CES Energy Solutions Corp. ($CEU)

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 first quarter MD&A and press release dated May 7, 2026 and in our Annual Information Form dated March 10, 2026. 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 first quarter MD&A and investor presentation posted on our website. At this time, I'd like to turn the call over to Tony Aulicino, Executive Vice President and Chief Financial Officer. You may now go ahead, please.

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 first quarter MD&A and press release dated May 7, 2026, and in our Annual Information Form dated March 10, 2026. 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 first quarter MD&A and investor presentation posted on our website. At this time, I'd like to turn the call over to Ken Zinger, our President and CEO.

Thank you, Tony. Welcome, everyone, and thank you for joining us for our first quarter 2026 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 a summary of Q1 performance overall followed by divisional updates for Canada and the U.S. 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 Q1 of 2026. Our quarterly highlights include our second consecutive all-time record quarterly revenue of $681.5 million, which was an improvement of 8% over last year's Q1. Our second highest quarterly EBITDA ever of $111.7 million, which was an improvement of 12% over last year's Q1. Q1 EBITDA margin of 16.4%, total debt to trailing 12 months EBITDA of 1.18x. Cash conversion cycle days in Q1 of 93 days, which represented our lowest quarterly level ever. Working capital as a percentage of annualized revenue was 25.7%, our lowest level ever. Our fifth consecutive quarter of record-setting U.S. quarterly revenue as well as our all-time best Canadian quarterly revenue. With regard to 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. as was demonstrated by the 29% increase to the dividend per share announced during our March update. We will continue to support the business with the necessary investments required to provide acceptable growth and returns, this includes the current CapEx plan for 2026 of $95 million, spread equally between maintenance and growth. We will continue to research and execute on strategic acquisition opportunities, which support vertical integration or interrelated business lines or geographies where we believe we can add value and grow returns. We will continue repurchasing shares while staying within our current debt to trailing 12-month EBITDA range of 1x to 1.5x as previously communicated. Now for a summary of our Q1 performance overall. Today, our rig count on North American land stands at 194 rigs out of the 648 currently listed as operating on land in North America. This represents an industry-leading and our all-time highest ever market share of 29.9%. During Q1, 64% of CES revenue was generated in the United States and 36% in Canada. Also of note is that quarterly revenues in each country were at all-time high levels in Q1 of 2026. This speaks to the strength of the entire business currently. Cost pressures and supplies challenges due to the follow-up from the Iran conflict were felt across the business during March of Q1 and have continued into April and May. Although at directionally mitigated levels as our initiatives begin to take effect. In spite of this instability, we have managed to achieve margins at the top end of our guided range of 15.5% to 16.5% during the quarter. We continue to work diligently with our customers and our suppliers to find reliable replacements and redundant sources for all affected products and inputs. As well, we are working with customers to adjust pricing where necessary. We do not expect these fluctuations to cause meaningful or sustained margin erosion. There is simply a little timing lag between realizing the increased cost due to inflation and resourcing and then passing them through to our customers. We are actively managing the challenges as we have during previous cost escalations, and we do not expect any material impact to our revenues or our margins going forward. We remain very confident in our stated margin guidance of 15.5% to 16.5%. In Canada, the Canadian drilling fluids division continues to lead the WCSB in market share. Today, we are providing service to 42 of the 123 jobs listed as underway in Canada or a 34% market share. The overall active drilling rig count in Canada in Q1 was trending consistently lower than in 2025 by approximately 10% year-over-year. In contrast to that, as previously noted by our record revenues, the service intensity phenomenon continues to more than offset the reduction in the number of rigs. Although firmly in the annual slow season of breakup in Canada today, we are very optimistic about activity levels throughout the remainder of 2026. We anticipate higher activity levels due to recently added takeaway capacity from infrastructure projects as well as vastly improved futures pricing for energy products due to the aforementioned Iran conflict and its associated follow. PureChem, our Canadian production chemical business continued its run