CES ENERGY SOLUTIONS CORP. ANNOUNCES STRONG Q3 2024 RESULTS WITH RECORD REVENUE AND ADJUSTED EBITDAC AND DECLARES CASH DIVIDEND
- Record quarterly revenue of
$606.5 million , increased 13% year over year - Record quarterly Adjusted EBITDAC of
$102.5 million at a 16.9% margin, increased 28% year over year - Cash Flow from Operations of
$72.9 million and Free Cash Flow of$40.1 million - Conservative leverage of 1.14x Total Debt/Adjusted EBITDAC
- Returned
$53.1 million to shareholders through$7.1 million in dividends and$46.0 million in the repurchase of 6.0 million shares representing approximately 2.5% of outstanding shares
CES' third quarter, record setting results demonstrate the significant merits of its unique business model. During the quarter, CES continued to provide mission critical chemical solutions enabling our customers to succeed in an era of high service intensity levels, and increasingly complex drilling fluids and production chemical technology requirements.
CES' performance is characterized by strong levels of financial resilience, cash flow generation, and profitability inherent in its capex light, asset light, consumable chemicals business model supported by industry leading people, infrastructure, and technology. CES continues to provide valuable solutions to increasingly complicated drilling programs which require higher levels of service intensity, effectively overcoming a lower US 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 margin of 16.9% resulted from continued levels of high service intensity, an attractive product mix, and adoption of innovative, technologically advanced products supported by a prudent cost structure, effective supply chain management, and vertically integrated business model.
CES remains confident in its ability to continue generating strong surplus free cash flow, supported by its financial performance, outlook, and capital structure, and furthermore, on
Third Quarter Results
In the third quarter, CES generated record revenue of
Revenue generated in the US during Q3 2024 set a new quarterly record at
Revenue generated in
Adjusted EBITDAC set a quarterly record at
Net income for the three and nine months ended
During the quarter, CES returned
For Q3 2024, net cash provided by operating activities totaled
CES generated
CES generated
As at
As at
On
Outlook
The demand trends of developing countries and global demand requirements to support eventual energy transition initiatives, combined with depletion of existing resources, reduced investment in the upstream oil and gas sector over recent years, and diminished available inventory quality has necessitated increased service intensity for available resources thereby resulting in continued constructive end markets for CES services which enhance drilling and production performance. This environment 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 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
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, adoption of advanced critical chemical solutions, and continued strength in commodity pricing across
Commensurate with current record revenue levels, CES expects capital expenditures, net of proceeds on disposals of assets, to be approximately
CES has proactively managed both the duration and the flexibility of its debt. In
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 third quarter results, CES will host a conference call / webcast at
North American toll-free: 1-(844)-763-8274
International /
Link to Webcast: http://www.cesenergysolutions.com/
Financial Highlights
|
Three Months Ended |
Nine Months Ended |
||||
($000s, except per share amounts) |
2024 |
2023 |
% Change |
2024 |
2023 |
% Change |
Revenue |
|
|
|
|
|
|
|
402,632 |
361,469 |
11 % |
1,181,230 |
1,105,899 |
7 % |
|
203,887 |
175,048 |
16 % |
567,063 |
504,156 |
12 % |
Total Revenue |
606,519 |
536,517 |
13 % |
1,748,293 |
1,610,055 |
9 % |
Net income |
46,638 |
38,552 |
21 % |
149,251 |
105,455 |
42 % |
per share - basic |
0.20 |
0.15 |
33 % |
0.64 |
0.42 |
52 % |
per share - diluted |
0.20 |
0.15 |
33 % |
0.63 |
0.41 |
54 % |
Adjusted EBITDAC(2) |
102,537 |
80,218 |
28 % |
300,016 |
231,214 |
30 % |
Adjusted EBITDAC(2) % of Revenue |
16.9 % |
15.0 % |
1.9 % |
17.2 % |
14.4 % |
2.8 % |
Funds Flow from Operations(2) |
88,510 |
57,851 |
53 % |
224,235 |
183,471 |
22 % |
Change in non-cash working capital |
(15,650) |
42,071 |
(137) % |
18,198 |
79,016 |
(77) % |
Cash provided by (used in) operating activities |
72,860 |
99,922 |
(27) % |
242,433 |
262,487 |
(8) % |
Capital expenditures |
|
|
|
|
|
|
|
20,484 |
16,026 |
28 % |
52,923 |
39,295 |
35 % |
|
5,349 |
4,170 |
28 % |
17,100 |
