CES ENERGY SOLUTIONS CORP. ANNOUNCES STRONG Q1 2024 RESULTS WITH RECORD REVENUE AND ADJUSTED EBITDAC AND DECLARES CASH DIVIDEND

CALGARY, AB, May 8, 2024 /CNW/ - CES Energy Solutions Corp. ("CES" or the "Company") (TSX:CEU) (OTC:CESDF) is pleased to announce strong financial results for the three months ended March 31, 2024, with record quarterly revenue and Adjusted EBITDAC. The Company's Board of Directors also approved a quarterly dividend of $0.030 per share, which will be paid on July 15, 2024 to the shareholders of record at the close of business on June 28, 2024. First quarter highlights include:

• Record quarterly revenue of $588.6 million, increased 6% both sequentially and year over year
• Record quarterly Adjusted EBITDAC of $102.0 million at a 17.3% margin, increased 21% sequentially and 32% year over year
• Cash Flow from Operations of $86.3 million and Free Cash Flow of $57.4 million
• Total Debt/Adjusted EBITDAC reduced to 1.28x from 1.49x at Q4 2023 with long term debt declining by $35.5 million to $355.1 million
• Returned $23.7 million to shareholders through $17.8 million in share repurchases and $5.9 million in dividends
• Completed the July 21, 2023 NCIB program, repurchasing 18,719,430 shares, representing 10% of the public float at renewal

The record results achieved in Q1 2024 demonstrate the unique resilience, cash flow generation, and profitability characteristics inherent in CES' capex light, asset light, consumable chemicals business model supported by industry leading people, infrastructure, and technology.

CES provided valuable solutions to increasingly complicated drilling programs which require higher levels of service intensity, effectively overcoming a lower North American industry rig count. Attractive growth was also achieved by delivering superior production chemical services and technology to active, results oriented, high quality customers as they continue to maximize returns on their producing wells through effective chemical treatments. Adjusted EBITDAC margins improved 200 bps as a result of increased service intensity, an attractive product mix, and continued adoption of innovative, technologically advanced products supported by a prudent cost structure and vertically integrated business model.

CES continued to aggressively return capital to its shareholders, underpinned by strong free cash flow generation and prudent leverage. During the quarter, CES returned $23.7 million to shareholders, through $17.8 million or 4,576,130 common shares repurchased under its NCIB in addition to its quarterly dividend of $5.9 million. As at March 31, 2024, CES completed its July 21, 2023 NCIB program, repurchasing 18,719,430 shares representing 10% of the public float at renewal, and has the intention to renew the program on July 21, 2024.

CES remains confident in its ability to continue generating strong surplus free cash flow, supported by its financial performance, outlook, and capital structure. Furthermore, on May 8, 2024, the Company's Board of Directors approved a quarterly dividend of $0.030 per share, which will be paid on July 15, 2024 to the shareholders of record at the close of business on June 28, 2024.

In the first quarter, CES generated record revenue of $588.6 million, representing a sequential increase of $35.1 million or 6% compared to Q4 2023, and 5% ahead the previous record of $562.7 million set in Q4 2022. First quarter revenue of $588.6 million also represented an increase of $30.9 million or 6% relative to Q1 2023, as increasing service intensity, higher production chemical volumes, and strong market share resulted in an overall uptick in revenue compared to prior year, despite declines in the US and Canadian industry rig counts.

Revenue generated in the US during Q1 2024 set a new record at $387.7 million, representing a sequential increase of $26.6 million or 7% compared to Q4 2023, and an increase of $18.7 million or 5% compared to Q1 2023. US revenues benefited from higher production levels with increased service intensity and market share gains which more than offset the impact of decreased industry drilling activity when compared to Q1 2023. CES continued to grow its strong industry positioning, achieving US Drilling Fluids Market Share of 23% for three months ended March 31, 2024, demonstrating continued improvements from 22% and 20% in Q4 2023 and Q1 2023, respectively.

