Nevaro Capital Corp Stock

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 6, 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 generally accepted accounting principles. And for a description and definition of these, please see our second 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, and welcome, everyone. Thank you for joining us for our second quarter 2026 earnings call. As always, I will start my comments today by highlighting some of our major financial accomplishments that we achieved in Q2 of 2026. Our quarterly highlights include our third consecutive all-time record quarterly revenue of $714.1 million, which was an improvement of 24.4% over last year's Q2. It was also our highest quarterly EBITDA ever at $119.2 million, which marked a massive improvement of about 35% over last year's Q2.

Q2 EBITDA margin of 16.7%, which was above our stated guidance range of 15.5% to 16.5% total debt to trailing 12 months EBITDA of 1.15x, our sixth consecutive quarter of record-setting U.S. quarterly revenue with $497 million, our best ever Q2 Canadian quarterly revenue of $217.1 million. 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. We will continue to support the business with the necessary investments required to provide acceptable growth and returns. This includes the updated CapEx plan for 2026 of $100 million, spread equally between maintenance and growth.

We will continue to research and execute on strategic 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-month EBITDA range of 1 to 1.5x as previously communicated. Now for a quick summary of our Q2 performance overall and by division. Today, our rig count in North American land stands at 235 rigs out of the 791 currently listed as operating. This represents an industry-leading 29.7% market share. During Q2, 70% of CES revenue was generated in the United States and 30% in Canada, which is typical for a Q2 due to breakup in Canada. Cost pressures and supply chain challenges due to the fallout from the Iran conflict were felt across the business throughout Q2.

As evidenced by our Q2 margins of 16.7%, our entire team has worked tirelessly along with our customers and suppliers to find common ground on pricing. This effort included procuring reliable replacements and redundant sources for all affected products and inputs. I cannot emphasize enough the tremendous job done by everyone in the company to achieve the current results in light of all the pricing headwinds currently impacting our industry. We continue to not expect these fluctuations to cause meaningful or sustained margin erosion. We are actively managing the challenges as we have during previous cost escalation periods, and we do not expect any material impact to 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 89 of the 219 jobs listed as underway in Canada for a 40.6% market share. As everyone is aware, the overall active drilling rig count in Canada in Q2 was considerably higher year-over-year as commodity prices and industry optimism spiked due to the current Middle East situation. Now that we are through breakup in Canada and well into the summer drilling season, we remain very optimistic about WCSB activity levels. This is evidenced by the current WCSB rig count in August, which is at its highest level for this time of year since 2014.

We anticipate these higher activity levels will continue throughout Q3, Q4 and Q1 2027 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 fallout. PureChem, our Canadian production chemical division, continued its run of strong results in Q2. PureChem continues to grow as all of the business lines continued to perform at record levels. We anticipate experiencing further revenue and earnings growth at PureChem due to our consistent market penetration and higher activity levels that we expect to continue in the near future.

The previously announced trial in the heavy oil sector of the market continued throughout Q2 and will progress well into the second half of 2026. In the United States, AES, our U.S. drilling fluids group, is currently providing chemistries and service to 146 of the 572 rigs listed as active in the U.S.A. land market today, including a basin-leading 39.5% of the rigs in the Permian. This combines for a continued #1 market share of U.S. land rigs at 25.5%. Our U.S. customers remain busy, and our outlook is constructive for the remainder of 2026 and into 2027. At AES Completion Services, which is what we renamed our [ Hydrolite ] acquisition, the revenue and market share continues to grow at a level exceeding expectations.

This division is now operating at a very high level and has grown revenue by over 5x since we acquired them in June of 2024. Finally, our U.S. production chemical division, JACAM Catalyst continues a steady trend of growing market share and profitability. The division remains focused on further market penetration in all the 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 all of the awarded locations associated with the large RFP referred to last year, and the business is now seamlessly operating at this much higher revenue run rate level. As well, progress continues in the offshore Gulf of America market.

As previously noted, this is a long and slow growth opportunity that we continue to make progress on. We believe our Q4, Q1 and Q2 results are indicative of the tremendous torque we have continually building in our business. We also believe that North American upstream activity will continue to accelerate throughout 2026 and 2027 based on current industry conditions and expected activity levels.

We now believe that 2027 is looking stronger than previously anticipated for North America and for CES 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, over the last couple of years, we have taken significant steps to restructure our manufacturing and supply chains in order to minimize future exposures as much as possible.