15,230 |
12 % |
Total capital expenditures |
25,833 |
20,196 |
28 % |
70,023 |
54,525 |
28 % |
Dividends declared |
6,886 |
6,021 |
14 % |
20,978 |
17,436 |
20 % |
per share |
0.030 |
0.025 |
20 % |
0.090 |
0.070 |
29 % |
Common Shares Outstanding |
|
|
|
|
|
|
End of period - basic |
229,525,039 |
240,859,525 |
|
229,525,039 |
240,859,525 |
|
End of period - fully diluted(2) |
233,530,844 |
246,637,289 |
|
233,530,844 |
246,637,289 |
|
Weighted average - basic |
233,176,879 |
248,808,899 |
|
234,233,827 |
252,460,491 |
|
Weighted average - diluted |
237,181,631 |
254,588,996 |
|
238,630,864 |
258,398,150 |
|
|
As at |
||||
Financial Position |
|
|
% Change |
|
% Change |
Total assets |
1,473,994 |
1,413,278 |
4 % |
1,377,265 |
7 % |
Total long-term debt |
332,999 |
306,317 |
9 % |
390,616 |
(15) % |
Long-term financial liabilities(3) |
399,630 |
371,698 |
8 % |
419,416 |
(5) % |
Total Debt(2) |
439,334 |
405,140 |
8 % |
469,619 |
(6) % |
Working Capital Surplus(2) |
633,262 |
639,605 |
(1) % |
632,764 |
— % |
Net Debt(2) |
(193,928) |
(234,465) |
(17) % |
(163,145) |
19 % |
Shareholders' equity |
746,309 |
761,872 |
(2) % |
657,995 |
13 % |
1 Supplementary Financial Measure. Supplementary Financial Measures are provided herein because Management believes they assist the reader in understanding CES' results. Refer to "Non-GAAP Measures and Other Financial Measures" contained herein. |
2 Non-GAAP measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities. The most directly comparable GAAP measure for Adjusted EBITDAC is Net income, for Funds Flow from Operations is Cash provided by (used in) operating activities, for Shares Outstanding, End of period - fully diluted is Common Shares outstanding, and for Total Debt, Net Debt, and Working Capital Surplus is Long-term financial liabilities. Refer to the section entitled "Non-GAAP Measures and Other Financial Measures" contained herein. |
3 Includes long-term portion of the Senior Facility, the Canadian Term Loan Facility, the Senior Notes, lease obligations, deferred acquisition consideration, and cash settled incentive obligations. |
Business of CES
CES is a leading provider of technically advanced consumable chemical solutions throughout the life-cycle of the oilfield. This includes total solutions at the drill-bit, at the point of completion and stimulation, at the wellhead and pump-jack, and finally through to the pipeline and midstream market. Key solutions include corrosion inhibitors, demulsifiers, H2S scavengers, paraffin control products, surfactants, scale inhibitors, biocides and other specialty products. Further, specialty chemicals are used throughout the pipeline and midstream industry to aid in hydrocarbon movement and manage transportation and processing challenges including corrosion, wax build-up and H2S.
CES operates in all major basins throughout
Non-GAAP Measures and Other Financial Measures
CES uses certain supplementary information and measures not recognized under IFRS where management believes they assist the reader in understanding CES' results. These measures are calculated by CES on a consistent basis unless otherwise specifically explained. These measures do not have a standardized meaning under IFRS and may therefore not be comparable to similar measures used by other issuers.
Non-GAAP financial measures and non-GAAP ratios have the definition set out in National Instrument 52-112 "Non-GAAP and Other Financial Measures Disclosure". The non-GAAP measures, non-GAAP ratios and supplementary financial measures used herein, with IFRS measures, are the most appropriate measures for reviewing and understanding the Company's financial results. The non-GAAP measures and non-GAAP ratios are further defined as follows:
EBITDAC - is a non-GAAP measure that has been reconciled to net income for the financial periods, being the most directly comparable measure calculated in accordance with IFRS. EBITDAC is defined as net income before interest, taxes, depreciation and amortization, finance costs, other income (loss), stock-based compensation, and impairment of goodwill, which are not reflective of underlying operations. EBITDAC is a metric used to assess the financial performance of an entity's operations. Management believes that this metric provides an indication of the results generated by the Company's business activities prior to how these activities are financed, how the Company is taxed in various jurisdictions, and how the results are impacted by foreign exchange and non-cash charges. This non-GAAP financial measure is also used by Management as a key performance metric supporting decision making and assessing divisional results.