of record results in Q1. PureChem continues to grow as all of the business lines continue to perform at record levels. We anticipate experiencing further revenue and earnings growth at PureChem due to our consistent market penetration combined with higher activity levels throughout 2026. The previously announced trials in the heavy oil sector of the market continued throughout Q1 and will progress into the second half of 2026. In the United States, AES, our U.S. drilling fluids group is currently providing chemistries and service to 152 of the 525 rigs listed as active in the U.S.A. land market today for a continually widening in AES record-setting #1 market share of U.S. land rigs at 29%. The number of rigs drilling in the U.S.A. is down slightly by 7 rigs since we last reported in March. However, in spite of this, AES is actually up by 12 rigs during that span due in large part to a significant RFP win in the Permian. Although there are still 241 rigs working in the Permian, the same as in March, our rig count has gone from 87 rigs to 98 rigs. This takes our market share to 48.6%, and which is our highest market share ever in the Permian Basin. Our market shares throughout the U.S.A. land market continue to grow as natural grass drilling continues to accelerate. Today, I'm very proud to report that we are on 17 of the 58 rigs working in the Haynesville. This represents a market share of over 29%. Over the past year, we have constructed a blending plant and distribution facility, including a rail siding strategically located within the basin. We have also developed some highly technical products and systems, specifically for the high-temperature, high-pressure challenges within the Haynesville play. We continue to anticipate further growth in this area as activity continues to ramp up in the coming months and years. As a reminder, at the beginning of 2024, there were 33 rigs working in the Haynesville. Today, just over 2 years later, there are 58. Finally, our U.S. production chemical division, Jacam Catalyst continues its steady trend of growing market share and profitability. The division remains focused on further market penetration in all areas in which they operate on land in the United States as well as in the offshore market. As a follow-up to the previously announced land-based RFP awards, I will confirm that we have now fully taken over the vast majority of the awarded locations and the business is now seamlessly operating at this higher revenue run rate level. Also, as previously referenced, Jacam Catalyst has been optimizing manufacturing, developing products and hiring some technical specialists in order to become an increasingly relevant supplier in the Gulf of America. Although a long and steep learning curve, we are continuing to make progress as evidenced by the fact that we are now fully treating our fourth deepwater platform with all of the chemistries required and are now involved in a trial on a fifth platform. As with all prior platforms, it will take several quarters before all the testing is complete and the platform is officially awarded. As always, I would like to reiterate the confidence and pride that I hold in our business model and the people who work at CES. Our unique business model has a countercyclical balance sheet requires minimal CapEx and returns healthy free cash flow throughout the cycles. Noteworthy as well, is that in spite of the pullback in upstream activity over the past 2 years, we have consistently experienced revenue and opportunity growth. Therefore, our strategy remains resilient, and we anticipate that our financial results will as well. The business is anchored by a determined philosophy focused on maintaining relationships with new and existing clients, while continuing to develop industry-leading products and solutions, which benefit them as well as differentiating us from our competitors. We believe our Q4 and Q1 results are indicative of the tremendous torque we have building in the business currently. We also believe there are early indications that U.S. upstream activity will inevitably accelerate throughout 2026. In the meantime, we continue to expect this year to be another year of growth and positioning with 2027 now looking even stronger for North America as the oil market has achieved economically attractive futures pricing and natural gas demand accelerates due to LNG and AI development. With regard to USA tariffs and the suggested Canadian counter tariffs, these continue to have little to no direct effect on our business in their current state. However, we have taken significant steps to restructure our manufacturing and supply chain in order to minimize future exposure as much as possible. I will say it again for clarity that as noted a year ago on our Q1 2025 earnings call, the impact from tariffs to date continues to be immaterial to our overall business. As a final thought, 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 at CES by 1.6% from 2,707 employees on January 1, 2026, to 2,752 employees at the end of Q1 2026. Thank you. I will now pass the call over to Tony for the financial update.

