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Edited Transcript of CEU.TO earnings conference call or presentation 9-Aug-19 3:00pm GMT

Q2 2019 CES Energy Solutions Corp Earnings Call

Calgary Aug 19, 2019 (Thomson StreetEvents) -- Edited Transcript of CES Energy Solutions Corp earnings conference call or presentation Friday, August 9, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Anthony Michael Aulicino

CES Energy Solutions Corp. - CFO

* Thomas J. Simons

CES Energy Solutions Corp. - President, CEO & Director

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Conference Call Participants

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* Greg R. Colman

National Bank Financial, Inc., Research Division - MD and Energy Services & Special Situations Analyst

* Keith MacKey

RBC Capital Markets, LLC, Research Division - Analyst

* Tim Monachello

AltaCorp Capital Inc., Research Division - Analyst of Institutional Research for Energy Services

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Presentation

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Operator [1]

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Thank you for standing by. This is the conference operator. Welcome to the CES Energy Solutions Corp. Second Quarter 2019 Earnings Call. (Operator Instructions) And the conference is being recorded. (Operator Instructions)

I would now like to turn the conference over to Mr. Anthony Aulicino, Chief Financial Officer. Please go ahead, sir.

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Anthony Michael Aulicino, CES Energy Solutions Corp. - CFO [2]

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Thank you, operator. Good morning, everyone, and thank you for attending today's call. I'd like to note that in our commentary today, there will be forward-looking financial information and that our actual results may differ materially from the expected results due to various risk factors and assumptions. These risk factors and assumptions are summarized in our second quarter MD&A and press release dated August 8, 2019, and in our Annual Information Form dated March 12, 2019.

In addition, certain financial measures that we will refer to today are not recognized under current general accepted accounting policies. And for a description and definition of these, please see our second quarter MD&A.

At this time, I'd like to turn over the call to Tom Simons, our President and CEO.

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Thomas J. Simons, CES Energy Solutions Corp. - President, CEO & Director [3]

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Good morning. Thank you, Tony. On today's call, we're going to update listeners on our ongoing 80-20-16 capital allocation plan. So that means 80% of free cash flow is going to the balance sheet, 20% of free cash flow is funding our share buyback plan, and $16 million is funding our sustainable dividend. We'll also update listeners on CapEx. I can advise that our previous range of CAD 50 million to CAD 60 million is still intact, with it likely that we're going to be closer to CAD 50 million than CAD 60 million. I'll elaborate more on that later in the call. We'll provide our customary detailed operations update, including color around how we had market share gains and outperformed financially in the quarter. Tony will provide a detailed financial update, we'll share our outlook for the business, we'll take questions, provide a brief summary and conclude the call.

So far in 2019, we've successfully grown revenue, grown EBITDAC, grown EBITDAC percentage, massively reduced debt, reduced share count through our NCIB, and we've paid our sustainable dividend. We've been able to do this because our customer base is blue chip and it's expanding. We've added disclosure to our IR materials to reflect the fact that 40% of our revenue comes from customers with company valuations above $50 billion.

Our technologies are unique and create measurable value for our customers. That's why more customers are choosing us over the competition. Our infrastructure buildout last year is yielding results this year. From the Delaware Basin in the Permian to Grand Prairie in Canada, our people remain best in their fields and work together to solve our customers' problems. We're also increasingly utilizing digital technology to enhance our efforts in mining data to make technical recommendations. It's working. It's helping margins. It's winning new business, and we believe that there's further upside to come our way.

Our manufacturing is world-class and helping drive improving margins. Engineering improvements in Kansas have improved safety, they've grown throughput, they've improved product quality and they're helping lower our cost of goods. To that end, later in the call, I'm going to talk about our Investor Day we hope to host in Kansas.