Adjusted EBITDAC - is a non-GAAP measure that is defined as EBITDAC noted above, adjusted for specific items that are considered to be non-recurring in nature. Management believes that this metric is relevant when assessing normalized operating performance.
Adjusted EBITDAC % of Revenue - is a non-GAAP ratio calculated as Adjusted EBITDAC divided by revenue. Management believes that this metric is a useful measure of the Company's normalized operating performance relative to its top line revenue generation and a key industry performance measure.
Readers are cautioned that EBITDAC and Adjusted EBITDAC should not be considered to be more meaningful than net income determined in accordance with IFRS.
EBITDAC, Adjusted EBITDAC, and Adjusted EBITDAC % of Revenue are calculated as follows:
|
Three Months Ended |
Nine Months Ended |
||
|
2024 |
2023 |
2024 |
2023 |
Net income |
46,638 |
38,552 |
149,251 |
105,455 |
Adjust for: |
|
|
|
|
Depreciation and amortization |
22,414 |
18,399 |
63,057 |
55,192 |
Current income tax expense |
11,829 |
2,995 |
28,833 |
9,869 |
Deferred income tax expense |
3,507 |
6,251 |
12,525 |
21,896 |
|
10,624 |
7,794 |
38,754 |
15,522 |
Finance costs |
7,388 |
7,303 |
9,186 |
24,238 |
Other loss (income) |
137 |
(1,076) |
(1,590) |
(958) |
EBITDAC |
102,537 |
80,218 |
300,016 |
231,214 |
Adjusted EBITDAC |
102,537 |
80,218 |
300,016 |
231,214 |
Adjusted EBITDAC % of Revenue |
16.9 % |
15.0 % |
17.2 % |
14.4 % |
Adjusted EBITDAC per share - basic |
0.44 |
0.32 |
1.28 |
0.92 |
Adjusted EBITDAC per share - diluted |
0.43 |
0.32 |
1.26 |
0.90 |
Distributable Earnings - is a non-GAAP measure that is defined as cash provided by operating activities, adjusted for change in non-cash operating working capital less
Dividend Payout Ratio - is a non-GAAP ratio that is defined as dividends declared as a percentage of Distributable Earnings. Management believes it is a useful measure of the proportion of available funds committed to being returned to shareholders in the form of a dividend relative to the Company's total Distributable Earnings.
Readers are cautioned that Distributable Earnings should not be considered to be more meaningful than cash provided by operating activities determined in accordance with IFRS. Distributable Earnings and Dividend Payout Ratio are calculated as follows:
|
Three Months Ended |
Nine Months Ended |
||
|
2024 |
2023 |
2024 |
2023 |
Cash provided by (used in) operating activities |
72,860 |
99,922 |
242,433 |
262,487 |
Adjust for: |
|
|
|
|
Change in non-cash operating working capital |
15,650 |
(42,071) |
(18,198) |
(79,016) |
|
(5,349) |
(4,170) |
(17,100) |
(15,230) |
Repayment of lease obligations |
(8,906) |
(8,195) |
(24,954) |
(19,816) |
Distributable Earnings |
74,255 |
45,486 |
182,181 |
148,425 |
Dividends declared |
6,886 |
6,021 |
20,978 |
17,436 |
Dividend Payout Ratio |
9 % |
13 % |
12 % |
12 % |
1 Supplementary Financial Measure. Supplementary Financial Measures are provided herein because Management believes they assist the reader in understanding CES' results. |
Funds Flow From Operations - is a non-GAAP measure that has been reconciled to Cash provided by (used in) operating activities for the financial periods, being the most directly comparable measure calculated in accordance with IFRS. Funds Flow from Operations is defined as cash flow from operations before changes in non-cash operating working capital and represents the Company's after-tax operating cash flows. Readers are cautioned that this measure is not intended to be considered more meaningful than cash provided by operating activities, or other measures of financial performance calculated in accordance with IFRS.
