CES Energy Solutions Q3 2026 Earnings Results & Report

CES Energy Solutions EPS Results

• Actual EPS: C$0.35
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A
• EPS Beat Rate: 6 of last 8 quarters

CES Energy Solutions Revenue Results

• Actual Revenue: C$784.82 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

CES is a leading provider of technically advanced consumable chemical solutions throughout the lifecycle of the oilfield. This includes solutions at the drill-bit, at the point of completion and stimulation, at the wellhead and pump-jack, and finally through to the pipeline and midstream market. CES' business model is relatively asset light and requires limited re-investment capital to grow. As a result, CES has been able to capitalize on the growing market demand for drilling fluids and production and specialty chemicals in North America while generating free cash flow. Additional information about CES is available on SEDAR+ at www.sedarplus.ca or on the Company's website at www.cesenergysolutions.com.

CES Energy Solutions Q3 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: CES reported a fourth consecutive quarterly revenue record of CAD 784.8 million, up 26.6% year over year, and record adjusted EBITDA of CAD 140 million. The 17.8% EBITDA margin exceeded the prior 15.5%–16.5% target range.
• Positive Sentiment: Management raised its targeted EBITDA margin range to 16%–17%, citing higher service intensity, specialty-chemical mix, operational efficiencies, and disciplined costs. It cautioned that higher-cost inventory could cause some margin compression in coming quarters.
• Positive Sentiment: Management sees 2027 revenue growth of roughly 10% as a baseline under current conditions, with potential upside from market-share gains and expansion in U.S. production chemicals, Canadian heavy oil, offshore, and international markets. It estimated these targeted opportunities could represent about CAD 1 billion of incremental revenue over several years, though several are still developing.
• Negative Sentiment: Despite record funds flow from operations of CAD 128 million, higher working-capital needs—primarily receivables and inventory—limited operating cash flow to CAD 22 million and resulted in CAD 8 million of free cash flow consumed in the quarter.
• Positive Sentiment: CES maintained leverage at 1.17 times trailing EBITDA and continued share repurchases, buying back CAD 35.3 million of shares during Q3. The company also extended and expanded its credit facilities, while planning CAD 105 million–CAD 110 million in 2027 capital spending to support growth.

Presentation

[Operator]

Thank you for standing by, and welcome everyone to the CES Energy Solutions Corp. third quarter 2026 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. I will now turn the call over to Tony Aulicino.

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

Good morning, everyone, and thank you for attending today's call. I would like to note that in our commentary today, there will be forward-looking financial information and that our actual results may differ materially from the expected results due to various risk factors and assumptions. These risk factors and assumptions are summarized in our third quarter MD&A and press release dated November 12th, 2026, and in our annual information form dated March 10th, 2026. In addition, certain financial measures that we will refer to today are not recognized under current generally accepted accounting principles, and for a description and definition of these, please see our third quarter MD&A and investor presentation posted on our website. At this time, I would like to turn the call over to Ken Zinger, our President and CEO.

[Ken Zinger, President and CEO at CES Energy Solutions]

Thank you, Tony. Welcome everyone, and thank you for joining us for our third quarter 2026 earnings call. As always, I will start my comments today by highlighting some of the major financial accomplishments we achieved in Q3 of 2026. Our quarterly highlights include our fourth consecutive all-time record quarterly revenue of CAD 784.8 million, which was an improvement of 26.6% over last year's Q3. It was also our highest quarterly EBITDA ever at CAD 140 million, which marked a massive improvement of 35% over last year's Q3. Q3 EBITDA margin of 17.8%, which was well above our guided range of 15.5%-16.5%. Total debt to trailing 12-month EBITDA of 1.17x, which was virtually unchanged from the prior quarter, and our seventh consecutive quarter of record-setting U.S. quarterly revenue with CAD 534.6 million. Finally, our best-ever Canadian quarterly revenue of CAD 250.2 million.