Revenue generated in Canada during Q1 2024 set a new record at $200.9 million, representing a sequential increase of $8.5 million or 4% compared to Q4 2023, and an increase of $12.2 million or 6% compared to Q1 2023. Canadian revenues were positively impacted by higher production chemical volumes and increased service intensity, outpacing the modest decrease in industry rig counts relative to Q1 2023. Canadian Drilling Fluids Market Share of 34% for the three months ended March 31, 2024, compared to 33% and 38% for Q4 2023 and Q1 2023, respectively.

CES achieved record Adjusted EBITDAC of $102.0 million in Q1 2024, representing a sequential increase of 21% compared to Q4 2023, and an increase of 32% compared to Q1 2023. Adjusted EBITDAC as a percentage of revenue of 17.3% significantly improved in Q1 2024, and compared to 15.3% recorded in Q4 2023 and 13.8% recorded in Q1 2023. Adjusted EBITDAC improvement was driven by strong activity levels combined with improved margins as a result of increased service intensity, an attractive product mix, and continued adoption of innovative, technologically advanced products, supported by a prudent cost structure and vertically integrated business model.

Net income for the three months ended March 31, 2024 was $54.5 million compared to $33.0 million in Q1 2023. Net Income increased by 65% over prior year, primarily as a result of strong activity levels combined with improved margins and prudent management of expenses.

During the quarter, CES returned $23.7 million to shareholders (Q1 2023 - $9.3 million), through $17.8 million in shares repurchased under its NCIB and $5.9 million in dividends paid. As at March 31, 2024, the Company completed its July 21, 2023 NCIB program, repurchasing the maximum of 18,719,430 common shares allowable.

For Q1 2024, net cash provided by operating activities totaled $86.3 million compared to $73.2 million during the three months ended March 31, 2023. This year over year improvement was driven by strong financial performance with higher contribution margins on associated activity levels, combined with the benefits of working capital optimization efforts.

CES generated $74.2 million in Funds Flow from Operations in Q1 2024, up 9% from $68.2 million generated in Q4 2023 and up 18% from $62.6 million generated in Q1 2023. Funds Flow from Operations excludes the impact of working capital, and is reflective of the continued strong surplus free cash flow generated in Q1 2024.

CES generated $57.4 million in Free Cash Flow in Q1 2024, compared to $15.2 million generated in Q4 2023, and $54.1 million generated in Q1 2023. The sequential increase in Free Cash Flow was driven by strong EBITDAC and working capital optimization while Q4 2023 was affected by a seasonal $28.9 million investment in working capital as Canadian divisions ramped up inventory and accounts receivable balances commensurate with the winter drilling season. The increase over prior year was primarily driven by strong financial performance with higher contribution margins on associated activity levels, combined with working capital optimization efforts. Free Cash Flow includes the impact of quarterly working capital variations, net capital expenditures, and lease repayments.

As at March 31, 2024, CES had a Working Capital Surplus of $637.0 million, which increased from $632.8 million at December 31, 2023. The increase during the quarter was driven by increased Accounts Receivable balances in proportion with higher activity levels as compared to the quarter ended December 31, 2023. The Company continues to focus on working capital optimization benefiting from the high quality of its customers and diligent internal credit monitoring processes.

CES exited the quarter with total long-term debt of $355.1 million (December 31, 2023 - $390.6 million) comprised of a net draw on its Senior Facility of $105.1 million (December 31, 2023 - $140.6 million) and its Canadian Term Loan Facility of $250.0 million, which replaced the previously outstanding Senior Notes. Total Debt, inclusive of lease obligations, was $434.5 million at March 31, 2024 compared to $469.6 million at December 31, 2023. The decrease in total long-term debt and Total Debt over the prior quarter was driven by strong financial performance combined with working capital optimizations throughout the quarter. Working Capital Surplus exceeded Total Debt at March 31, 2024 by $202.5 million (December 31, 2023 - $163.1 million). As of the date of this press release, the Company had total long-term debt of approximately $315.0 million, comprised of a net draw on its Senior Facility of approximately $65.0 million and a draw of $250.0 million on its Canadian Term Loan Facility.