Our relentless focus on customers, on our balance sheet, on working capital, our strict controls around CapEx, have all nicely come together to allow us to further strengthen the business in the quarter. We further reduced our operating line to CAD 95 million drawn from CAD 160 million at year-end of 2018. We've reduced the share count by acting prudently on our share buyback plan through the quarter. CapEx is tracking to the low end of our $50 million to $60 million guidance. We've strategically expanded infrastructure in the right places last year. CapEx is now mostly limited to trucking assets to deliver our products. 1/3 of that CapEx is maintaining our rolling stock or fleet and 2/3 is growth. We continue to evaluate ways to expand our barite grinding capacity as we anticipate future growth of our U.S. drilling fluid business. Today, our needs are covered. We'll only act on grinding expansion when we're confident we can achieve a 20% plus rate of return on any investment.

I'll now get into the operations update. Beginning with the U.S., where we generated 76% of our revenue in the quarter, coming in at a little over CAD 236 million. AES, our U.S. drilling fluid business, is gaining market share. This is owing to a combination of available throughput in our Delaware Basin mud plant. We doubled the throughput last year for $5 million to $6 million, and we've also successfully rolled out new technology in that same market that's helping us add new customers and lower the cost of our existing customers. We've won new business with a major. We've won new business with several large independents and several smaller operators. Through the quarter, we averaged 115 to 120 jobs in the second quarter across the U.S. To date, we have 114 running. That includes 11 in the Northeast, 11 in the Gulf Coast, 11 in the Mid-Con market and 79 in the Permian. We continue to take a disciplined technology problem-solving approach to maintaining and growing AES. We believe in this era of industry living within cash flow that it lends itself to customers only being able to have best-in-class services on location. We like that dynamic a lot.

I'll now move on to U.S. production chemicals. Jacam Catalyst is our U.S. production chemical business. As U.S. production grows, so do we. An important nuance to understand that as production ages and water cut rises, our job to protect the well against damage from corrosion or scale often requires more chemical with higher water cuts. We also protect against production impairment from emulsions, paraffin, asphaltenes, other damage mechanisms. When you add this all up, we are naturally growing our chemical-treating business in Texas and New Mexico. New pipeline egress is coming online in the Permian to further allow customers who can grow from within cash flow to sell their oil at good prices. We're also growing in the Rockies and California. This is where water cuts are increasing, which drives additional chemical treatment. Our niche stimulation business line, StimWrx, has had some great results in the Rockies and now in the Permian. We see a good future for this novel asset technology used to revitalize old wells.

I'll now move on to Canada. While we remain deeply disappointed with what I consider terrible public policy towards the energy sector by Ottawa, we do remain committed to Canada, and for good reason. LNG development will be a home run for CES. Oil sands production and drilling offer us huge upside. Our highly variable cost structure in Canada allows us to sweet buy in Q2 and do pretty well in the other 3 quarters. Our higher-than-normal SG&A in the quarter is owing to worse-than-normal activity in Q2 in Canada. We continue to work with industry partners to hopefully affect change in Ottawa so we can get back to business in Canada. We managed to average 28 drilling fluid jobs in Canada through Q2. Today, we have 56. We remain the dominant supplier in deep, long-reach horizontals and the oil sands and sea drilling market. Real egress for both oil and our natural gas in Canada can be catalysts for our Canadian drilling fluid business to really outperform. We're dominant in the Montney, and we believe if the Duvernay develops as a meaningful play, we can be very successful there, too.

PureChem is our Canadian production treating business. In an area of -- in an era of lack of egress, this has been a tough market. We continue to add the right new business to help PureChem to make an appropriate financial contribution. The right new business is deep horizontals that require continuous injections of chemistry and the SAGD market. Both are complex solutions in large volumes. We have a recast leadership at PureChem and expect to see continued improvement. As a part of PureChem, StimWrx works in Canada is making a nice contribution.

Sialco is our Vancouver-based reaction chemistry business. It's doing well -- very well for us, contributing new technology and making a nice financial contribution on its own. It also offers us some nonenergy revenue. Clear Environmental continues to be best-in-class environmental services in Canada, and they're constantly looking for ways for us to make money around cleanup or handling or sourcing water.

I'll now turn it over to Tony for the financial update.