I will state once again that as clearly noted a year ago on our Q1 2025 earnings call, the impact from tariffs to date continues to be immaterial to our overall business. By way of update, I would now like to remind investors of our targeted growth opportunities for the business in the coming years. U.S.A. production chemicals. Based on third-party reports and our own internal research, estimated U.S.A. land production chemical market is currently worth approximately CAD 4 billion to CAD 4.5 billion annually. According to the Kimberlite report from last fall, we are the second biggest production chemical company in U.S.A. land, and we held approximately 21% of this market. We are waiting to see what they say about the market share in the U.S.A. production chemicals next month when the 2026 report is published.

Our goal remains to expand this market share and become the dominant #1 supplier in this space. Canadian heavy oil production treating. Third-party reports suggest that this segment of the Canadian market is approximately CAD 800 million annually. Today, we have a very minor share of this business, and we have spent the last 10 years making slow, steady progress on penetrating this technical sticky, high-margin profile market. We continue to make steady progress at the 2 smaller facilities we are servicing, which we have previously mentioned as well as we have recently been awarded 2 additional small facilities where we are also treating with a complete line of chemistries.

As mentioned on the past couple of calls, we are continuing the live testing trials on one of the larger facilities in the province. In addition to this trial, we are now just starting trials with 2 more opportunities at larger heavy oil production facilities. Like the existing trials, these additional trials will be ongoing and complicated, and I want to note that time lines to successful award will be measured in months and years, not days and weeks. Our goal remains to attain a meaningful market share in this space over time, much like we have in the broader Canadian production chemical space. And recent progress suggests that successful penetration is starting to accelerate. Next up is offshore Gulf of American production chemicals. Third-party reports suggest that this market size is approximately CAD 1 billion annually.

We are in the very early innings of a very long cycle time to penetrate this business in a meaningful way. Today, we are a very small player in the space. However, since buying Proflow in 2022, we have been hiring experts, building out manufacturing capabilities, and we also recently built an offshore focused lab in the Woodlands in Houston. We have been experiencing more and more trial opportunity flow due to these initiatives. We are focused on someday holding a meaningful market share in the deepwater Gulf of American production chemicals market and have a focused team who are dedicated to and actively pursuing this result. Also, international markets. We continue to have very minimal exposure to these markets. Today, we generate a small amount of revenue and earnings from a minor presence in a half a dozen countries, which we have targeted specifically as having the characteristics best suited for us to compete.

We also have participated in a couple of RFPs in the Middle East over the past year, which yielded very promising results. As can be appreciated, the issues around the Iran war have caused these opportunities to be delayed indefinitely. In spite of this setback, we are continuing undeterred in our efforts to expand geographically. And last but not least, North American macro growth. This is something that is obviously beyond our control. But as the past few months have shown, when the market gets busier, we are rewarded with significant growth in earnings.

As a final thought, I want to extend 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 anticipated experiencing, we have increased our total number of employees at CES by 6.5% since the start of the year from 2,707 employees on January 1 to 2,882 employees at the end of Q2.

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

Thank you, Ken. The second quarter represented an important continuation of a steady march to achieving a record revenue run rate of approximately $2.9 billion, bolstered by strong EBITDAC margins above our 15.5% to 16.5% targeted range and record funds flow from operations, collectively demonstrating the attractive financial attributes of our unique business model. These results underpin the 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 Q2, CES generated record revenue of $714 million, representing an annualized run rate of approximately $2.9 billion and a 24% increase over the prior year's $574 million.

I would also note that this is the third consecutive quarter that has generated an annualized revenue run rate of approximately $2.7 billion or greater and the first quarter achieving the $2.9 billion range, 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 $497 million, representing 70% of total consolidated revenue. These results compare to revenue of $438 million in Q1 2026 and $406 million in Q2 2025. Revenue generated in Canada also set a new second quarter record at $217 million compared to $168 million in Q2 2025 and sequentially below the $244 million in Q1 2026 as expected on a seasonal basis.

Revenue levels benefited primarily from increased market shares 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 illustrated the resilience and attractiveness of our business model. Adjusted EBITDAC in Q2 came in at $119.2 million compared to $111.7 million in Q1 and $88.3 million in Q2 2025. Q2's adjusted EBITDAC margin of 16.7% came in just above the high end of our targeted 15.5% to 16.5% range and compared to 16.4% in Q1 and 15.4% in Q2 2025.