[Ken Zinger, President and CEO at CES Energy Solutions]

With regard to our capital allocation plans, I am pleased to report the following. Consistent with our prior messaging, we intend to address the dividend once per year while reporting Q4 or Q1 of each year. We will continue to support the business with the necessary investments required to provide acceptable growth and returns. This includes the current CapEx plan for 2026 of approximately CAD 100 million, as well as the forecasted CapEx plan for 2027 of CAD 105 million-CAD 110 million, weighted slightly more towards growth than maintenance. We will continue to research and execute on strategic acquisition opportunities which support vertical integration or into related 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-1.5x as previously communicated.

[Ken Zinger, President and CEO at CES Energy Solutions]

Now for a quick summary of our Q3 performance overall and by division. Today, our rig count on North American land is up 15 rigs since last report, at 247 out of the 814 rigs listed as currently operating. This represents an industry-leading 29.9% market share. During Q3, 68% of CES revenue was generated in the United States and 32% in Canada, as gains in U.S. production chemicals division outpaced the rest of the business. Extreme pricing swings continued to influence costs within the industry in Q3. Our procurement teams remained resilient in the face of these pressures and managed the markets effectively as we leveraged our vertically integrated business model, which collectively allowed us impressive margins throughout the quarter. We continue to not expect these fluctuations to cause meaningful or sustained margin erosion.

[Ken Zinger, President and CEO at CES Energy Solutions]

We are actively managing the challenges as we have during previous cost-escalation periods, and we do not expect any material negative impact to our margins going forward. In light of this, we actually acknowledge the expectation of structurally higher margins. In Canada, the Canadian Drilling Fluids Group continues to lead the WCSB in market share. Today, we are providing service to 91 of the 223 jobs listed as underway in Canada for a 40.8% market share. This compares to CES having 73 of 191 rigs at the same time last year. While the number of rigs operating is up by 16.5%, our CES rig count is actually up by almost 25%. As expected, the market continues to be strong due to recently added takeaway capacity from infrastructure projects in Canada, as well as vastly improved futures pricing for energy products due to the largely unstable global supplies.

[Ken Zinger, President and CEO at CES Energy Solutions]

We anticipate these higher activity levels will continue throughout Q4 as well as throughout 2027. PureChem, our Canadian production chemical division, continued its run of strong results in Q3. PureChem continues to grow as all of the business lines continued to perform at record levels. We anticipate experiencing further revenue and earnings growth at PureChem due to our consistent market penetration and the higher activities that we expect will continue. The previously announced trial in the heavy oil sector of the market continued throughout Q3. We anticipate this particular trial to run well into 2027 before award, and we are optimistic about our chances. However, it is important to note that over the past six months, we have won awards on several small and mid-sized heavy oil facilities, as the trend towards modular facilities actually aids our market penetration strategy.

[Ken Zinger, President and CEO at CES Energy Solutions]

In fact, these numbers are now starting to show in our financials, and we now estimate that we have penetrated the SAGD in situ market and hold a market share in the high single- to low double-digit range. In the United States, AES, our U.S. drilling fluids group, is currently providing chemistries and service to 156 of the 591 rigs listed as active in the United States land market today, including a basin-leading 39.9% of the rigs in the Permian. This makes us the continued number one market share holder of U.S. land rigs at 26.4%. Positive momentum continued at AES as well in Q3. This was evidenced by noting that the overall active rig count in the United States was up by 3.3% since our August Q2 report, while our AES count rose by 9.1% during that same time.

[Ken Zinger, President and CEO at CES Energy Solutions]

At AES Completion Services, the revenue and market share continue to grow at levels exceeding expectations. This division is consistently making meaningful and growing contributions to the overall AES financials. Finally, our U.S. production chemical division, Jacam Catalyst, has significantly accelerated 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. The business growth being experienced at Jacam Catalyst in land in the United States during the past six months specifically has been significant. All manufacturing, blending, distribution, and packaging facilities are operating at their highest output levels ever. As a result, we have been providing high-return capital to support this attractive growth. As well, progress continues in the offshore Gulf of America market.

[Ken Zinger, President and CEO at CES Energy Solutions]

As previously noted, this is a long and slow growth opportunity that we continue to make progress on. As a broad overview on the current state of affairs at CES, we believe our four consecutive record revenue quarters demonstrate clearly the tremendous torque we are continually building in our business. We also believe that North American upstream activity will continue to accelerate throughout the remainder of 2026 and 2027 based on current industry conditions and expected activity levels. We now believe that 2027 is looking even stronger than 2026 for North America and for CES, as the oil market has achieved economically attractive futures pricing and natural gas demand accelerates due to LNG and AI development. I would also like to highlight that the 2026 Kimberlite Research Report on the production chemicals market was released earlier this month.