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Anthony Michael Aulicino, CES Energy Solutions Corp. - CFO [4]

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Thanks, Tom. As Tom alluded to, Q2 2019 represented another consecutive quarter of strong alignment with our financial areas of focus, including free cash flow generation, prudent CapEx, margin improvement, debt reduction and very strong returns. Q2 demonstrated strong year-over-year growth with revenue of $313 million compared to $284 million during Q2 2018 and adjusted EBITDAC of $41.5 million compared to $37.5 million in Q2 2018, both representing record second quarter results for the company.

U.S. revenue increased in comparison to Q2 2018, generating $237 million or 76% of total revenue for the quarter, representing an increase of 17% year-over-year. This growth was underpinned by increased activity levels and improving market share in both our production chemicals and our drilling fluids businesses as the company was able to capitalize on its strategic investments completed in 2018 in key infrastructure and operations in attractive markets, including the Permian, Eagle Ford, Bakken and the Rockies.

Canadian revenue of $76 million for the quarter represented a decrease of 8% year-over-year. This decrease was largely driven by the persistent industry challenges, which resulted in a decline in drilling activity as industry rig count decreased 26% and CES' operating days decreased 33%. Despite government-mandated production curtailments and severe weather conditions in June that hindered deliveries, PureChem's production chemical business model proved resilient as Canadian treatment points modestly increased 2% year-over-year and realization of operational efficiencies, which commenced in Q1 under the new leadership, continued into Q2.

Including the benefit of IFRS 16 of $1.5 million, adjusted EBITDAC for the quarter was $41.5 million or 13.3% of revenue, representing yet another consecutive quarter of adjusted EBITDAC margin improvement from 12.1% in Q4 2018 and 13.1% in Q1 2019, all despite the typical seasonally low Q2 environment. Adjusted EBITDAC as a percentage of revenue benefited from an improved revenue mix right across the business, internal cost improvement initiatives and isolated price increases.

During Q2, $12 million of cash was spent on CapEx with significant expenditures made to support higher production chemical activity levels and associated head count in the Permian Basin. We continue to expect CapEx -- net CapEx to be in the $50 million range in 2019.

As at June 30, we had a net draw of $94.8 million on our senior facility compared to $161.5 million on December 31, 2018, and $132.5 million on March 31, 2019, representing a reduction of $67 million over that period. This continued decrease was driven by working capital returning to the balance sheet and strong free cash flow generation, all offset by opportunistic significant share repurchases through CES' NCIB program and a onetime management transition severance cost.

In Q2, we repurchased 2.7 million shares at a weighted average price of $2.44 per share for a total amount of $6.6 million. Since the commencement of our NCIB program on July 17, 2018, and up to June 30, 2019, we've repurchased 7.9 million common shares, representing 2.9% of outstanding shares on July 17, 2018. Subsequent to June 30, 2019, the company renewed its NCIB program for another year and has repurchased 185,000 additional common shares at a weighted average price of $1.94 per share for a total of $0.4 million.

Having completed significant CapEx programs in 2018, we continue to focus on increasing free cash flow generation and strong return metrics through execution in key markets, execution of prudent capital expenditure programs, improved working capital efficiencies and opportunistic margin expansion. In 2019, we expect EBITDAC to materially exceed the sum of cash expenditures on interest, taxes and CapEx, allowing for surplus free cash flow to reduce debt, pay our dividends and continue our share buyback program.

At this point, operator, that concludes our prepared remarks, and I'd like to turn it over to you to allow people to ask questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Greg Colman of National Bank Financial.

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Greg R. Colman, National Bank Financial, Inc., Research Division - MD and Energy Services & Special Situations Analyst [2]

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Guys, congrats on the great quarter. I'd like to start by talking about margin performance. It was better than we expected, both sequentially and year-over-year, seeing the expansion. You touched on a lot of factors, Tom and Tony, but what -- can you talk to us about sort of the main factor behind the expansion, if there was one? And then similarly, are the margins now at a point where you would anticipate they will stabilize? Or should we continue to see or expect to see margin expansion for the balance of the year?