These results were primarily driven by record revenue levels combined with strong margins, continued increased service intensity and a single short-term project. Funds flow from operations, which isolates the effect of working capital fluctuations and is a key barometer of the cash flow generating capability of the company was a record $97 million in Q2 compared to $62 million in Q1 and $77 million in Q2 2025. CES generated $60 million in cash flow from operations compared to $69 million in Q1 and $66 million in Q2 2025. The decreases in cash flow from operations relative to comparable periods were driven primarily by significant strategic working capital investments to support record revenue levels. Free cash flow was $25 million in Q2 compared to $33 million in Q1 and $35 million in Q2 2025.

As measured by a free cash flow to adjusted EBITDA conversion rate, this equates to approximately 21% in the current quarter and 37% for the trailing 12 months. Excluding the impact of changes in working capital, these figures would have been 51% and 46%, respectively. CES maintained a prudent approach to capital spending through the quarter with CapEx spend net of disposals of $24 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 $100 million, split evenly between maintenance and expansion capital.

The modest increase in estimated 2026 CapEx spend is earmarked to support incremental accretive business development opportunities and current record revenue levels. During the quarter, the company continued with its measured pace for share buybacks, thanks to 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 maximize long-term shareholder value. Consequently, during Q2, we repurchased 780,000 common shares at an average price of $17 per share for a total investment of $13.3 million, representing 0.4% of the shares outstanding as of April 1, 2026.

Subsequent to the quarter, we have already purchased 735,000 shares at an average price of $16.60 per share for a total of $12.2 million, representing an acceleration from Q2 repurchase levels. On July 22, 2026, we renewed the previous NCIB to repurchase for cancellation up to 18.1 million shares, representing 10% of the public float at the time of the renewal. Since inception of the NCIB program in 2018, CES has purchased 89 million shares, representing 33% of the outstanding shares at that time at an average price of $4.70 per share. On June 15, 2026, the company completed the private placement of $300 million of 5 5/8% senior unsecured notes due on June 15, 2033. The company used the proceeds from the issuance to repay the existing $275 million of 6 7/8% senior unsecured notes due on May 24, 2029, and partially repaying amounts outstanding on the senior credit facility.

The refinancing decreases [ CES ] annual interest costs by approximately $2 million per year, extends our debt maturity profile to 2033 and provides additional financing flexibility. The resulting total debt at the end of the quarter was $513 million, representing an increase of $21 million from March 31, 2026. Total debt was primarily comprised of the new $300 million in senior notes, and net new draw on the senior facility of $98 million and $96 million in lease obligations. Total debt to adjusted EBITDAC of 1.15x at the end of the quarter compared to 1.18x at March 31, 2026, demonstrating our continued commitment to maintaining prudent leverage levels in the 1 to 1.5x range.

This prudent and flexible capital structure is further illustrated by our current net draw of approximately $172 million, which has increased by $74 million from the end of the quarter, driven by the settlement of the company's quarterly dividend, NCIB share repurchases and the timing of annual PSU-related compensation payments. 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. 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 95 days compared to 112 days in Q2 2025.

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 $29 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 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% and a return on invested capital of 18% and well above our internal 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 IRRs 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 very prudent payout ratio of 15%, well within our target range of 10% to 20%. Through the year, we continue to 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 1 to 1.5x target leverage range. In the context of these guardrails and current market conditions, we intend to continue our accelerated buyback activity levels as illustrated during the last 2 months.

We 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.

[Operator Instructions]

Your first question comes from the line of Keith MacKey from RBC.

So the margin in the quarter was quite strong at 16.7%. Certainly, there were some obvious factors driving that revenue growth, et cetera. You also mentioned a onetime or nonrepeatable project in there. Tony, can you maybe just parse out the strength of that margin in the quarter and what led margins to reach the 16.7% this Q2 when they're normally a little bit seasonally weaker?

Yes, for sure. We mentioned the onetime project from part of our business. It was in one of the Canadian divisions just because we provide that transparency in our financials, in our MD&A in particular. When we look at what contributed to that 16.7% margin, that was definitely one component, but it wasn't the only one. When you combine that contribution plus the fact that we had the Canadian dollar weakened quarter-over-quarter on average, and that was a bit of a bump. We had some specific product categories increase in value. And as a result of our standard cost accounting, that leads to a debit of our inventory credit of our cost of goods sold, so a little bit of a bump there.

