Earnings call transcript: CES Energy misses EPS forecast, stock rises Q3 2025

CES Energy Solutions Corp (CES) reported its Q3 2025 earnings, revealing a mixed financial performance. The company posted earnings per share (EPS) of CAD 0.18, falling short of the forecasted CAD 0.2146, marking a 16.12% negative surprise. Despite the EPS miss, CES’s revenue exceeded expectations, coming in at CAD 623.22 million against the forecast of CAD 613.18 million, a positive surprise of 1.64%. Following the earnings release, CES’s stock rose 8.81% to close at CAD 10.37, reflecting investor optimism about the company’s revenue performance and future prospects. This continues CES’s strong momentum, with InvestingPro data showing an impressive 53.94% price return over the past six months.

Key Takeaways

• CES Energy reported record Q3 revenue and the highest-ever quarterly EBITDA.
• The company missed EPS expectations but exceeded revenue forecasts.
• CES’s stock surged 8.81% post-earnings, despite the EPS miss.
• The company is expanding its presence in key markets, including SAG-D heavy oil and the Gulf of America.
• CES anticipates a 10% EBITDA growth in 2026, with an acceleration in U.S. upstream activity.

Company Performance

CES Energy Solutions demonstrated robust company performance in Q3 2025, achieving record quarterly revenue and its highest-ever EBITDA. The company continues to expand its market presence, particularly in the SAG-D heavy oil market and the Gulf of America. CES’s market share in the Haynesville region increased to 21% of the 40 rigs, showcasing its competitive position.

Financial Highlights

• Revenue: CAD 623.22 million, a 3% increase year-over-year
• EPS: CAD 0.18, below the forecasted CAD 0.2146
• EBITDA: CAD 103.3 million, with a margin of 16.6%
• Total debt to EBITDA ratio: 1.29x, within the target range of 1-1.5x

Earnings vs. Forecast

CES Energy’s EPS of CAD 0.18 fell short of the forecasted CAD 0.2146, resulting in a 16.12% negative surprise. However, the company exceeded revenue expectations with CAD 623.22 million against a forecast of CAD 613.18 million, marking a 1.64% positive surprise. This revenue beat is significant, considering the overall market conditions and the company’s historical performance.

Market Reaction

Despite the EPS miss, CES Energy’s stock price increased by 8.81% to CAD 10.37. This surge reflects investor confidence in the company’s strong revenue performance and strategic initiatives. The stock’s movement is notable, as it approaches its 52-week high of CAD 10.37, indicating positive market sentiment.

Outlook & Guidance

CES Energy anticipates a 10% growth in EBITDA for 2026 and expects U.S. upstream activity to accelerate in the second half of the year. The company remains focused on RFP/tender opportunities and aims to maintain its margin in the high end of the 15.5-16.5% range.

Executive Commentary

Ken Zinger, President and CEO, highlighted the company’s potential, stating, "We believe our Q3 results are an early indicator of the tremendous torque we have building in the business right now." CFO Tony Aulicino emphasized capital allocation, saying, "We continue to prioritize capital allocation towards supporting existing and new business."

Risks and Challenges

• Market saturation in key regions could limit growth.
• Fluctuations in oil and gas prices may impact revenue.
• Potential supply chain disruptions could affect operations.
• Economic downturns might reduce demand for CES’s services.
• Regulatory changes in the energy sector could pose challenges.

Q&A

During the earnings call, analysts inquired about CES’s capital allocation strategy and working capital management. The company detailed its RFP win strategies and explored drivers for margin improvement, providing insights into its operational focus and future growth plans.

Full transcript - CES Energy Solutions Corp (CEU) Q3 2025:

Regina, Conference Operator: 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 third quarter 2025 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, press star one again. I’d now like to turn the conference over to Tony Aulicino, Chief Financial Officer. Please go ahead.

Tony Aulicino, Chief Financial Officer, CES Energy Solutions: 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 generally 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.

Ken Zinger, President and CEO, CES Energy Solutions: 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 CAD 623 million. Our highest-ever quarterly EBITDA of CAD 103.3 million, which represented a 16.6% margin.