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Anthony Michael Aulicino, CES Energy Solutions Corp. - CFO [3]

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Well, let me start from a financial perspective, and then Tom, please add from a strategic and operational perspective. Look, Q2 is typically a seasonally low. When you looked at expectations for the Street, margin expectations were in the 11.5% range versus the 13.3% that we delivered. From a financial perspective, it was a combination of going after and executing higher-margin business in the U.S. and in Canada, and going after and executing a much lower level of high-revenue, low-margin business, which we experienced in Q3 and Q4. In addition to that, there was a laser focus on streamlining costs wherever we could, and that led to a focus on reducing some elements of COGS that we had not focused on in the past. I believe some of that is sustainable. We're also very impressed by the ability for our PureChem chemical -- production chemical business in Canada to continue the operational efficiencies that they realized in Q1 coming into Q2.

The other thing we saw on both sides of the border in the production chemicals business was the ability to use more of the technology focus that Tom mentioned to reformulate our chemical solutions wherever possible. And as Tom mentioned, given the fact that many or most of our customers are very large, results-oriented customers, they allowed us to do so. So Greg, it's impossible to predict exactly where we're going, but I think we've been pretty clear over the last 3 quarters in terms of what we're trying to do. And you should expect us to continue to focus on maintaining margins where they are and improving them.

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Thomas J. Simons, CES Energy Solutions Corp. - President, CEO & Director [4]

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Greg, I'll touch on some examples, infrastructure-wise or operationally as well. So we're -- the last 2 years has been pretty relentless in putting engineering controls into Kansas. The legacy or history of that plant is it was run through the lens of a chemist. That's what made it successful in building novel chemistry. Now what we're trying to do is increase throughput without spending money and to drive COGS down. And so we're running larger batches. We've changed processes that's improving both quality and safety, and we're starting to see that show up on the bottom line. So large batch, drive down your unit price, small batch, less inventory, typical private company behavior. So we're starting to act like a bigger business and make an investment in the inventory that way. On Grand Prairie completion, Kermit completion, both of those things, Grand Prairie has played a part. Kermit, we're not eating trucking hours. So need a couple thousand dollars of trucking to normalize transportation costs for the customer last year because our facility was overcapacity. So we take a $100,000 or $200,000 mud invoice and not have to eat that little bit, it kind of helps out. Grand Prairie, we're winning more deep horizontals, usually Montney, that take continuous injections of complex chemistries. Vern's getting the same thing happening in the Rockies. He's winning more horizontal work. He's winning more horizontal work in the Permian as more and more of that market shifts to that kind of production. And then StimWrx. StimWrx uses third-party trucking to pump acid. It's completely just an advisory business, cherry-picking old wells that if we apply our asset technologies properly can revitalize these old wells. So it's a high-margin business with no CapEx required at all, just some inventory and the right people. So it's a combination of things. If we can maintain this kind of activity level, I think we can maintain these kinds of margins. And if we can get busier, we can make a little more.

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Greg R. Colman, National Bank Financial, Inc., Research Division - MD and Energy Services & Special Situations Analyst [5]

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Got it. That's a great summary at the end there, Tom. I appreciate that. Moving over for a second on to the balance sheet and the cash flow here. For working capital, we saw another release in Q2 after one in Q1. I think your year-to-date total is just under $50 million. Should we expect this working capital focus to continue and look for more capital to be unlocked in the back part of the year? Or should we moderate those expectations with a more normal seasonal draw on cash in sort of Q3 and beyond, and the full year would be less than that $48 million we've seen released so far?

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Anthony Michael Aulicino, CES Energy Solutions Corp. - CFO [6]

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I think you should start off by expecting the typical seasonality that we experienced through our working capital increase and decrease, which means for the here and now, you should expect working capital to go up Q2 to Q3, and that's simply because activity will ramp up, inventory requirements will ramp up and AR will ramp up a little bit. However, you should offset that by our focus on continuing to do what we did in Q2, which is reduce the cash conversion cycle and improve receivables, inventory and payables days wherever we can. So I think when you look toward the end of the year, we would like to be at or below the level that we're at right now if we're able to execute that way.