So those were the sort of one-timers that would have otherwise had that margin be lower than the 16.7%, probably somewhere squarely between the 16% to 16.5% range. But just stepping back, I think the more important takeaways are the facts that all of the divisions ended up with very high revenue levels. And importantly, they grew into the higher SG&A that they had been building over the last year to, for example, support the big RFP win at JACAM Catalyst, for example, to support the 150 rigs on average that AES had in Q2 versus 135 in Q1.

So those 3 items that I described were sort of one-offs that would have got us back inside the range that we said. But the bigger takeaway here is that the company continues to fire on all cylinders, and we like to expect that we'd be living in the higher end of our 15.5% to 16.5% guidance level for EBITDA margin and potentially beyond as we go forward here.

Got it. Okay. Okay. That's helpful. So just curious, as a follow-up, like what's keeping you from raising that margin guidance? Like you've exceeded it. I think it's around 7 of the last 10 quarters, exceeded the top end of that range. It sounds like you're angling or anchoring towards a 16-plus percent margin now. Like what's keeping you from raising the top end of that margin range to the 17% or 17.5% range?

Well, just avoiding misleading investors to expect something at a higher level when we're still not sure that we have a clear-cut path to it. And as Ken has described before, if things were very steady Eddie, we didn't have the ups and downs, from a cost perspective and potential pricing perspective as we've experienced because of the Middle East conflict, we'd be in a much better position to provide that guidance. We're just not there yet.

Yes. If you look back at our numbers, Keith, I'm sure you know, but when we were getting those steady 17s, it was during 2024 when the market was fairly stable for us. It was after all that shipping conflict in '22, '23 and before the Iran stuff earlier this year, which just allowed us to get everything dialed in when you have a steady market like that. But the latest conflict has us right back into the midst of shortages, shipping problems, prices fluctuating all over the place based on tweets, like it's a very difficult environment to not only cost products, but to get some products.

So I just want to say again, how proud I am of the teams we have in procurement, supply chain, sales that have navigated us through this quarter because at the start of the quarter, I know I was guiding guys to some challenges that could come out of the -- all the things I just mentioned. And we were kind of thinking at the beginning of the quarter that it might be in the lower end of the 15.5% to 16.5%, but it was just through great work by everybody that we got higher.

You next question comes from the line of John Gibson from BMO Capital Markets.

Obviously, the margins were stronger this quarter. How do we think about them through the back half of the year, more specifically, just given some of the incremental costs in the business, it looks like you've been able to pass them through, but will we see some following on to potentially lower margins in Q3 and Q4?

I think you should expect more of the same. And by more of the same, we mean the higher end or the higher half of our 15.5% to 16.5% EBITDA margin target range.

Okay. Great. And just one more for me. You talked about time lines being months or years for some of these buckets of growth you talked about, what would be your expectation that could potentially come first, whether it's SAGD or the offshore production chemicals or U.S. onshore market share gains?

Well, I think the U.S. market share -- onshore market share gains are the #1 thing that we're having everyday success with. I mean that's happening on both sides of the border, but really a little more on the U.S. side, just really starting to get some momentum down there with that stuff, and that stuff showing up in real time. The offshore stuff, it will be -- instead of telling you where we're at every -- like we're still on the 4 platforms, instead of telling you that stuff every quarter, I'm just going to update when we have a win. We're still doing -- we've got more trials going there today than we had 3 months ago. And if something clicks, we'll definitely let people know and talk about it. And then heavy oil, same thing.

We've got a couple more trials going now. So we've kind of got 3 big projects trialing. We've picked up some more work there. The pipeline is increasing. Credibility seems to be accepted. And -- but they're long term, right? They do contribute to revenue a little bit as you go through the trials because you are adding a product or 2 most of the time through the trial period. It's just that the trials, I underestimated sort of how long they can run, and it looks like they can run a year or more as they slowly work towards completely ensuring they're not going to have a problem when they make the transition. But when same thing on those, when we get awarded, we'll make sure to let everybody know.

I could sneak one more. And apologies if I missed this. What would incremental margins be on the SAGD and U.S. offshore work relative to your sort of base business?

Yes. We point to what's been said in the public before. If you go back to when ChampionX was a stand-alone public company, they used to talk about those margins being in the 20s, in the 20% to 30% range. So definitely higher than our current corporate average.

