CES ENERGY SOLUTIONS CORP. ANNOUNCES STRONG Q3 2022 RESULTS WITH RECORD REVENUE AND ADJUSTED EBITDAC, AND AN INCREASED DIVIDEND – QNT Press Release


CALGARY, AB, Nov. 10, 2022 /CNW/ – CES Energy Solutions Corp. ("CES" or the "Company") (TSX:CEU) (OTC:CESDF) announced today the Company's results for the three and nine months ended September 30, 2022, along with a 25% increase to its quarterly dividend from $0.016 per share to $0.020 per share, which will take effect and be paid on the Company's next scheduled dividend payment of January 13, 2023 to the shareholders of record at the close of business on December 30, 2022.

Third Quarter Highlights
  • Record quarterly revenue of $524.7 million, increased 21% sequentially and 67% year over year
  • Record Adjusted EBITDAC of $73.3 million, increased 20% sequentially and 74% year over year, representing a 14.0% margin
  • Record Funds Flow from Operations of $48.9 million
  • Leverage reduced to 2.5x Total Debt/Adjusted EBITDAC from 2.7x at June 30, 2022 and 3.0x at March 31, 2022
  • Working Capital Surplus exceeded Total Debt at September 30, 2022 by $100.2 million
  • Paid quarterly dividend of $0.06 per share on an annualized basis, representing a 10% payout ratio

CES is pleased to announce strong Q3 2022 financial results, demonstrating record quarterly revenue and Adjusted EBITDAC, strong margins and Funds Flow from Operations as the Company continues to demonstrate increased activity and pricing levels across its business lines.

Revenue for the quarter achieved another consecutive record high at $524.7 million, representing a sequential increase of $91.1 million or 21% relative to CES' previous record of $433.7 million in Q2 2022. Adjusted EBITDAC for the quarter was a record $73.3 million, compared to CES' previous record of $61.0 million in Q2 2022. CES continues to realize significant revenue growth driven by increased pricing, strong activity levels, and attractive industry positioning throughout the business. Industry conditions continue to provide a supportive backdrop for the Company as the supply demand balance in the sector, activity levels, rig counts and production levels have all improved year over year.

These solid financial results reflect CES' ability to leverage its established infrastructure, strong industry positioning and dedicated people to capitalize on the constructive environment in the broader industry. CES remains confident in its ability to continue generating strong surplus free cash flow and on November 10, 2022, the Company's Board of Directors approved a 25% increase to the quarterly dividend from $0.016 per share to $0.020 per share, resulting in an annualized dividend of $0.080 per share. The increased dividend returns additional value to shareholders while preserving the strength of the Company's balance sheet and maintaining ample liquidity to fund capital allocation alternatives. The new dividend payment amount will be paid on the Company's next scheduled dividend payment date of January 13, 2023 to the shareholders of record at the close of business on December 30, 2022.

CES exited the quarter with a net draw on its Senior Facility of $220.8 million (December 31, 2021 – $110.1 million), and Total Debt of $565.9 million (December 31, 2021 – $439.4 million), of which $288.0 million relates to Senior Notes which mature on October 21, 2024. The increases realized during the period were primarily driven by required working capital build, combined with dividends paid out year to date totaling $12.2 million. During the nine months ended September 30, 2022, the Company amended its Senior Facility to increase the available capacity to approximately C$ equivalent $425.0 million from C$ equivalent $232.5 million, while all other terms and conditions remain substantively unchanged. Working Capital Surplus exceeded Total Debt at September 30, 2022 by $100.2 million (December 31, 2021 – $20.4 million). As at the date of this MD&A, the Company had a net draw on its Senior Facility of approximately $218.0 million.

Third Quarter and Year to Date Results

In the third quarter CES generated revenue of $524.7 million, representing a sequential increase of $91.1 million or 21% compared to Q2 2022, as the Company experienced revenue growth throughout the business and also benefited from the expected seasonal uptick in activity typically seen from Q2 to Q3 in Canada. Q3 2022 revenue also represented an increase of 67% compared to Q3 2021 as activity levels have seen a significant increase year over year. For the nine months ended September 30, 2022, CES generated revenue of $1,359.6 million, an increase of $531.0 million or 64% relative to the nine months ended September 30, 2021. As producers' capital spending increased and production levels have improved year over year, activity and industry rig counts have seen a significant uptick since the comparative periods, which were still highly impacted by the COVID-19 pandemic.