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Greg R. Colman, National Bank Financial, Inc., Research Division - MD and Energy Services & Special Situations Analyst [7]

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Okay. That's good to know. And then just lastly from me. Tom or Tony, can you give us an idea during the quarter how your revenue or your EBITDA mix, whatever way you want to look at it, would look for the production portion of the business versus the drilling activity portion of the business? When I look from where I sit, I'm more concerned about the drilling activity macro than the production. And so that would be very useful information if you have it.

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Thomas J. Simons, CES Energy Solutions Corp. - President, CEO & Director [8]

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Yes. Without disclosing too much, Greg, how I look at our sources of revenue is are they recurring, so that could be pipeline, tank treating, water CO2 flood treating or production chemical treating and then upstream. So drilling, stimulation work, a little bit of frac work. We have -- we've got a nice little niche market building out with coil, drilling out plugs for people. But how I sort of look at the revenue upstream or recurring, they're equal contributions now.

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Greg R. Colman, National Bank Financial, Inc., Research Division - MD and Energy Services & Special Situations Analyst [9]

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50-50 in the quarter?

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Thomas J. Simons, CES Energy Solutions Corp. - President, CEO & Director [10]

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Yes, pretty close to equal contributions.

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Greg R. Colman, National Bank Financial, Inc., Research Division - MD and Energy Services & Special Situations Analyst [11]

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And how does that mix look compared to where it was last quarter and last year? Just a trend line.

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Thomas J. Simons, CES Energy Solutions Corp. - President, CEO & Director [12]

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The recurring part has steadily been rising. As water cuts go up, production goes up for customers, and then our market share of production goes up.

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Operator [13]

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(Operator Instructions) The next question comes from Keith MacKey of RBC.

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Keith MacKey, RBC Capital Markets, LLC, Research Division - Analyst [14]

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Just a question on -- following up on Greg's question here. Would it be possible to then break that 50-50 mix down between Canada and the U.S.? And then I guess my second question would be, you previously stated that margins are meeting your target in 3 of the 4 divisions with the fourth improving. Wondering if you can provide an update on that and where things are sitting.

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Thomas J. Simons, CES Energy Solutions Corp. - President, CEO & Director [15]

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Yes. That's as granular, I think, Keith, as we can get on contributions, equal upstream and recurring. Giving away more than that, I think, is not in the public domain, and that's more disclosure than we think is wise for the business. Our targeted -- as you noted, targeted business line EBITDA level is 15%. If we can do that across this business and not burden it with too high of corporate costs, then we can make a lot of free cash flow for investors and wherever OFS multiples are, at least give people a chance to make some money on our equity. The PureChem business line that you noted that was sub-15%, we changed leadership in that business line earlier in the year. Starting last fall, there was a concerted effort through kind of a war room on that business on understanding exactly what all the levers were we could pull in the absence of the ability to raise prices. So as we have acted on those things, which includes changing how we pay people, changing what work to some degree we're targeting, PureChem's starting to have months where it's touching 10%, and it had been single digit for a very long time. The other businesses, they might have a lumpy month and get under 15%, but for the most part, are bumping along at 15% or better. So drilling fluids in each country and then the recurring production chemical business in the U.S.

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Operator [16]

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The next question comes from Greg Colman of National Bank Financial.

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Greg R. Colman, National Bank Financial, Inc., Research Division - MD and Energy Services & Special Situations Analyst [17]

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Two quick follow-ups. On the 50-50 recurring upstream, is that split where you want to see it either in the near term or the long term? Or do you have a target where you would like to see that trend?