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

Ken, thanks for going through the opportunity set again. I appreciate that. But if you take a step back of all the trials you're on and the projects you're looking at, is there any play or project that you're particularly excited about, whether the size of the opportunity or the timing of it coming to fruition?

Yes. I mean, for sure, the clear #1 there is U.S. land production chemicals. I mean that's -- we're taking market every day, and we're looking at big opportunities today, like we've got some -- not as big as that one big RFP we had -- we worked on last year and not requiring sort of the overhead weight that we put on the company last year as we prepared for that RFP. But we've got big chunks of business coming through all the time, and that business is hitting on all cylinders right now. And that's -- for sure, that's going to be the thing we see the growth in first and most steadily.

And the share gains in the production chemicals business, are you able to discuss at whose expense those are coming? Or what do you think is driving the incremental share there?

I mean there's been some changes in the market, right? And so everybody has taken another look at what they're doing. And then there's just always the credibility. The bigger you get, the more you work for the bigger companies or even the smaller companies in some challenging areas, the more credibility you get, which gets you on to more bids and gets you taken more seriously. So in Canada, we're about 1/3 of the conventional production [ chem ] market. In the Permian, we think we're much higher percentage than the 21% we're ranked at overall in North America. And so we -- I just don't see a reason we can't grow that business substantially from the already big size it is, and we're kind of proving that every day right now.

And just to put some additional numbers behind that, Jonathan, and we update this in our investor presentation every quarter. where over the years, we've tracked the quantitative aspects of what -- a lot of what Ken just described where when you look at the winners in this industry, Canada and the U.S., they've been consolidators. And when you look at the way our company has performed from a technical and service-oriented perspective, we continue to work with those biggest and best companies.

So as they grow, we grow. And if you look at how that's progressed, right now, as we stand, when you look at all of our revenue and you look at public information as a proxy, public company customer information as a proxy to determine the sizes of companies that we generate our revenue from. If you were to extrapolate that, you would see that -- and this is in our investor deck, about 90% of our revenue comes from companies that are sizable, market cap equivalents of $10 billion to $900 billion. So these are the guys that are gaining share, and we're doing a good job supporting them. So our market share goes up accordingly.

And I don't want to deemphasize the importance of heavy oil and offshore. When we get those wins, those will be very sticky work. There'll be good margin, and they'll be high volumes, so they'll have an immediate impact. But it's just the time lines on those things are pretty extended. We're making progress. We're working towards it. And someday, we're going to succeed there, hopefully, within the next year, but we'll just see how that goes. It's going really well so far. But the thing we can see, the thing we can look at every day and see the growth in is definitely U.S. land production chemicals.

Yes, we can all see the growth as well. And I guess maybe one more for you, Tony, or Ken, whoever wants to take it. I appreciate you guys laying out the capital allocation priorities again. In terms of M&A, is there anything that you're missing in your portfolio, whether it's from a product perspective or region that you think you need to fill in there? Is there anything in the pipeline that you're looking at? Or do you feel that organic growth is probably the best avenue right now as well as the buyback and the annual dividend consideration?

Well, I'll start with that one. I mean we say all the time, we look at everything, and we literally do look at everything we hear about or that gets sent to us. But we don't -- I don't believe we have a hole in our arsenal. We have evaluated a bunch of different businesses and opportunities. And even on the supply side, if there wasn't a company out there that we thought we could buy because they had some chemistry that we needed the ability to create ourselves, we would just go do it ourselves organically, and that's kind of what we do, the small pieces that we pick up along the way. But today, we're kind of -- we have the full slate. There's really nothing that's burning a hole. So we're content to continue to buy our shares because at these levels, I believe that's the best thing we can do with our capital.

Yes. The other thing to reiterate that we've talked about before is if we were to find high-quality businesses to help us advance those 3 key strategic growth opportunities that we're already expanding into organically, we would take a very serious look at those. And that would be, a, strategic; and b, anything that we looked at that we look at that's reasonably sized would have to have similar financial attributes that we do, high ROCE and good margin potential. And if we were to check the boxes on those and again, reiterate if there is something that could advance our penetration of those markets that we're growing into organically, we would take a very serious look at those.

Got it. At the risk of sounding like a broken record, great work, nice progress over the years.

The next question comes from the line of Tim Monachello from ATB Cormark Capital Markets.