Thank you, Ken. In the first quarter, CES delivered record quarterly revenue and record first quarter adjusted EBITDAC and demonstrated a continuation of strong margins, funds flow from operations and high-quality earnings. These results underpin the unique resilience of CES' 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. In Q1, CES generated record revenue of $682 million, representing an annualized run rate level of approximately $2.7 billion and an 8% increase over the prior year's $632 million. I would also note that this is the second consecutive quarter that has generated an annualized revenue run rate of approximately $2.7 billion, demonstrating the impacts of market share gains, large new business wins and prudent deployment of capital to realize attractive organic growth. Revenue generated in the U.S. set a new record at $438 million representing 64% of total consolidated revenue. These results compare to revenue of $435 million in Q4 2025 and $402 million in Q1 2025. Revenue generated in Canada also set a new quarterly record at $244 million compared to $230 million in both Q4 and Q1 2025. Revenue levels continued to benefit 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, encountered declines in industry rig counts illustrating the resilience and attractiveness of our business model. Adjusted EBITDA in Q1 came in at $111.7 million compared to $113.2 million in Q4 and $99.9 million in Q1 2025. Q1's adjusted EBITDAC margin of 16.4% came in at the high end of our targeted 15.5% to 16.5% range and compared to 17% in Q4 and 15.8% in Q1 2025. These results were achieved despite transitory margin compression from increased input costs in March associated with the high WTI environment. This is being addressed through indexed pricing mechanisms, product substitution efforts and pass-through of higher cost to customers. During the quarter, CES generated $69 million in cash flow from operations compared to $108 million in Q4 and $60 million in Q1 2025. The decrease in cash flow from operations relative to last quarter was driven primarily by timing of tax expenses and timing of unrealized derivative gains associated with our equity hedging program. Since inception of the employee cash settled stock-based compensation plan in 2020, CES has maintained an effective equity hedging program to mitigate the potential cash related financial impact from movements in the company's share price, as illustrated in Q1, during which our PSU expense of $25.5 million was offset by an unrealized derivative gain of $21.6 million. Funds flow from operations, which isolates the effect of working capital fluctuations, but includes the effects of realized FX movements, current tax, expense timing and cash settled stock-based compensation was $62 million in Q1 compared to $84 million in Q4 and $78 million in Q1 2025. Free cash flow was $33 million in Q1 compared to $78 million in Q4 and $26 million in Q1 2025. As measured by a free cash flow to adjusted EBITDA conversion rate, this equates to approximately 30% in the current quarter and 42% for the trailing 12 months. CES maintained a prudent approach to capital spending through the quarter with CapEx spend net of disposals of $28 million, representing 4% of revenue. We will continue to adjust plans as required to support existing business and attractive growth throughout our divisions. For 2026, we expect cash CapEx to be approximately $95 million split evenly between maintenance and expansion capital to support incremental accretive business development opportunities and current record revenue levels. During the quarter, the company adopted a measured pace for share buybacks despite consistently strong current and projected free cash flow. This shift reflects a disciplined response to increased volatility on the macro front and targeted acceleration of buybacks as opportunities present themselves. While remaining committed to its NCIB, CES is ensuring that repurchases are executed strategically to maintain long-term shareholder value. Consequently, the company repurchased 1.3 million common shares at an average price of $13.01 per share for a total investment of $16.7 million representing 0.6% of the shares outstanding as of January 1, 2026. Subsequent to the quarter, we purchased 240,000 shares at an average price of $17.81 per share for a total of $4.3 million. This brings the total purchases under our current NCIB to 51% of the 18.9 million shares available. Since the inception of the NCIB program in 2018, CES has purchased 88 million shares representing 33% of the outstanding shares at that time at an average price of $4.53 per share. We ended the quarter with $492 million in total debt, representing a decrease of $4 million from December 31, 2025. Total debt was primarily comprised of the $275 million in senior notes. In addition to a net draw on the senior facility of $102 million, and $94 million in lease obligations. Total debt to adjusted EBITDAC of 1.18x at the end of the quarter compared to 1.23x at December 31, 2025, demonstrating our continued commitment to maintaining prudent leverage levels in the 1x to 1.5x range. This prudent capital structure is further illustrated by our current net draw of approximately $80 million, which has decreased by $22 million from the end of the quarter, further illustrating the cash flow generating nature of the business. We are very comfortable with our current debt level, maturity schedule and leverage in the 1x to 1.5x range, thereby enabling a strong return of capital to shareholders and prioritizing a sustainable dividend and share buybacks in addition to strategic tuck-in acquisition opportunities. Elevated activity levels, combined with our continued focus on working capital optimization, has led to improvements in cash conversion cycle, which ended the quarter at a record low of 93 days compared to 98 days in Q4. This translates to an operating working capital as a percentage of annualized quarterly revenue of approximately 26% compared to our historical range of 30% to 35%. Each percentage improvement at these revenue levels represents approximately $27 million on our balance sheet. We continue to remain focused on profitable growth, acceptable margins, working capital optimization and prudent capital expenditures, which 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 23% and a return on invested capital of 19% and well above our weighted average cost of capital. The business model continues to demonstrate its cash compounding characteristics through a combination of high return metrics, low CapEx levels, strong free cash flow, leading market shares and attractive organic growth. In this environment, 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 internal rates of return above our internal hurdle rates. We remain very comfortable with our dividend, which represents a yield of approximately 1.2% at our current share price and is supported by a prudent payout ratio of 16.5% on a trailing 12-month basis within our target range of 10% to 20%. Through the year, we plan to buy back at least enough shares to offset our modest equity compensation-related dilution, be in the market on a consistent basis and consider opportunistic purchases in the context of surplus free cash flow generation, implied valuation levels and adherence to our 1x to 1.5x target leverage range. We will continue to explore prudent acquisitions with a continued focus on accretive opportunities that provide complementary products, markets, geographies and leadership in support of our strategic priorities and 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 are now opening the floor for question-and-answer session.