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Thomas J. Simons, CES Energy Solutions Corp. - President, CEO & Director [18]

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I think that's a pretty good ratio, Greg. When the upstream gain is on because we've been doing this for going on 20 years as a business, all of our upstream infrastructure is built out. So when the game's on, we can create a ton of free cash flow. And when it's not, you pull your horns in, keep looking after your customers, keep the customers you have that just have less rigs running and try not to leak too much. The production part of the business because you're putting trucks on the road as you grow, does consume a little more capital than the upstream part. That's the set-off for it being much more reliable. So I think you got to be opportunistic and take what work the market can bear. But if we were close to even, I think that's a pretty good ratio for the business. That's going to allow us over the next year or 2 to pay down and even out the line, it's going to allow us to continue to shrink the share count, and in time, it will allow us to raise the dividend.

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Greg R. Colman, National Bank Financial, Inc., Research Division - MD and Energy Services & Special Situations Analyst [19]

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Got it. And then my other follow-up was on another part. I just want to come back to some of your prepared remarks. I might have misheard this. But on the SG&A, you were commenting on the size of the SG&A in the quarter and some onetime stuff in there. Should we interpret that as being -- meaning that the SG&A, in absolute terms, should be pulling back in subsequent quarters? Or was I mishearing?

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Anthony Michael Aulicino, CES Energy Solutions Corp. - CFO [20]

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Yes. I think if you have to use more normalized levels for the year, you would go back to the normalized absolute number that we had in Q1.

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Greg R. Colman, National Bank Financial, Inc., Research Division - MD and Energy Services & Special Situations Analyst [21]

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Got it. And that's an absolute dollar value churn there, Tony, not as a percentage of revenue, right?

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Anthony Michael Aulicino, CES Energy Solutions Corp. - CFO [22]

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Correct.

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Operator [23]

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The next question comes from Tim Monachello of AltaCorp Capital.

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Tim Monachello, AltaCorp Capital Inc., Research Division - Analyst of Institutional Research for Energy Services [24]

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My question is just on U.S. market share gains. I'm wondering obviously it's a pretty good quarter in that respect, bucking the trend of broader U.S. rig count declines, the joint fluids space there. Do you attribute those market share gains to debottlenecking and expansions within that mud plant? Or was there pricing concessions or some other marketing strategy that really helped you gain that share in the quarter?

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Thomas J. Simons, CES Energy Solutions Corp. - President, CEO & Director [25]

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Yes, that's a great question. It's not pricing concessions. We're not leading with our chin. It's the rollout of the technology I talked about on the last call, Tim. In the Delaware Basin, where last year, we doubled the throughput of that mud plant, it had been built 6, 7 years ago to support up to 50 rigs or mud jobs, which at the time sounded ridiculous. No one had even heard of the Delaware Basin. We built that plant now to be able to support up to 100 jobs. I think customers knowing when they go to rig tours that there aren't semis lined up for 6 or 8 hours at our mud plant to support their rig, I think it gives them the confidence to give us more work. All of our salesmen in Midland say that, that's the case. And then we rolled out technology there, which what we do is we've developed the polymer in one of our reaction facilities that we inject at the centrifuge while you drill the intermediate section. That polymer helps the centrifuges cut or remove the rock or cuttings, the solids out of the drilling mud. It keeps the weight down. That allows us to use less diesel to keep the weight of these direct emulsion mud systems down. That allows you to not have lost circulation and higher costs as you drill the build section in the Delaware that contains a combination of a salt zone, water flood to water injection and then a lost circulation or deep zone. And all of those things combined used to force the operator to run 2 strings of casing to drill those wells, so slower and more expensive because more money on pipe. This direct emulsion system started to allow people to drill it in one shot. We've now perfected a way to spend about $5,000 to $10,000 on a polymer to save up to $50,000 in diesel additions. And then when the rig is on a rig move or if they've got time where they're pad drilling and they don't have that fluid in the hole because they're drilling surface holes, we can actually then use surfactants we've developed to break that technology or system apart and recover the diesel and the brine. So we're winning new business because of that technology. We're winning that business because of no lineups at the mud plant. And our customers are drilling faster than their competitors, and their competitors have a duty to catch up.