I want to dive in a little bit on the offshore stuff. And kind of as a follow-up to John's question, what are the incremental margins there? And given that you're running 4 platforms and adding capabilities, are you -- is that work currently margin accretive? Or is that dilutive? And when -- at what scale do you think that you start to see the benefits of that business on the margin?

Yes, that's a good question and a wise observation. The answer is no, we're not achieving 20% to 30% margins in that part of our business. And that's simply because we have built a world-class offshore-oriented lab in The Woodlands because we have hired some of the best and brightest people to help us expand into that market. So we have the benefit of the size and scale of our business to be able to support that extra -- those extra costs that are higher than the current revenue levels require, just like we did in the JACAM Catalyst business for a few quarters as we were looking to win those RFPs.

So the answer is we're not there yet, Tim, for sure. And that's just not our style. We made a conscious decision to invest in the growth of that business, and that's what we're doing. And in terms of using the number of platforms as a barometer, that's not perfect. As we've explained before, -- there are some platforms that are very large in terms of volumetric flow rates, some that are smaller.

There's some that use a vast array of specialty chemicals, some that don't. So you can't simply take 4 or 5 divided by the 55 to 60 targeted platforms, multiply that by $1 billion. But like Ken said, we will provide updates. And I think as we get through the next few years, like that's not 10, but it's not 1 or 2, we should start getting to and through our corporate average EBITDA levels.

Okay. Yes, that's helpful. And then on balance currently, can you talk a little bit what your revenue split is between production chemicals and drilling fluids roughly? And just given the fact that a lot of the growth initiatives across the platform are in the production chemical space, whether it be offshore, onshore U.S. or in heavy oil, where do you think that, that mix could trend towards?

So it's currently at 53% production chemicals and 47% drilling fluids. And yes, you're right, and Ken will elaborate, but those opportunities that we've been talking about are more geared towards production chemicals. and Ken can talk about the strategic thoughts behind that. But from a financial perspective, that's great that the growth has been there, and we've been earmarking that growth. But the guys running the drilling fluids divisions have been knocking it out of the park. They've been winning big pieces of business with very good customers.

They've been penetrating new markets and new customers. And they've been very efficient and effective in increasing the specialty chemical mix on the overall product offering, especially for the complicated wells. We call it our magic number, the revenue per rig per day. Each of the drilling fluids divisions not only has grown into new opportunities, but they've been increasing that number, which tends to allow them to keep up with the production chemical-related growth.

Yes. And I'd say on both sides of the border when it comes to drilling fluids, we're making progress on market share. There's no big projects like we're talking about on the production chem side to speak of. So it's -- if there's something that we're doing in the company that's focused on drilling fluids, it's just continuing to take market share. And it's also the international growth opportunities I talked about. All of those -- all but one of the half dozen countries that we're working in are drilling fluids-related opportunities. And the RFPs we've been participating in, those are drilling fluid opportunities. The way we're thinking about those markets is that we would get on the ground with drilling fluids first to penetrate, establish a foothold and then bring production chemicals in behind that.

Okay. That's helpful. And then if I can sneak one more in. Just on the M&A front, I'm just curious if there's any other parts of the market that you're interested in getting a foothold in through M&A. And when I think about the composition of ChampionX before it was acquired by Schlumberger, it had a lot of technology vertical, IT or software platforms within it. Is there anything -- is there any appetite for an acquisition like that or adding a service line that's sort of new to the business?

I think we've been pretty focused on the chemical side. So if it related to what we're doing downhole with chemistry, that would be something that would be interesting. But we're aware of who's out there as far as branching off into something that's outside of the breadth of what we do. We're not spending a lot of time looking at that stuff.

Yes. The other thing I'd say from a financial perspective is oftentimes like there have been secular trends in parts of the value chain in oilfield services that have commanded a lot of attention and of interest, and we think about those a lot. But what Ken and I typically do in those cases is we ignore the name of the company and the exact business lines that they're in, and we look at the numbers.

And you can't hide behind the ROCE numbers that we put up, the ROIC numbers that we put up, the free cash flow conversion rates that we put up. And those are the things that carry the day at the end of the day where if those opportunities as interesting and as exciting and as much press as they get, don't have the financial profile to support our business model from a financial and valuation perspective, we don't spend a lot of time on them.

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

Ken, can you walk me through what you're seeing with respect to volumes, your volumes on a per lateral foot basis?

Sure. I assume we're talking about drilling fluids. And if that's the case, we have a number that we track in the company that's called our magic number, which relates to the revenue per rig per day, and that number is trending up. I would say that, Paul, Tony, you would know those numbers better than me. What is the -- what has been the trend of the number?