During the quarter, CES repurchased 4,576,130 common shares at an average price of $3.88 per share for a total of $17.8 million completing the July 21, 2023 NCIB program. Under this NCIB, the Company repurchased the maximum allowed common shares of 18,719,430 at an average price of $3.66 per share for a total of $68.5 million. Since inception of the Company's NCIB programs on July 17, 2018, the Company has repurchased 58,629,387 common shares at an average price of $2.63 per share for a total of $154.0 million, representing approximately 22% of common shares outstanding on July 17, 2018.

The strong demand trends of developing countries and global demand requirements to support eventual energy transition initiatives, combined with depletion of existing resources, and reduced investment in the upstream oil and gas sector over recent years, has necessitated increased service intensity for available resources thereby resulting in continued constructive end markets for CES. This has led to stable commodity prices and a favorable outlook for CES' primary North American target market. Despite economic uncertainty and ongoing global conflicts, energy industry fundamentals continue to support critical drilling and production activity for oil and natural gas. Moreover, current depressed global inventories and fewer high-quality drilling locations provide cautious optimism for suitable pricing, despite potential economic headwinds and geopolitical instability impacting customer spending plans. Currently, oil prices are sustained by increasing global demand and limited supply growth, with OPEC adhering to lower production quotas, and while natural gas has demonstrated price weakness since early 2023, we anticipate a sustained period of elevated gas drilling activity in the US and Canada as projects under construction come online. 

CES continues to be optimistic in its outlook for the remainder of the year as it expects to benefit from stable upstream activity, increased service intensity levels, and continued strength in commodity pricing across North America by capitalizing on its established infrastructure, industry leading positioning, vertically integrated business model, and strategic procurement practices.

Commensurate with current record revenue levels, CES expects 2024 capital expenditures, net of proceeds on disposals of assets, to be approximately $70.0 million, split evenly between maintenance and expansion capital to support sustained revenue levels and business development opportunities. CES plans to continue its disciplined and prudent approach to capital expenditures and will adjust its plans as required to support prudent growth initiatives throughout divisions.

CES has proactively managed both the duration and the flexibility of its debt. In April 2023, CES successfully amended and extended its Senior Facility to April 2026. The Senior Facility effectively addresses CES' near-term and foreseeable longer-term requirements. The Canadian Term Loan Facility provides CES with the opportunity to refinance and right-size the term portion of its capital structure on suitable terms at any time up until April of 2026. CES routinely considers its capital structure, including increasing or decreasing the capacity of its Senior Facility, refinancing of the Canadian Term Loan Facility, issuance of Senior Notes, and other potential financing options. 

CES' underlying business model is capex light and asset light, enabling the generation of significant surplus free cash flow. As our customers endeavor to maintain or grow production in the current environment, CES will leverage its established infrastructure, business model, and nimble customer-oriented culture to deliver superior products and services to the industry. CES sees the consumable chemical market increasing its share of the oilfield spend as operators continue to: drill longer reach laterals and drill them faster; expand and optimize the utilization of pad drilling; increase the intensity and size of their fracs; and require increasingly technical and specialized chemical treatments to effectively maintain existing cash flow generating wells and treat growing production volumes and water cuts from new wells.

Conference Call Details

With respect to the first quarter results, CES will host a conference call / webcast at 9:00 am MT (11:00 am ET) on Thursday, May 9, 2024. A recording of the live audio webcast of the conference call will also be available on our website at www.cesenergysolutions.com. The webcast will be archived for approximately 90 days.

North American toll-free: 1-(844)-763-8274
International / Toronto callers: (647)-484-8814
Link to Webcast: http://www.cesenergysolutions.com/

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