CES Energy Solutions Corp. (CEU) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Shareholders of CES Energy Solutions Corporation. Please note today's meeting is being recorded. If you participate in today's meeting and disclose personal information, you will be deemed to consent to the recording, transfer and use of same. If you disclose personal information of another person in today's meeting, you will be deemed to represent and warrant to Computershare and the corporation that you first obtain all required consents for disclosure, recording, transfer and use of such personal information from all appropriate persons before your disclosure. During the meeting, we'll have a question-and-answer session. For the shareholders who have joined the meeting as a registered shareholder or proxy holder, you can submit questions or comments at any time by clicking on the Q&A tab. It is now my pleasure to turn today's meeting over to Mr. Matthew Bell, Corporate Secretary of CES Energy Solutions. The floor is yours.

Thank you for joining us today. My name is Matthew Bell, and I'm the Corporate Secretary for CES Energy Solutions Corp., and I will act as Secretary for the meeting. Before we begin, we would like to provide a brief overview of the Computershare virtual meeting platform. You should now see the agenda on your screen. The top right corner of the page, you will see different tabs or icons that you can click on to access different parts of the platform. If you have accessed the meeting with a control number or invite code, you may ask a question at any time by clicking the Q&A tab as well as vote in real time. If you have not already done so by clicking the vote tab. If you've already voted, there is no need to vote again unless you wish to change your vote. Any questions should be addressed one matter at a time, and we encourage you to submit questions as early as possible. Questions related to items of business will be addressed immediately before each item is put to a vote. And questions of a general nature will be addressed at the end of the formal part of the meeting. The Chair will determine whether the question or comment is relevant to the item of business and otherwise, whether it is appropriate. If the question or comment is relevant to matters to be voted on, I will read the comment and the Chairman will respond to the question. Alternatively, the comment may be presented to the entire meeting with or without further commentary at the Chairman's discretion. The broadcast tab will not be enabled for this meeting. For convenience, we have divided today's meeting into 2 parts: our Chair of the Audit Committee, Mr. Kyle Kitagawa, and proposed Chairman of the Board following the AGM will act as Chair and will conduct the first part of the meeting dealing solely with the legal requirements. After we conclude the legal part of the meeting, Ken Zinger, President and CEO, will provide a corporate update. In order to ensure that the meeting covers the required business in an efficient manner, we have prearranged with designated shareholders and proxy holders to move and to second the motions of business. Thank you, and I will now turn it over to our meeting chair, Mr. Kyle Kitagawa.

Thanks, Matt. Good morning, and welcome to the Virtual Annual General Meeting of the Holders of Common Shares of CES Energy Solutions Corp. My name is Kyle Kitagawa, and I will act as Chair of the meeting. I will now call to order the Annual General Meeting of Shareholders of CES Energy Solutions. Mr. Bell will act as Secretary of the meeting; and Ms. Jennifer Oliver of Computershare will act as scrutineer. The notice calling this meeting of shareholders was mailed to all shareholders in advance of the meeting and is dated May 8, 2024, I would request that the secretary keep the proof of mailing of the notice of meeting, information circular and form of proxy to the registered shareholders of the corporation with the records of this meeting. The bylaws of the corporation provide that a quorum exists if at least 2 holders representing at least 5% of shares entitled to be voted at the meeting are present in person or represented by proxy. It has been confirmed by the scrutineers that quorum has been met and 66.11% of the issued and outstanding common shares are being represented at this meeting. Accordingly, I declare the meeting is regularly called and properly constituted for the transaction of business. I will now explain the voting procedures to be used at today's meeting. We have received all proxy voting results for today's resolutions in advance of this meeting. Anyone in attendance today who has not yet voted and has not signed in as a guest will have an opportunity to vote online in real time using the virtual meeting platform. Rather than hold up the business of this meeting for the final tabulation of votes on each motion, I will be providing interim results received from the scrutineer in advance of this meeting on each of the motions presented. I have directed the final combined results of the advanced poll and the votes entered through the virtual platform on all motions today be included with the minutes of this meeting. These results will be available in the report on voting results posted on SEDAR following the termination of this meeting. The polls are now open. The first item of business is the presentation of the financial statements of the corporation for the fiscal period ended December 31, 2023, and the report of the auditors thereon. Copies of the financial statements, including the report of the auditors thereon are available at this meeting and have been posted on the corporation's website and filed on SEDAR. As no action is required to be taken by shareholders on the financial statements, I now declare the financial statements of the corporation for the fiscal period ended December 31, 2023, and the report of the auditors thereon have been received by the shareholders and submitted to this meeting. The next item of business is to fix the number of directors to be elected at the meeting. May I please have a motion to fix the number of directors to be elected at this meeting at 7.