Funds Flow from Operations is used by Management to assess operating performance and leverage, and is calculated as follows:
|
Three Months Ended |
Nine Months Ended |
||
|
2024 |
2023 |
2024 |
2023 |
Cash provided by (used in) operating activities |
72,860 |
99,922 |
242,433 |
262,487 |
Adjust for: |
|
|
|
|
Change in non-cash operating working capital |
15,650 |
(42,071) |
(18,198) |
(79,016) |
Funds Flow from Operations |
88,510 |
57,851 |
224,235 |
183,471 |
Free Cash Flow - is a non-GAAP measure that has been reconciled to Cash provided by (used in) operating activities for the financial periods, being the most directly comparable measure calculated in accordance with IFRS. Free Cash Flow is defined as cash flow from operations adjusted for capital expenditures and repayment of lease obligations, net of proceeds on disposal of assets, and represents the Company's core operating results in excess of required capital expenditures. Readers are cautioned that this measure is not intended to be considered more meaningful than cash provided by operating activities, or other measures of financial performance calculated in accordance with IFRS. Free Cash Flow is used by Management to assess operating performance and leverage, and is calculated as follows:
|
Three Months Ended |
Nine Months Ended |
||
|
2024 |
2023 |
2024 |
2023 |
Cash provided by (used in) operating activities |
72,860 |
99,922 |
242,433 |
262,487 |
Adjust for: |
|
|
|
|
|
(20,484) |
(16,026) |
(52,923) |
(39,295) |
|
(5,349) |
(4,170) |
(17,100) |
(15,230) |
Repayment of lease obligations |
(8,906) |
(8,195) |
(24,954) |
(19,816) |
Proceeds on disposal of assets |
1,954 |
4,047 |
4,828 |
8,207 |
Free Cash Flow |
40,075 |
75,578 |
152,284 |
196,353 |
1 Supplementary Financial Measure. Supplementary Financial Measures are provided herein because Management believes they assist the reader in understanding CES' results. |
|
Three Months Ended |
Nine Months Ended |
||
|
2024 |
2023 |
2024 |
2023 |
Cash used for investment in property and equipment |
26,158 |
20,739 |
67,838 |
53,890 |
Adjust for: |
|
|
|
|
Proceeds on disposal of assets |
(1,954) |
(4,047) |
(4,828) |
(8,207) |
|
24,204 |
16,692 |
63,010 |
45,683 |
Working Capital Surplus - is a non-GAAP measure that is calculated as current assets less current liabilities, excluding the current portion of finance lease obligations, current portion of long-term debt, and deferred acquisition consideration. Management believes that this metric is a key measure to assess operating performance and leverage of the Company and uses it to monitor its capital structure.
Net Debt and Total Debt - are non-GAAP measures that Management believes are key metrics to assess liquidity of the Company and uses them to monitor its capital structure. Net Debt represents Total Debt, which includes the Senior Facility, The Canadian Term Loan Facility, the Senior Notes, both current and non-current portions of lease obligations, both current and non-current portions of deferred acquisition consideration, non-current portion of cash settled incentive obligations, offset by the Company's cash position, less Working Capital Surplus.
Readers are cautioned that Total Debt, Working Capital Surplus, and Net Debt should not be construed as alternative measures to Long-term financial liabilities determined in accordance with IFRS.
Total Debt, Working Capital Surplus, and Net Debt are calculated as follows:
|
As at |
|
|
|
|
Long-term financial liabilities(1) |
399,630 |
419,416 |
Current portion of lease obligations |
34,646 |
27,980 |
Current portion of long-term debt |
— |
20,800 |
Current portion of deferred acquisition consideration |
5,058 |
1,423 |
Total Debt |
439,334 |
469,619 |
Deduct Working Capital Surplus: |
|
|
Current assets |
920,138 |
880,772 |
Current liabilities(2) |
(286,876) |
(248,008) |
Working Capital Surplus |
633,262 |
632,764 |
Net Debt |
(193,928) |
(163,145) |
1 Includes long-term portion of the Senior Facility, the Canadian Term Loan Facility, the Senior Notes, lease obligations, deferred acquisition consideration, and long-term portion of cash settled incentive obligations. |
2 Excludes current portion of lease liabilities, long-term debt and deferred acquisition consideration. |
Total Debt/Adjusted EBITDAC – is a non-GAAP ratio that Management believes to be a useful measure of the Company's liquidity and leverage levels, and is calculated as Total Debt divided by Adjusted EBITDAC for the most recently ended four quarters. Total Debt and Adjusted EBITDAC are non-GAAP measures that do not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities. Total Debt and Adjusted EBITDAC are calculated as outlined above.