[Operator Instructions] Our first question comes from the line of Aaron MacNeil of TD Cowen.

Congratulations on the market share gains in the U.S. Given the potential positive broader macro and an inflection in activity, I'm hoping you can address any practical constraints in terms of your ability to execute on that growth from Jacam to your blending plant, slab, barite grinding, your people, where do you see the potential pinch points, if any, in a rising activity level environment? And what sort of revenue level would require meaningful investments in terms of incremental infrastructure or people?

Sure. I'll take a shot at that one. We sort of manage that risk going forward like we always have. So if you look at our numbers, we've grown by quite a bit in the last 5 years-ish. And as we go along, we have to add pieces. The major piece or the most costly piece that we have to add along the way is barite grinding. We saw this coming a year ago, so we started working towards that addition to our biggest plant, and we're well down the path on that. Once that's done, everything else is scalable. So we have the space in all the manufacturing facilities. We always have staff on hand to be able to support. And our history has shown that when you get the business, you can find the right people if you need to hire outside, but we've always got a constant flow of new people in the company, learning our culture, learning our ways, understanding the business. So stepping into the people side of it is fine. And then the plants, it's just adding reactors and stuff, so we don't have to do a lot of big CapEx on those. So I guess the short answer is we're always prepared for it. And yes, we're very optimistic about where we're going in '26 and into especially with the futures pricing where it is. We think there's going to be an uptick, and we don't anticipate losing any market share, and we hope to continue growing market share instead.

The other thing I would add, and it's early stages, but as you said, now that we get up to that new cruising altitude, which is much higher revenues but much higher volumes as well. The teams are finding opportunities where we're getting to critical volume levels on certain chemistries where it makes sense to investigate manufacturing those chemistries ourselves. Instead of buying them piecemeal from different -- having separate divisions by them piecemeal. So that's something that we're looking at right now that could afford us some more cost savings going forward because of that scale.

Okay. No, that all makes sense. Next question, more strategic, I guess. CES now is a premium valuation multiple. Due to the strong performance of the business over the last several years. Do you see any opportunities to use that valuation to your advantage and look to opportunities to acquire complementary businesses, a strong accretion metrics in a way that you may not have been able to previously?

Look, we see the valuation and we're very comfortable with the valuation, which is why we're still buying back shares. But when we think about M&A, we think about M&A in the context of should we and could we? And the should we part is always strategic, right? It's Ken, myself, the rest of the executives and the Board, talking about strategy and talking about those things that we need and that we really want. And then the good part is, could we afford it because we have the balance sheet and the multiple if we need to use it. Just make no mistake about it, we are not being more active in M&A activity just because our valuation now is starting to approach more fair values. What we are doing though is we know that, that multiple could afford us the opportunity of buying very high-quality businesses that have and should trade at higher multiples than we've seen in the past with some of the more typical oilfield service opportunities. So the way we see it is, we see it as a tool to be able to buy high-quality businesses if they came around and were very strategic.

Okay. Great. And that's exactly what I was getting at. Like, I guess I was wondering just, are there opportunities that could work today that you've always wanted that just weren't available previously?

Yes, there -- we continue to look at opportunities, and we continue to pursue markets and opportunities. There's nothing on the front burner, Aaron. But it's something that we can continue to look at because now we have the ability to do it.

Your next question comes from the line of John Daniel of Daniel Energy Partners.

Just one for me today. It feels like the rig count in the U.S., poised to move up, the majority of that in the near term is largely private operators. And I'm just curious how would you characterize your private versus public exposure? And obviously, higher activity is good, but is it really good? Or is it -- or do you think market share gains could fade just given the customer mix?