Revenue generated in the US during Q3 2022 was $349.5 million, representing a sequential increase of 16% compared to Q2 2022 and an increase of 77% compared to Q3 2021. For the nine months ended September 30, 2022, revenue generated in the US was up 66% to $898.5 million relative to the nine months ended September 30, 2021. US revenues for both the three and nine month periods were positively impacted by increased industry activity, higher production levels and improved pricing year over year. US land drilling activity in Q3 2022 improved by 6% on a sequential quarterly basis and by 53% from Q3 2021. CES also saw a sequential and year over year improvement in its strong industry positioning, with a US Drilling Fluids Market Share of 18% for Q3 2022.

Revenue generated in Canada during Q3 2022 was $175.2 million, representing a sequential increase of 31% compared to Q2 2022 and an increase of 49% from Q3 2021.  For the nine months ended September 30, 2022, revenue generated in Canada was up 60% to $461.2 million relative to the nine months ended September 30, 2021.  Canadian revenues were positively impacted by a 60% improvement in rig counts on a sequential quarterly basis with the regular pickup in activity expected seasonally in Canada, and benefited from a 31% increase in rig counts relative to Q3 2021, with drilling and production levels up year over year in both the three and nine month periods. Canadian Drilling Fluids Market Share for Q3 2022 was up on a sequential and year over year basis as well, at 37% for Q3 2022.

CES achieved a record Adjusted EBITDAC of $73.3 million in Q3 2022, representing a sequential increase of 20% compared to Q2 2022 and an increase of 74% compared to Q3 2021. Adjusted EBITDAC as a percentage of revenue of 14.0% achieved in Q3 2022 was in line with the 14.1% recorded in Q2 2022 and up from the 13.4% recorded in Q3 2021. The Company has been effective in implementing further pricing increases where warranted and maintaining prudent G&A levels, which combined with increased scale to deliver continued strong margins for Q3 2022. For the nine months ended September 30, 2022, Adjusted EBITDAC was up 63% to $176.8 million. For both the three and nine month periods, Adjusted EBITDAC improved on significantly higher industry activity levels and improved pricing year over year.

Net income for the three months ended September 30, 2022 was $24.5 million compared to $13.4 million in Q3 2021. Net income for the nine months ended September 30, 2022 was $54.8 million compared to $25.2 million for the nine months ended September 30, 2021. Net income more than doubled for both periods, primarily as a result of significantly higher industry activity levels year over year. CES no longer recognized a benefit from the Canada Emergency Wage Subsidy ("CEWS") program in 2022, compared to $0.7 million and $5.6 million for the three and nine months ended September 30, 2021.

CES generated a record $48.9 million in Funds Flow from Operations in Q3 2022, up 6.1% from $46.1 million generated in Q2 2022 and 40.1% from $34.9 million generated in Q3 2021. For the nine months ended September 30, 2022 CES generated Funds Flow from Operations of $128.1 million, compared to $83.7 million in the nine months ended September 30, 2021. Funds Flow from Operations excludes the impact of working capital investment, and is reflective of strong surplus free cash flow generation amid significant improvements in market conditions in the quarter and year to date relative to the comparative periods.

As at September 30, 2022, CES had a Working Capital Surplus of $666.1 million, which has increased from $574.6 at June 30, 2022 and from $459.8 million at December 31, 2021. The build is commensurate with the increased financial scale of the Company and associated revenue growth, with accounts receivable increasing by 18% and inventory increasing by 16% from June 30, 2022, to support the 21% sequential growth in revenue and corresponding collection cycles. Working Capital Surplus was also impacted by the significant appreciation in the USD quarter over quarter, which contributed $27.8 million to the build upon revaluation of working capital balances held in the US. The Company continues to focus on working capital optimization and to benefit from the high quality of its customers and diligent internal credit monitoring processes.