Shares outstanding, End of period - fully diluted - is a non-GAAP measure that has been reconciled to Common Shares outstanding for the financial periods, being the most directly comparable measure calculated in accordance with IFRS. This measure is not intended to be considered more meaningful than Common shares outstanding. Management believes that this metric is a key measure to assess the total potential shares outstanding for the financial periods and is calculated as follows:
|
As at |
|
|
|
|
Common shares outstanding |
229,525,039 |
236,042,566 |
Restricted share units outstanding, end of period |
4,005,805 |
5,342,676 |
Shares outstanding, end of period - fully diluted |
233,530,844 |
241,385,242 |
Supplementary Financial Measures
A Supplementary Financial Measure: (a) is, or is intended to be, disclosed on a periodic basis to depict the historical or expected future financial performance, financial position or cash flow of the
Revenue -
Revenue -
Cautionary Statement
Except for the historical and present factual information contained herein, the matters set forth in this press release, may constitute forward-looking information or forward-looking statements (collectively referred to as "forward-looking information") which involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of CES, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. When used in this press release, such information uses such words as "may", "would", "could", "will", "intend", "expect", "believe", "plan", "anticipate", "estimate", and other similar terminology. This information reflects CES' current expectations regarding future events and operating performance and speaks only as of the date of the press release. Forward-looking information involves significant risks and uncertainties, should not be read as a guarantee of future performance or results, and will not necessarily be an accurate indication of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking information, including, but not limited to, the factors discussed below. The management of CES believes the material factors, expectations and assumptions reflected in the forward-looking information are reasonable but no assurance can be given that these factors, expectations and assumptions will prove to be correct. The forward-looking information contained in this document speaks only as of the date of the document, and CES assumes no obligation to publicly update or revise such information to reflect new events or circumstances, except as may be required pursuant to applicable securities laws or regulations. The material assumptions in making forward-looking statements include, but are not limited to, assumptions relating to demand levels and pricing for the oilfield consumable chemical offerings of the Company; fluctuations in the price and demand for oil and natural gas; anticipated activity levels of the Company's significant customers; commodity pricing; general economic and financial market conditions; the successful integration of recent acquisitions; the Company's ability to finance its operations; levels of drilling and other activity in the WCSB, the Permian and other US basins, the effects of seasonal and weather conditions on operations and facilities; changes in laws or regulations; currency exchange fluctuations; the ability of the Company to attract and retain skilled labour and qualified management; and other unforeseen conditions which could impact the Company's business of supplying oilfield consumable chemistry to the Canadian and US markets and the Company's ability to respond to such conditions.
In particular, this press release contains forward-looking information pertaining to the following: the certainty and predictability of future cash flows, profitability and earnings; expectations that Adjusted EBITDAC will exceed the sum of expenditures on interest, taxes and capital expenditures; expectations of capital expenditures in 2024 and 2025; expectations that Adjusted EBITDAC will provide sufficient free cash flow to pay down the Company's Senior Facility and repurchase common shares pursuant to the Company's NCIB; expectations regarding CES' revenue and surplus free cash flow generation and the potential use of such free cash flow including to increase its dividend or repurchase the common shares of the Company; expectations regarding end market activity levels; the strength of the Company's balance sheet, the achievement of the Company's strategic objectives, and the generation of shareholder value; expectations regarding industry conditions and the Company's ability to generate free cash flow to sustain and increase the quarterly dividend; CES' ability to execute on financial goals relating to its balance sheet, liquidity, working capital and cost structure; the sufficiency of liquidity and capital resources to meet long-term payment obligations; CES' ability to increase or maintain its market share; optimism with respect to future prospects for CES; impact of CES' vertically integrated business model on future financial performance; supply and demand for CES' products and services, including expectations for growth in CES' production and specialty chemical sales, expected growth in the consumable chemicals market; industry activity levels; expectations regarding service intensity in the upstream oil and gas sector; expectations regarding the adoption of advanced critical chemical solutions; continued strength in commodity prices; oil and gas inventory levels; reduced availability of high quality drilling locations; expectations regarding
CES' actual results could differ materially from those anticipated in the forward-looking information as a result of the following factors: general economic conditions in the US,
THE
SOURCE