I so move.

I second the motion.

Thanks, Tony. Are there any questions on this motion?

There are no questions.

Seeing none, we will proceed to the scrutineer's report. According to the report, the results of the vote to fix the number of directors at 7 are as follows: 99.33%, 4.67% against I declare the motion carried. The next item of business is the election of directors. The corporation has nominated 7 directors for election and has not received any nominations from shareholders pursuant to the bylaws of the corporation. The 7 nominated directors as set out in the corporation's management information circular are Mr. Spencer Armour, III, Ms. Stella Cosby, Mr. John Hooks, Mr. Ian Hardacre; Mr. Joseph Wright; Mr. Ken Zinger and myself, Mr. Kyle Kitagawa. May I now have a motion from the floor to elect the nominees as directors of the corporation to hold office until the next election of directors or until their successors are appointed.

I so move.

Thank you, [ Scott ].

I second the motion.

Thanks, [ Aaron ]. Are there any questions on this motion?

No, there are no questions.

Seeing none, we will proceed with scrutineers' report. According to the report, the voting results are as follows: Spencer Armour, 96.15% for, 3.85% withheld; Stella Cosby, 85.59% for, 14.41% withheld; John Hooks 75.88% for, 24.12% withheld; Ian Hardacre 97.57% for, 2.43% withheld; Edwin Joseph Wright, 89.45% for, 10.55% withheld; Ken Zinger 98.94% for, 1.06% withheld; myself 93.02% for, 6.98% withheld. I would like to remind you that CES majority voting policy requires that each director nominee receive 50% or more of the votes cast. I see that all directors have received more than 50%. Therefore, I declare the 7 nominees have been duly elected as directors of CES Energy Solutions for the upcoming year. As noted previously, the final voting results for each director will be available on SEDAR subsequent to this meeting and will also be disclosed by press release. The final item of business is the appointment of the auditors for the corporation. May I please have a motion that Deloitte LLP be appointed auditors of Corporation until the next Annual Meeting of Shareholders or until a successor is appointed and the directors of the corporation be authorized to fix their remuneration.

I so move.

I second the motion.

Thanks, Scott. Are there any questions on this motion?

No, there are no questions.

Seeing none, we'll proceed to the scrutineer's report. According to the report, the results of the vote to appoint Deloitte LLP as auditors of corporation or as follows 84.97% for, 15.03% withheld. I declare the motion carried. As there are no further scheduled business to be brought before the meeting, we will serve as a 1-minute warning prior to the polls being closed. If you are voting through the virtual platform, please ensure that your votes are recorded. [Voting]

While there are no registered shareholders on attendance in the virtual meeting platform. So there -- we can close the polls early.

All right. The polls are now closed. Unless there is any other business to be brought forward, we will now proceed to conclude the formal portion of this meeting.

There does not appear to be any other formal business, Kyle.

Okay. Seeing none, I will entertain a motion to end the meeting.

I move that the meeting be terminated.

I second the motion.

Thanks, Tony. Thanks, [ Aaron ]. Before I turn the meeting over to Ken Zinger, the CEO, I'd just like to acknowledge the retirement of Phil Scherman from the Board of Directors. Phil joined the Board in 2015 as Audit Chair and then assumed the role of Board Chair in 2021. Phil has been a tremendous asset to the Board, bringing both technical skills and a comp perspective to both problem-solving and decision-making. Phil, you will be missed by both myself and the rest of the Board. I would also like to acknowledge the contribution of Phil's longtime [ wife, Roberta ]. And I'd also like to wish them the very best in retirement as they travel the world and enjoy their grandchildren. Thanks so much, Phil, for your contributions to the Board and to the corporation. All right. Ken, on that note, I'll turn the meeting over to you, and I believe you're going to be doing a corporate update. Thanks for attending.