Total debt to trailing 12 months EBITDA was at 1.29 times at the end of Q3 2025, which was well within our targeted range of 1-1.5 times. Cash conversion cycle days in Q3 of 110 days, right at the low end of our targeted range of 110-115 days. U.S. revenue of $409.4 million, which was our second straight all-time quarterly record. Canadian revenue of CAD 213.8 million, which was our third-highest quarterly revenue ever. 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 anticipated CapEx in 2026 of CAD 85-90 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 one to one and a half times debt to trailing 12 months EBITDA range. I’ll now move on to summarize Q3 performance overall and by division. Today, our recount 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 CAD 85 million-CAD 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 the flat activity environment, the upper end of this range is the most likely outcome. In Canada, the Canadian Drilling Plus 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, for a 38.2% market share. The overall active drilling recount 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 recount 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 base in which it’s 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 SAG-D 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 two, we have finally been able to achieve some wins in treating SAG-D 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.: different chemistry and problems, but with large rewards if you can penetrate and execute on them. In the United States, AES, our U.S. Drilling Plus group, is providing chemistries and service to 138 of the 525 rigs listed as active in the U.S. land market today for continually widening number one market share of U.S. land rigs at 26.3%. At AES, we truly believe we have a unique structure within the drilling fluid 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 shares throughout the U.S. land market continue 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 seven of the 40 rigs working in the Haynesville, with two more moving in the next three 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 USA, and we have recently been awarded two 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 why we now service almost 30% of all the rigs in North America. We have meaningful market shares in every base basin which we are targeting. Finally, our U.S. Production Chemical Division, JCABM 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, JCABM 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 JCABM’s business, like PureChem’s, is almost entirely leveraged to production-related spending by EMPs, and therefore the revenue and earnings are extremely durable through any cycle. As noted earlier in my comments, JCABM 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, JCABM 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 deep water platforms in the Gulf, meaning those 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, 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 been awarded a fourth platform, and in the coming months, we will take over providing the full suite of treatments for it.

This now puts us on four of the 54 targeted deep water 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. We believe our Q3 results are an early indicator of the tremendous torque 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 seems 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 will pass the call to Tony for the financial update. Thank you, Ken. CES’s third quarter delivered record Q3 revenue and record-adjusted EBITDA, 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’s 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 CAD 623 million, representing an annualized run rate of approximately CAD 2.5 billion and a 3% increase over the prior year’s CAD 607 million. Revenue generated in the U.S. set a new record at $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 CAD 214 million, compared to CAD 168 million in Q2, and was 5% ahead of the CAD 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 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 EBITDA in Q3 came in at CAD 103.3 million, compared to CAD 88.3 million in Q2 and CAD 102.5 million in Q3 2024. Q3’s adjusted EBITDA margin of 16.6% came in at the high end of our targeted 15.5%-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 CAD 52 million in cash flow from operations in the quarter, compared to CAD 66 million in Q2 and CAD 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 CAD 86 million in Q3, compared to CAD 77 million in Q2 and just below the record CAD 89 million set in Q3 2024. Free cash flow was CAD 27 million in Q3, compared to CAD 35 million in Q2 and CAD 40 million in Q3 2024.

As measured by a free cash flow to adjusted EBITDA 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 CAD 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 CAD 80 million, weighted towards expansion capital to support higher activity levels and business development opportunities. For 2026, we are currently expecting a range of CAD 85-90 million, and CES maintains the flexibility to alter spending levels commensurate with changes in end markets and required support levels.

During the quarter, we continue to be active in our NCIB program, purchasing 4.4 million common shares at an average price of CAD 8.09 per share for a total cash outlay of CAD 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 CAD 4.21 per share. We ended the quarter with CAD 510 million in total debt, representing an increase of CAD 19 million from the prior quarter and CAD 58 million from December 31, 2024. Total debt was primarily comprised of CAD 200 million in senior notes, a net draw on the senior facility of CAD 204 million, and CAD 98 million in lease obligations.

Total debt to adjusted EBITDA of 1.29 times at the end of the quarter compared to 1.25 times at June 30, demonstrating our continued commitment to maintaining prudent leverage levels in the 1-1.5 times range. Subsequent to the quarter, CES completed a private placement of an additional CAD 75 million in senior notes due May 29, 2029, at a premium of $103.25, 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 1-1.5 times 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%-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%-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. We will now begin the question and answer session. In order to ask a question, simply press star followed by the number one on your telephone keypad. We’ll take our first question from the line of Aaron McNeil with TD Cowen. Please go ahead.