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Anthony Michael Aulicino, CES Energy Solutions Corp. - CFO [26]

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And Tim, the only other thing I would add, and frankly, reiterate is the fact that we do like the customer roster that we're mostly exposed to. And we took a step forward in providing disclosure in our investor presentation to demonstrate that over 50% -- I think it's 54% -- when you look at the top 50 public companies in our customer list, that 54% of the revenues that we receive are represented by customers at aftermarket caps that are greater than $10 million. And we're very comfortable with their leading position, their ability to continue to outpace their smaller competitors and their resiliency and frankly, our ability to grow with them and punch above our weight as we do that.

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Thomas J. Simons, CES Energy Solutions Corp. - President, CEO & Director [27]

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Tim, we're pretty mindful as a service company that you're only as good as your customers' ROC and balance sheet. And so our stuff needs to work, our people need to make it work better than the competition, and then we need to have the right dance partner. And in the -- I would say, across North America, we think we're doing pretty well that way, but we're doing very well that way in the Permian.

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Tim Monachello, AltaCorp Capital Inc., Research Division - Analyst of Institutional Research for Energy Services [28]

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Okay. That's all really good color. Just closing on that then, within those market share gains or the jobs that you've added in the quarter, were any of those material chunks outside of your historic customer base? You add any new customers? Or is this further penetration within your existing customer base? And then just another follow-on question to that, what's your visibility towards job count for the remainder of the year in the U.S.?

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Thomas J. Simons, CES Energy Solutions Corp. - President, CEO & Director [29]

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No new huge wins that sort of tilted things. We have added a couple noteworthy operators to the roster, and hope next call, we can say we did it again. No big outliers that kind of juiced the system. In fact, our biggest customer windowed a bunch of rigs out in the quarter. So we're actually quite pleased that our gains have more than offset that event happening. And those rigs, as we understand it, will come back to that customer later in the year. As far as visibility goes, I think 110, 115 drilling jobs in the U.S., probably a fair estimate. I think there could be a snick more contraction with some operators, but we've got signs of new work from new customers that I think can offset whatever the industry kind of gives back. And in Canada, the 56 jobs kind of feels like that's probably a steady number for a while here, maybe a little pickup later in the year. I mean people certainly in Canada are not spending all their money. So there is room for it to get busier in Canada, I think common sense would say. And then on the recurring part, the production pipelines, tanks, treating business, I think people should expect that to just slowly always get a little better.

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Tim Monachello, AltaCorp Capital Inc., Research Division - Analyst of Institutional Research for Energy Services [30]

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Okay. That's really helpful. And that 110 to 115 jobs in the U.S., do you think that, that's sort of where you get to by the end of the year, let's say, the rig count continues to fall? Or do you think that's sort of an average to the back half of the year?

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Thomas J. Simons, CES Energy Solutions Corp. - President, CEO & Director [31]

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We're at 114 today. So that's what I can say. If nothing changes for us in terms of job count, probably the second half of the year kind of looks like the first half of the year, just the balance sheet keeps getting better.

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Operator [32]

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This concludes the question-and-answer session.

I would now like to turn the conference back over to Mr. Tom Simons for any closing remarks.

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Thomas J. Simons, CES Energy Solutions Corp. - President, CEO & Director [33]

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Well, thank you to listeners. Thanks, Tony. To summarize, as industry shifts to living within cash flow, the need for operators to only hire the best-in-class services intensifies. Our vertical integration allows us to bring innovation to our customers. Our culture of problem-solving cements the relationship with the customer and keeps the work that innovation wins. We remain steadfast with our 80-20-16 plan. We understand that we compete not just with energy investment opportunities, but all opportunities. We can sustain and grow our business out of cash flow while paying down short-term debt, shrinking the share count and comfortably funding the dividend. To showcase our capabilities and upside, we're pleased to announce that we're going to be hosting an Investor Day October 2 in Sterling, Kansas. This is the site of our world-class reaction chemistry plant. And of note, we have 2 of these. There's one in Vancouver as well. This Investor Day will include a Q&A with company management following the plant and lab tour. We're tremendously proud of the plant and hope many of you can join us. With that, we conclude today's call.

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Operator [34]

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This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.