Thank you, Kyle. Good morning, everyone, and thank you for taking the time to join us this morning for the 2024 Annual General Meeting for CES Energy Solutions. I would like to start off this morning by taking a few moments to acknowledge some changes to our Board of Directors. First off, I will begin by thanking Phil Scherman for his contribution to the growth and success of CES over the past 9 years. Phil joined the Board in May of 2015 and then quickly moved into the role of Chair of the Audit Committee, the following year. After spending 6 years in that role and doing a sensational job executing it, Phil was nominated to become Chairman of the Board in June of 2021. Almost immediately after taking the role of Chairman, Phil was faced with CES' first-ever CEO transition in November of 2021. Phil handled this challenge with the same calm, professional and thoughtful approach as he displayed throughout his entire time on the Board. I'd like to thank Phil personally for placing his trust and confidence in my ability to assume the role. During these past 3 years, Phil and I have worked closely together, and I have greatly valued his experience, his insights, his strategic guidance and his rational approach. Phil has greatly contributed to the positive direction the company has taken during this time. I will miss Phil a lot, and I'm sorry to see him go. However, I respect his decision to retire, which will allow him to enjoy well deserved quality time with his family and on personal endeavors. Thank you so much, Phil, for the years you has shared with us. You will be missed as Kyle pointed out. As a result of Phil's retirement, a shuffle in roles was required by the Board. I am proud and thankful to welcome Kyle Kitagawa, back to the role of Chairman of the Board, a role he previously held from our beginning as a public company back in 2006 until he stepped down in 2021. Kyle has continuously been a major contributor to the success of CES for the past 18 years. During the past 3 years, he has done a tremendous job in stepping in to fulfill the role of Chair of the Audit Committee. His transition to that role was seamless, just as I expect this transition to the Chairman role to be as well. I have a long history and a deep respect for Kyle, and I look forward to continuing to work with him in his return to the Chairman role. Finally, with regard to changes on the Board of Directors, I want to welcome Ian Hardacre to the role of Chairman of the Audit Committee. Ian has been on our Board since his nomination in January of 2022. During these past 18 months, he has proven himself a valuable asset to our board. His extensive background in capital markets brings a unique skill set and outlook that helps guide our approach on many topics. I have complete confidence in Ian and cannot thank him enough for stepping up and accepting the nomination to this important role on the board. I will now give a brief summary of the past year at CES as well as a quick snapshot of our outlook for the future. First, financially. This past year has been a very constructive and transformational year for the future of CES Energy Solutions. We have continued to grow our revenues year-over-year and most importantly, our earnings and free cash flow, all while improving our current debt level as well as securing the path for our future debt structure until 2029 and beyond. Some highlights of this performance are all-time record revenue of $2.16 billion in 2023, all-time record EBITDA of $316 million in 2023. We repurchased approximately 9% of the outstanding shares of CES in 2023 at an average price of approximately [ $3.25 ] as we maximized our NCIB program. We successfully worked to reduce our debt to trailing 12 months ratio from 1.57x at the end of Q2 last year to 1.28x at the end of Q1 this year, midway into our targeted range of 1 to 1.5. We are strategically able to refinance our long-term debt at a reduced level of $200 million versus the $300 million previously at a very attractive [indiscernible] interest rate and a 2029 maturity. Through a lot of focus and effort by everyone in the company, cash conversion cycle for the company has been greatly reduced from 119 days in Q1 of 2023 to 107 days in Q1 of 2024. These impressive financial metric improvements have led to a significantly increased share price year-over-year. Currently, our share price is approximately $7, an increase of almost 3x year-over-year from the $2.40 we are trading at in early June of 2023. Next, operationally. This past year has been massively successful in our operational performance as we have taken market share and improved margins in a declining activity environment. This speaks to the performance of the entire team here at CES as everyone has contributed to this accomplishment. Some of the highlights of this performance are JACAM Catalyst market share continues to be #1 in the Permian Basin and a close #2 overall on land in the United States. AES market share has grown to #1 in the United States land market with approximately 22.5% market share at the end of Q1 2024 versus 19% in June last year. As well, AES continues to be the #1 provider in the Permian Basin with a 33% market share at the end of Q1 2024 versus 30% in early June of last year. PureChem continues to take market share in Canada, and we believe it to now be the largest provider in the conventional market in the WCSB. CES drilling fluids remains the #1 provider of drilling fluids to the Canadian market at around 35%. Finally, I will finish by noting that we remain optimistic in our outlook for the future at CES. We believe that the all of the above approach to energy supply by the world will be the winning strategy for all. This should lead to more stable pricing and activity levels in our industry. Within this type of market, we believe we are competitively positioned to continue to grow and excel throughout our divisional offerings. We will continue to focus our strategy on finding the best possible balance between our customers, our employees and our investors. Our accomplishments to date and this strategy would not be possible without the people and culture that are present every day here at CES. I'm very proud to lead this organization now and into the future. Thank you, everyone who works for us, works with us and trust their investments in us. We appreciate your vote of confidence, and we will continue to commit to always doing our best to honor and earn it. With that, I will now pass the call back to the operator.

This concludes the meeting. You may now disconnect.