Hey, good morning, guys. Tony, maybe I’ll start with you. I just heard you say in the prepared remarks that you prefer the buyback here. However, CES’s valuation multiple has increased, at least based on our estimates. Assuming you also agree with the premise of my question, how do you think about capital allocation in that context? 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? Yeah, that’s a really good question. Just stating the facts and weaving into the company’s philosophy, we will always prioritize supporting the business. 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 1-1.5 times range.

After that, it’s maximizing 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%-20% payout ratio level. 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-sixes. 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, probably in the low sixes, depending on what happens with FX.

From a relative valuation perspective, we’re trading in the low, maybe mid-sixes, depending on estimates. That compares to our closest comp that had a multiple put out on it, which was ChampionX, and that was a nine times forward EV to EBITDA multiple. We look at that. Fundamentally, what we do is we take a look at what the returns are on that dollar or those millions 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. It’ll be governed by that 1-1.5 times leverage.

Based on where we are trading and where we believe the business is going, you are not going to see a significant slowdown in NCIB at this point. Fair enough. Makes sense. Ken, maybe one for you. You mentioned in your prepared remarks EBITDA growing in that 10% range. I do not want to put words in your mouth. If historically capital spending levels largely correlated with revenue growth, you have got capital spending increasing by 9% at the midpoint. Should we think about that growth in EBITDA as purely revenue-driven, or is it a combination of revenue and margin? If you agree with the premise, is there a potential based on higher revenues for you to exceed what you have sort of outlined today? Good question. Thanks, Aaron. It is the latter. 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. I mean, that’ll 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 knew were on the horizon, that we were kind of waiting to do. 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, we built that not that long ago, but we only built half of it. The building was built to house two grinding units.

We only put one in it because that was the sort of level we were running at. 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. We have started construction and moved that spend project ahead, all kind of in anticipation of a stronger market towards the end of next year, as we’ve 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 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 rig.

That is why we have to sort of update some of our infrastructure to accommodate it. Gotcha. I can appreciate that the premise of my question was oversimplified. Appreciate the responses. Thanks, guys. I will turn it back. Thanks, Aaron. Our next question comes from the line of Keith Mackey with RBC Capital Markets. Please go ahead. Hey, thanks, and good morning. 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 did not win others, or are there still more that could potentially be announced?

The ones that we were referring to that we were having to overhire for and get prepared for just to even be able to have a shot at them, there were two of those companies conducting that exercise, and they’re done. We did really well at one of them. When they do those bids, the RFPs, they do it by area that they operate in. There are like six or seven RFPs inside an RFP, one RFP. They’re done. We did really well with one, not as well with the other. The result of that is how we described it. I will say that our RFP/tender list is longer than it normally is, and we’ve been doing really well at it.

When you’re looking, we were at fault for pointing to those two 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 have been having wins outside of the RFPs. As you can see by rig count, we’re having some good success there as well. There’s a lot going on right now. It’s pretty exciting. Yeah, got it. 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 110-115. That 101 was really an outlier. Hopefully, we’ll work our way back down towards that, but that was a big factor. 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 one spot 3499 to one spot 3921 over that period, the FX effect alone on our AR was $10.7 million. It is really those two things, having a very, very strong cash conversion cycle figure a year ago and also getting hit by FX a bit on the AR. 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. To sum it all up, you should not see that significant an increase year over year going forward unless there’s a big boost in revenue. Understood. I’ll leave it there. Thanks a lot. Okay. Our next question will come from the line of Tim Monticello with ATB Capital Markets. Please go ahead. Thanks. Just a quick follow-up.

Did you say you’re not expecting a big increase in working capital investment in 2026? Sounds like you’re expecting significant revenue growth alongside some of the wins that you’ve had. Yeah. You should use the same math we typically lead you guys towards. 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 15.5-16.5 level. You can back into what you think your revenue would be at the end of next year. Then just use the regular math, which is take that assumed quarterly revenue in a year from now and annualize that. Historically, you’d multiply it by 30%-35%. Based on what we’re doing, you should probably use something like 29%. Right. Okay.

That’s helpful. I guess most of my questions have been answered, but I want to think about how the year’s gone so far. 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. You look to 2026, and you talk about these long tender lists of opportunities that you’re converting on, and you add CAD 85 million-CAD 90 million of cash in 2026, suggests that you probably see significant growth as well there.