CES exited the quarter with a net draw on its Senior Facility of $220.8 million (December 31, 2021 – $110.1 million), and Total Debt of $565.9 million (December 31, 2021 – $439.4 million), of which $288.0 million relates to Senior Notes which mature on October 21, 2024. The increases realized during the period were primarily driven by required working capital build as described above, combined with dividends paid out year to date totaling $12.2 million. Total Debt/Adjusted EBITDAC represented 2.5x at September 30, 2022, compared to 2.7x at June 30, 2022 and 3.0x at March 31, 2022. During the nine months ended September 30, 2022, the Company amended its Senior Facility to increase the available capacity to approximately C$ equivalent $425.0 million from C$ equivalent $232.5 million, while all other terms and conditions remain substantively unchanged. Working Capital Surplus exceeded Total Debt at September 30, 2022 by $100.2 million (December 31, 2021 – $20.4 million). As at the date of this MD&A, the Company had a net draw on its Senior Facility of approximately $218.0 million.

During Q3 2022, under its NCIB program the Company purchased 550,000 common shares at an average price of $2.20 per share for a total of $1.2 million. Since inception of the Company's NCIB programs on July 17, 2018, and up to September 30, 2022, the Company has repurchased 30,819,857 common shares at an average price of $2.00 per share for a total amount of $61.6 million. Subsequent to September 30, 2022, the Company has repurchased 844,500 additional shares at a weighted average price of $2.45 per share for a total of $2.1 million, bringing the total year to date amount of repurchased common shares to 1,537,500 at a weighted average price of $2.32 per share for a total of $3.6 million.

Outlook

The recovery in global energy demand combined with several years of lower investment in the upstream oil and gas sector have resulted in reduced inventories of oil and natural gas and higher commodity prices, providing a supportive outlook for the sector in CES' North American target market. Increased activity and demand have led to improved production levels, drilling activity and commodity prices. We expect current strong activity levels to continue through the balance of 2022 and into 2023, moderated by challenges with availability of labour and supply chain constraints. Further, broad economic concerns exist with respect to recession risk, rising interest rates and geopolitical instability, which may impact customer spending plans. CES is optimistic in its outlook for the remainder of the year and into next year as it expects to benefit from elevated upstream activity 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 2022 capital expenditures to be approximately $50.0 million, of which $25.0 million is maintenance and $25.0 million is earmarked for expansion. CES plans to continue its disciplined and prudent approach to capital expenditures and will adjust its plans as required to support growth throughout divisions.

CES has proactively managed both the duration and the flexibility of its debt. In September 2021, CES successfully amended and extended its Senior Facility to September 2024. In light of the growth in activity and revenue levels seen through 2022 to date, during the year the Company proactively increased the available capacity on its Senior Facility to approximately C$ equivalent $425.0 million from C$ equivalent $232.5 million to support its growth trajectory. In October 2017, CES successfully re-financed and reduced its coupon on its previously outstanding $300.0 million Senior Notes by issuing new 6.375% Senior Notes, which mature in October 2024. To support growth in the business and related working capital needs CES routinely considers its capital structure, including further increasing the capacity of its Senior Facility, refinancing of the Company's Senior Notes, and other potential financing options. 

CES' underlying business model is capex light and asset light, enabling 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 8:00 am MT (10:00 am ET) on Friday, November 11, 2022. 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-(800)-319-4610
International / Toronto callers: (416)-915-3239
Link to Webcast: http://www.cesenergysolutions.com/

Financial Highlights  

<td xmlns="http://www.w3.org/1999/xhtml" class="prngen5" …

Three Months Ended September 30,

Nine Months Ended September 30,

($000s, except per share amounts)

2022

2021

%Change

2022

2021

%Change

Revenue

United States(1)

349,503

196,966

77 %

898,466

540,270

66 %

Canada(1)

175,214

117,429

49 %

461,182

Full story available on Benzinga.com



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