Yes, that number over the last 3 years is up 40%, revenue per rig per day.

Okay. But when you -- I guess if you go from -- see a customer go from 3-mile lateral to 4-mile lateral, like I know their volumes go up because the length is longer. But when you look at it on that per foot basis, do you have a sense -- and I can call back if you don't have it handy, but on a per foot basis, is it going up or down or just hold it steady?

It definitely goes up as you get further out, John, you're right on that. As far as the number that I -- to give you, I don't have that handy, so we can follow up with that for sure. The further you go, the higher the rate is. And the more specialty chem, the better margin it is for us and the more differentiation we can create between ourselves and our competitors through better products.

Okay. And then the second one, sort of a big picture one, but just increasingly, you see more of the U.S. operators calling out their increased workover programs and so forth. And I'm just curious if you could just go a little bit deeper on what you're seeing in the U.S. land side of the production chemicals business.

As far as the volumes that are being produced daily?

Just any changes in trends or anything along that line? I mean, I know it's strong, but just what are customers coming to? And are they looking for new formulas, rising workover activity? Just any additional color on production chemicals and the trends?

No. I think we -- I'll start with that. I think we have the divisions on both sides of the border with [indiscernible] [ StimWrx ], where we do acid treatments primarily, but a bunch of things to help with bring production back on from existing wells. Those businesses on both sides of the border are running at high levels. We have the workover business with AES Completions. That business, obviously, as I've talked about, the old [ Hydrolite ] has been growing massively. I'm not sure that the market overall is growing massively. It's just we're taking a bigger chunk of what's there. you got anything else?

Yes. And the other thing that we've touched on before is the fact that guys are doing more with less. If you look at production levels and the number of wells that are actually being drilled today, there's been a disconnect versus historical levels. And the math simply points to the fact that the wells that are being drilled and are producing now are way more prolific than they used to be. And their initial production rates are very high, much higher during that first phase than they used to be. And we like or love that because that's the time in the production phase that requires the biggest concentration of chemistry in a lot of cases, the highest percentage shift towards the specialty chemicals.

So that means 2 things, higher revenue and higher margins. The other thing that's production chemical related is the fact that with [ TI ] trading, I guess, today in the 70s versus the levels that we were at earlier in the year, a lot of these wells that are the smaller volume producing wells that used to be set aside by the wayside because they weren't big producers at these levels, including where we're at right now with [ TI ], one of our divisions called StimWrx in both Canada and the U.S. does a really good job of speaking to intelligent operators about increasing the flow rates of those lower volume aged wells for a very modest investment that is able, in a lot of cases, to double their production within weeks or months and earn paybacks within 3 or 4 months.

And then the last one, there's been a lot of talk of surfactants. And our guys are doing a lot of work there to penetrate that market and/or grow in that market. And I'll leave it to Ken to provide more color on that from -- but we want to be careful from a competitive perspective. The one thing that I can say very openly is that the fact that, that increased surfactant use does 2 things. Number one, opens a market for more production chemicals. But interestingly, the observation for several months has been that use of surfactant is awesome for our customers because it allows them to get more of what they got.

But it does have a knock-on effect where the volume and type of chemistry needed to treat production after surfactant use is higher and higher margin when you look at the specialty chemical component to deal with the aftermath of the surfactant use, which we really love.

Yes. I'd say on the surfactant use, we are hearing that more talking to customers, press releases, those sorts of things. And we've been doing a lot of work on it. And what's changed, that surfactants have been around for a very long time. People have been using them for a very long time. We use them extensively at StimWrx and with the frac -- a little bit of frac business that we do. We provide surfactants and have for the last 20 years.

But what's changed is just how specific they're targeting those surfactants -- rather than giving -- naming a reservoir and picking a surfactant that works best in that reservoir, they're actually testing the water and the oil that's being produced from that reservoir and then applying a specific surfactant to that. So getting a lot more dialed in on what surfactant, which once again plays into our hand because it means they're specializing in the chemistry, which we're pretty good at.

[Operator Instructions]

There are no further questions. I'd like to turn the call back over to Kenneth Zinger for closing remarks.

Okay. Well, thank you, everyone, for joining us today, and we look forward to speaking to everybody again during our next call on November 13.

This concludes today's meeting. You may now disconnect.

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.