report. According to the report, the results of the vote to fix the number of directors at 7 are as follows: 99.14% for, 0.86% against. I declare the motion carried. The next item of business is the election of directors. The corporation has nominated 7 directors for election and has not received any nominations from shareholders pursuant to the bylaws of the corporation. The 7 nominated directors as set out in the corporation's management information circular are Mr. Spencer Armour, III; Ms. Stella Cosby, Mr. John Hooks, Mr. Ian Hardacre; Mr. Kyle Kitagawa, Mr. Joseph Wright and myself, Mr. Ken Zinger. May I now have a motion from the floor to elect the nominees as directors of the corporation to hold office until the next election of directors or until their successors are appointed.

I so move.

I second the motion.

Are there any questions on this motion?

No, there are no questions.

Seeing none, we will proceed to the scrutineer's report. According to the report, the voting results are as follows: Mr. Spencer Armour, 95.23% for, 4.77% withheld. Ms. Stella Cosby, 73.68% for, 26.32% withheld. Mr. Ian Hardacre, 98.65% for, 1.35% withheld. Mr. John Hooks, 86.62% for, 13.38% withheld. Mr. Kyle Kitagawa, 97.95% for, 2.05% withheld. Edwin Joseph Wright, 93.5% for, 6.41% withheld. And myself, 98.96% for, 1.04% withheld.

I would like to remind you that CES' majority voting policy requires that each director nominee receive 50% or more of the votes cast. I see that all directors have received more than 50%. Therefore, I declare that the 7 nominees have been duly elected as directors of CES Energy Solutions for the upcoming year. As noted previously, the final voting results for each director will be available on SEDAR subsequent to this meeting and will also be disclosed by press release. We will now proceed with the next item of business being the ratification and approval of the amended and restated shareholder rights plan as described in the information circular. May I have a motion to ratify and approve the shareholder rights plan as amended and restated.

I so move.

I second the motion.

Are there any questions on this motion?

No, there are not.

Seeing none, we will proceed to the scrutineer's report. According to the report, the results of the vote to ratify and approve the amended and restated shareholder rights plan for the corporation are as follows: 97.3% for, 2.7% withheld. I declare the motion carried. The final item of business is the appointment of auditors for the corporation. May I please have a motion that Deloitte LLP be appointed auditors of the corporation until the next Annual Meeting of Shareholders or until a successor is appointed and that the directors of the corporation be authorized to fix the remuneration.

I so move.

I second the motion.

Are there any questions on this motion?

No, there are not.

Seeing none, we will proceed to the scrutineer's report. According to the report, the results of the vote to appoint Deloitte LLP as auditors of the corporation are as follows: 92.77% for, 7.23% withheld. I declare the motion carried. As there is no further scheduled business to be brought before the meeting, this will serve as a 1-minute warning prior to the polls being closed. If you are voting through the virtual platform, please ensure that your votes are recorded.

[Voting]

Okay. The polls are now closed. Unless there is any other business to be brought forward, we will now proceed to conclude the formal portion of the meeting.

Sir, there are no questions.

Seeing none, I will now entertain a motion to end the meeting.

I move that the meeting be terminated.

I second the motion.

Any objections?

None.

Then I declare the formal portion of the meeting to be terminated, and will now present the corporate update. I will now provide a brief summary of the past year at CES as well as a quick snapshot of our outlook for the future. This past year has been another constructive and transformational year for CES Energy Solutions. We have continued to grow our revenue, EBITDA and free cash flow year-over-year to all-time records, all while improving our current debt level and capital structure. Some of the highlights of this performance are another all-time record annual revenue in '24 of $2.4 billion, another all-time record annual EBITDA in 2024 of $403.2 million. During 2024, we were able to repurchase and cancel $101.5 million worth of CES shares or a little more than 15.17 million shares of CES as we once again maximize our NCIB program.

We successfully worked to reduce our total debt net cash from $470 million at the beginning of 2024 to $453 million at the end of the year. This lowered our debt to trailing 12-month ratio from 1.44x at the end of 2023 to 1.2x at the end of 2024, midway into our targeted range of 1 to 1.5x. All of these impressive financial achievements led to our share price growing from $3.45 on January 2, 2024 to $9.91 on December 31, 2024. This represented an improvement of 287% during the course of the year. As a result of the strong financial performance highlighted previously, CES Energy Solutions equity was the #1 performing stock on the TSX Energy Index and the #2 performing stock on the entire S&P TSX Composite Index.

This outstanding accomplishment cannot be overemphasized and speaks to the quality of the strategy, execution and culture here at CES Energy Solutions. Now to highlight some of the operational achievements in 2024. JACAM Catalyst market share continues to be the #1 in the Permian Basin and a close #2 overall on land in the United States. As well, we have now successfully proven out our product line and capabilities in the Gulf of America offshore market. Due to this, we are now actively pursuing new business in this massive market in which we have only a tiny presence to date. AES market share has continued to grow, and AES Drilling fluids remains the #1 drilling fluids provider in the U.S. land market with a market share of approximately 23% at the end of Q1 '25.

As well, AES continues to be the #1 provider in the Permian Basin with a 32% market share at the end of Q1 '25. PureChem, our Canadian production chemical group continues to take market share in Canada and we believe it continues to be the largest production chemical provider to the conventional market in the WCSB as well we have continued to make progress in penetrating the heavy oil market. And finally, CES Drilling Fluids continues to be the #1 provider of drilling fluids to the Canadian market at around 35%.

In addition to Canada, CES drilling fluids is also leading the efforts in some of our international objectives as well. For 2025 and beyond, our growth strategy remains the same: continue to strive to expand our business in all service lines and all areas in which we currently operate, our goal is always to be the #1 supplier by market share in each of these market segments.

We are focused on expanding our position in the offshore production chemical market worldwide. This journey has started in the Gulf of America, and we'll continue to focus on evolving and expanding our position wherever the opportunity and capability exists over the coming years. We also continue to look for opportunities in the international markets to expand our drilling fluids presence. We have identified the countries where we can bring the most value to potential customers in a manner that is profitable for our shareholders and safe for our employees.

Finally, I will finish by noting that we remain optimistic in our outlook for the future here at CES. We believe that all of the above approach to energy supply by the world will be the winning strategy for all. This approach should lead to more stable pricing and activity levels in our industry for years to come. Within this market, we believe we are very competitively positioned to continue to grow and excel throughout our divisional offerings.

We will continue to focus our strategy on finding the best possible balance between our customers, our employees and our investors. Our accomplishments to date and this strategy would not be possible without the people and culture that are present every day here at CES. I continue to be very proud to lead this organization now and into the future. Thank you to everyone who works for us, works with us and trust their investments in us. We appreciate your vote of confidence, and we'll continue to commit to always doing our best to honor and earn it. With that, I'll now pass the call back to the operator.

This concludes the meeting. You may now disconnect.