[Ken Zinger, President and CEO at CES Energy Solutions]

As expected, the survey indicated that CES Energy Solutions is now the number one provider by market share in the North American land market, according to the survey. CES moved from 21% and the second-largest provider in 2025 to 24% and now the number one provider overall. Canadian production chemicals continues as number one while gaining and now expanding a firm foothold in the heavy oil SAGD space. In the U.S.A., Jacam Catalyst is now number one and had the largest growth spurt in its history. As an example of the massive growth that CES is achieving, I will point to the fact that our Q3 2026 results indicate that CES is now operating at an annualized revenue run rate exceeding CAD 3.1 billion.

[Ken Zinger, President and CEO at CES Energy Solutions]

This compares to our actual 2025 revenue of CAD 2.49 billion, or growth in the neighborhood of 20%-25% year-over-year, versus the 10% growth we were forecasting. Truly amazing in an extremely competitive and challenging market. By way of update, I would like to now remind investors of our targeted growth opportunities for the business in the coming years, in order of which we expect the most short-term results. First, we have U.S. land production chemicals. Based on third-party reports and our own internal research, the estimated U.S.A. land production chemical market is currently worth about CAD 4 billion-CAD 4.5 billion annually. Our goal remains to expand this market share and become the dominant number one supplier in this space. Next up is Canadian heavy oil production treating. Third-party reports, this segment of the Canadian market is approximately CAD 800 million annually.

[Ken Zinger, President and CEO at CES Energy Solutions]

Progress in this space now leads us to believe that we have approximately a high single-digit or low double-digit market share of this business and are starting to gain some momentum. We have spent the past 10 years making slow, steady progress on penetrating this very technical, sticky, high-profile market and are now starting to see accelerating success. Third up is international markets. We continue to have minimal exposure to these markets. Today, we generate a small amount of revenue and earnings from a minor presence in half a dozen countries, which we have targeted specifically as having the characteristics best suited for us to compete. We have also participated in a couple of RFPs in the Middle East over the past year, which have yielded very promising results. As can be appreciated, the issues around the Iran war have caused these opportunities to be delayed.

[Ken Zinger, President and CEO at CES Energy Solutions]

In spite of this temporary setback, we are continuing in our efforts to expand geographically. Fourth is offshore Gulf of America production chemicals. Third-party reports suggest that this market is approximately CAD 1 billion annually. We are in the very early innings of a very long cycle time to penetrate this business in a meaningful way. We have been experiencing accelerating trial flow opportunities and are positive about the direction we are progressing in. Last but not least, North American macro growth. This is something that is obviously beyond our control, but as the past few months have shown, when the market gets busier, we are rewarded with at least our typical market shares. 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.

[Ken Zinger, President and CEO at CES Energy Solutions]

Due to the growth we are still experiencing, as well as anticipate experiencing, we have increased our total number of employees at CES by 7.7%, from 2,707 employees on January 1st of 2026 to 2,915 employees at the end of Q3 2026. I will now pass the call to Tony for the financial update.

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

Thank you, Ken. CES is well-entrenched in a significant revenue inflection period that, when combined with increased service intensity levels, attractive product mix bolstered by increasingly complex chemical solutions, and operational torque, has led to strong EBITDA margins above our 15.5%-16.5% targeted range and record Funds Flow from Operations. The third quarter set another sequential revenue record, bringing the current run rate to approximately $3.1 billion versus $2.5 billion a year ago and $2.8 billion last quarter, illustrating the revenue inflection phase. These revenue levels, combined with consistent EBITDAC margins above our targeted range and record Funds Flow from Operations, collectively demonstrate the attractive and durable financial attributes of our unique business model. In the context of the current anticipated WTI price environment, customer activity levels, service intensity, and product mix, we are revising our targeted EBITDAC margin range to 16%-17%.