I think we're -- spread, I mean, obviously, we're spread in alignment with the industry, and there's more operators that are big these days than little. So our concentration is there, but we still have all of our same privates that we work with in smaller companies that we work with. And part of the growth that we've seen this quarter since we reported in March here, was an RFP win with a big major. But that's only half the story. The other half is all the smaller private guys that we picked up along the way, too.

Okay. And then I guess see one...

Yes, that's why I say I think that we'll market share. So if we'll continue to be 29%, hopefully, at least.

Okay. And the final question for me is just in terms of visibility, when how much lead time do you guys typically get before the rig goes out and your services are needed?

Not as much as others like I would say that we find out after the rig contractors. The first step they have to do is the licensing, permitting, identifying the locations. Once all that done, then they start lining up the big services like...

Your next question comes from the line of Tim Monachello of ATB Cormark.

First on a question just on the margins. You probably had a little bit of drag in Q1 just given the cost inflation and some time to catch up. So I think I would assume that your margins were a little bit below where they exited, which would suggest that you're operating towards the upper end or above your margin guidance? And as you scale, better penetration in some of these higher -- can you guys hear me?

Yes, go ahead. Keep going, Tim.

Okay. Yes. Better penetration, some high-margin areas of the business. So I'm just curious what you need to see before you become less conservative, I would say, on your margin guidance?

Yes. On the margin guidance, we are still in that 15.5% to 16.5% range. That's a wise observation. Had it not been for the supply chain disruptions and the higher input costs, especially for the petroleum-related products that we purchase. We would have been through the high end of that 5.5% to 6.5% range. Q2, as you know, is always a bit lower revenue and a bit lower margins because specifically of the seasonality that we experienced in Canada. And you compound that with some of the input cost increases that we're working through, as Ken talked about, so we're not in a position to increase that right now, but we will be taking a very hard look at it after we get through Q2 for sure.

I'll just add to that, that the scale of the increases, I think, gets not recognized fully, especially by industry. So we're out right now trying to talk to everybody, show them the spreadsheets, show them the cost increases, but they're significant. Like solvents are up by 50%. They go into almost everything we make on the production chemical side, [ Polyene ],xylene products like that. They're only 20% of that mix, but still that all nets out to a 10% to 15% cost increase off the top. And then you put 40% on fuel charges in the right off the top. And we spend a great deal of money, like $40 million a year on fuel for vehicles, just our own transportation, moving mud men around, moving production service technicians around and internal transportation. So all those things are huge impacts on our business. We've been extremely proactive in working with our customers, and our customers have been, for the most part, working with us because everybody's got this problem coming. We can absorb some while we get the cost recovery, but others that don't see it coming yet are going to be awfully surprised in 3 months when everything is 20%, 30%, 40% more expensive. And this isn't something that's going away. This is -- this is now here. The shortfalls are there. There's manufacturing shortfalls all over the world. So it's a pretty extreme crisis that's going on. We're doing what I would say is an excellent job of managing it, and we continue to see that kind of progress going forward. So because we're ahead of it, we think we're going to be able to manage it pretty well this time, and we don't anticipate going outside of our projected margin range.

Got it. And then it's good to hear that you guys are finding ways to be creative on finding options and substitutes and then also leveraging your scale to improve your procurement power. But are there anywhere -- is there anywhere in the business where you think now that you're scaled up, increased vertical integration could make sense perhaps like...

Tim, I think you cut out. But can you repeat that, please?

I'm just curious if there's anywhere perhaps in solvents?

I hate to ask you again, but you cut out again. Can you repeat it again? Please, Tim.

Yes. I switch the speaker. I don't know if this is better. But I'm just curious -- is there anywhere in the business where vertical integration makes more sense now that you're scaled up like in solvents or something like that, similar to what you have for barite grinding?

I mean those are things that we look at all the time, I'll say. So if an opportunity came along, we would absolutely look at it, just like we would have the last couple of years. I think the opportunities don't come along often. And we're always looking at the volumes of products that we're using to decide when it makes sense to spend that kind of capital, but that would be one of those types of products would be major investments. Probably better off buying something that exists in that space already, but the companies are all the big, big companies. So not a ton of opportunity there. But when we see them come across our desk, we definitely look hard at them.