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 of 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. 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. Next year, you should see an increase in margins. Let’s not forget, we reported around 15.5% for each of the last two quarters before this one. 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., the high end of the 15.5%-16.5% range. To go beyond that at this point will be tough. We might be able to give more color after we have Q4 in 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 wouldn’t want you to put expectations on our team a little bit there. It seems like we’re trending in that direction. Just around 2026, around the CapEx for 2026, understanding ECOS expansion. Can you talk about how much of that is allocated in the growth portion and where else that might be going? Yeah. It’s still about 50/50, Tim. 50/50 growth and maintenance. Of the growth, you got Payco’s in there. Is there anything else that’s notable? Payco’s expansion is notable. There’s 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. Occasionally, there are opportunities where there’s significant demand for a specific type of reaction that requires the use of a specific reactor.

In cases like that, we’ll be adding one or a few more. I can add to that too. 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 2026, but something 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. 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.

There is a whole bunch of things that are a couple of $3 million-$4 million that are adding up that are, I’ll call them one-time expenses that when we make them, we will not 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 the growth expectations in terms of activity levels? It is the latter. Most of them are the latter. And sometimes you get the benefit of using that infrastructure to piggyback off of existing business, but it is mostly the latter. Got it. Or sorry. Okay. Thanks so much. Appreciate all the details and great quarter, I guess. Yeah. Good questions. Thanks, Tim. Our next question comes from the line of John Gibson with BMO Capital Markets. Please go ahead. Hi, John. Your line might be on mute.

Our next question will come from the line of Jonathan Goldman with Scotiabank. Please go ahead. Hey, good morning, guys. Congratulations on the quarter and congratulations on the RFP wins. Just circling back to the margins. Yep. Well done. Well deserved. Maybe circling back to margins in the quarter. Nice recovery from earlier in the year, 16.6. I think it was in the 15s earlier. Previously, you did call out overstaffing levels, and it seems like that has persisted into Q3. Obviously, the new work hasn’t started up. What do you think drove the rebound in the margins on a sequential basis? Yeah. When we look back at Q3, it’s those things that we itemized. 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 measurable impact on the consolidated results. Number three was some of the divisions doing a good job of containing headcount additions and, in some cases, right-sizing some parts of the business to streamline SG&A and labor as it relates to COGS to improve margins. Yeah. I mentioned earlier, we picked up some work that we were not 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 is good color.

I guess circling back to the RFPs and the wins, I’m just wondering, were you able to bid on these sorts of projects in the past? If not, what has enabled you structurally now to go after these sorts of larger projects or plays or certain customers in greater scale? 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 2021 was being able to service some of these super majors everywhere in order to service them anywhere. Everywhere in North America includes the Gulf of Mexico. 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.

It was not directly because of the ProFlow relationships or the ProFlow business that we got onto these bid lists, but it was because of the expertise we have acquired since acquiring ProFlow. Okay. That is great color. Thanks, guys. Just a reminder that in order to ask a question, simply press star followed by the number one on your telephone keypad. Once again, that is star one for any questions. Our next question will come from the line of Michael Buonaire with TLF Capital. Please go ahead. Good morning, gentlemen, and 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. Thank you, Michael.

Operationally, could you just expand on the opportunity in the SAG-D 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. Yeah. The SAG-D 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. Back in the day, they developed that stuff, and they went with the suppliers they chose.

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. To shut that down requires shutting off the steam, allowing the reservoir to cool, correcting it. It is 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. We have had to take the path as we have become a more relevant player, and we have 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.

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. That is kind of the phase we are in now. We talked about this back in 2012, 2013, 2014 when we were getting into production chems in Canada as being a target. We have been working on it literally that long. It has been a much longer, harder path than we thought it would be. The reason I pointed it out on the call is because we are actually starting to make some progress there. You are starting to make progress in terms of being included in production or just being considered? Considered. Doing some trials at plants. Congratulations. That is excellent.

It’s obviously a very large opportunity. 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 at the level that we’re talking to those companies, but you can draw the conclusion that, yes, it’s related. Excellent. 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? Yeah, of course.

One of the parts of the technical calculation of that cost of capital, obviously, is debt. We have a leverage level that we’re very comfortable with, that one to one and a half times range. 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 the implied yield of that raise, the $75 million on top of the $200 million. That’s on the debt side. 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 WAC becomes bigger.

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. 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, 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 opened 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. Thank you.

That will conclude our question and answer session. I’ll hand the call back over to Ken for closing comments. I just want to say 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.

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