And just to reiterate, when we do look at those things, whether they're organic or inorganic, the [indiscernible] is in the low double digits. And depending on whether it's production chemical related or drilling fluids related, those hurdle rates need to be in the high teens or low 20s.

And I'll also throw out that those solvents that related that had gone up so much in price. I didn't just -- there's not more profit to those companies. Their cost of goods is going up. So I don't think they're not making great margins much better margins, I would anticipate than they were making previously. This is all driven. You can index it right back to WTI and natural gas.

Your next question comes from the line of Jonathan Goldman of Scotiabank.

Just one for me, actually. Ken, I was wondering, you did talk about in the prepared remarks about the growth opportunities in front of you. I'm just wondering, is there one or another that you're more excited about -- and how should we think about sort of time line into these opportunities coming to fruition and when they can start maybe materially impacting results.

Starting to make -- it depends how we proceed with them. But like the heavy oil and the offshore are both very, very big markets that we don't currently participate in, in much of way at all. We have with awards either with SAGD facilities or with offshore rig or offshore production platforms. The variance there is that there's different [indiscernible], for instance, the 4 platforms we're on, which is great. They're deepwater platforms, but they're not the high-volume big, big platforms yet. This one we're trialing on is getting to be there. And so those changes as you get into those bigger volumes, same with the SAGD facilities, we're treating a couple of smaller SAGD facilities. That's how we got the opportunity of the big one. But if we happen to get awarded one of these big ones, it can be a step change. Timing on them, I don't like -- none of that stuff moves quickly. I would anticipate the things that we have going on right now if we were going to talk about being awarded something, it probably wouldn't be until Q4.

[Operator Instructions]. Your next question comes from the line of Keith Mackey of RBC.

Apologies, my line has been cutting out a little bit as well. So hopefully, I haven't missed too much, but I just did have one question for you. Ken, on the SAGD and platform opportunities. Just curious if you could sort of put the relative size of those opportunities into context, whether it's versus your current business or versus a percentage growth rate that you think these opportunities ultimately could represent? Just trying to get a sense of what type of scale and what type of growth you could be going after here?

I'll start off with information about those markets. So the -- according to third-party reports, the chemical market is worth CAD 1 billion and that figure is about a year old, and that will be updated as activity levels continue to increase is the Canadian oil sands production chemical market. And based on some industry reports over the last couple of years, that is worth about CAD 800 million, and we are just scratching the surface on each of those end markets. And you've seen what we've been able to do in other markets. It took years, but we're able to grow into the double digits 20-plus market share levels. And we don't see that happening in the short term, but those are the targets over the next few years. And I would also reiterate that those markets are higher margins, higher EBITDA margins than our corporate average. They're typically in the 20% to 30% range.

Got it. That's super helpful. And then, Tony, just maybe on the capital allocation, I noticed your buyback commentary today kind of sounded maybe a little bit more conservative buying back shares to offset dilution and being opportunistic about it. And that makes me think maybe you're going to use that cash for something else, whether it be growth or reducing the leverage on the balance sheet. So can you just kind of run us through? Am I correct in what I've picked up there? And just how would you allocate incremental free cash flow in this market today?

Yes. The incremental cash flow goes to the highest return opportunities that we have, whether they're organic or buybacks or investments, working capital investments to grow the business. With the NCIB in particular, our first priority is always to offset executive stock-based compensation, and we easily already took care of that during the first quarter -- first calendar quarter of the year. So we're through that already. And I don't know if conservative is the right word. It's more strategic. We spend a lot more time now, not necessarily just being in the market blindly every day with the NCIB program. What we do instead is we wait for opportunities. And you're following the macros and the tweets as much as we are. And on those days where our stock is down 5% or 6% because of some macro piece of information or a tweet, we're in there. We're buying as much as we can that day. And when there's the opposite we're holding off. What I would say, though, back to the leverage comment that you alluded to is we are not going to use the bank's money to buy back shares unless there was a significant dislocation between price and value. So what you will see is you'll see us staying well within the 1 to 1.5x range. And based on some of the noise that's out there in the markets these days, you'll see us continue to be at the lower end of that. But you won't see us not in the market at all buying back shares.

Thank you. I'd now like to hand the call back to Ken Zinger for closing remarks.

Thank you. Thanks to everyone who came to join us here today. We appreciate your time and look forward to speaking with you all again on our Q2 update call on August 7, 2026.

Thank you for attending today's call. You may now disconnect. Goodbye.