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

In Q3, CES generated record revenue of CAD 785 million, representing a 26% increase over the prior year's CAD 623 million. I would also note that this is the first quarter that has generated an annualized revenue run rate above the CAD 3 billion range, underpinned by all business lines delivering revenues at or near record levels, demonstrating the impacts of broad 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 CAD 535 million, representing 68% of total consolidated revenue. These results compared to revenue of CAD 497 million in Q2 2026 and CAD 409 million in Q3 2025. Revenue generated in Canada also set a new record at CAD 250 million, compared to CAD 214 million in Q3 2025 and CAD 217 million in Q2 2026.

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

Revenue levels benefited primarily from continued contributions from recent large customer awards, continued strong market share positions, and elevated service intensity and production chemical volumes driven by increasingly complex drilling programs. Customer emphasis on optimizing production through effective chemical treatments benefited both countries and illustrated the resilience and attractiveness of our business model. Adjusted EBITDAC in Q3 came in at CAD 140 million, compared to CAD 119 million in Q2 and CAD 103 million in Q3 2025. Q3's adjusted EBITDAC margin of 17.8% came in well above the high end of our targeted 15.5%-16.5% range, and compared to 16.7% in Q2 and 16.6% in Q3 2025. These results were driven by record revenue levels combined with strong margins, continued increased service intensity, operational efficiencies, prudent fixed cost levels, and certain favorable standard cost revaluations on inventory.

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

Absent one-time items and timing issues, EBITDAC margin would have been in the low to mid-17s, well above our previous guidance range. Funds Flow from Operations, which isolates the effect of working capital fluctuations, is a key barometer of the cash flow generating capability of the company and was a record CAD 128 million in Q3, compared to CAD 97 million in Q2 and CAD 86 million in Q3 2025. To support the CAD 283 million step-up in run rate revenue from Q2 to Q3, CES realized a commensurate investment in working capital, primarily driven by higher accounts receivable and inventory. The increase in accounts receivable reflects record activity levels and revenue growth, along with a natural lag in collections from increased volume. The increase in inventory reflects higher activity, strategic investments for upcoming business opportunities, and some standard cost revaluations resulting from higher input costs.

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

As a result of the strategic increase in working capital, CES generated CAD 22 million in cash flow from operations, compared to CAD 60 million in Q2 and CAD 52 million in Q3 2025. Likewise, free cash flow consumed CAD 8 million in Q3, compared to generating CAD 25 million in Q2 and CAD 27 million in Q3 2025. As measured by a free cash flow to adjusted EBITDAC conversion rate, this equates to approximately 26% for the trailing 12 months. However, excluding the impact of changes in working capital, this would have been 50%. CES maintained a prudent approach to capital spending through the quarter, with CapEx spend net of disposals of CAD 18 million, representing 2% of revenue. We will continue to adjust plans as required to support existing business and attractive growth throughout our divisions.

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

For 2026, we expect cash CapEx to be approximately CAD 100 million, weighted towards expansion capital to support sustained activity levels and business development opportunities, and expected to increase to approximately CAD 105 million-CAD 110 million in 2027. During the quarter, the company continued with its measured pace for share buybacks, thanks to consistently strong and projected annual free cash flows. 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 maximize long-term shareholder value. Consequently, during Q3, we repurchased 1.96 million common shares at an average price of CAD 18 per share for a total investment of CAD 35.3 million, representing 0.9% of the shares outstanding as of July 1st, 2026.

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

Subsequent to the quarter, we have repurchased approximately 1 million shares at an average price of CAD 19.46 per share for a total of CAD 19.7 million, representing a continuation of Q3 repurchase levels. Since the inception of the NCIB program in 2018, CES has purchased 91 million shares, representing 34% of the outstanding shares at that time, at an average price of CAD 5.06 per share. On November 6th, 2026, the company amended, extended, and upsized its syndicated revolving and operating credit facilities. The aggregate total size of the amended Senior Facility is CAD 750 million, up from CAD 550 million, and matures on November 6th, 2031. The new five-year term locks in current attractive terms and is aligned with our identified business needs, potential expansion opportunities, and return of capital initiatives.

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

In connection with the amendment, terms and covenants were also improved, including the removal of the total net debt to trailing EBITDA covenant to better align with the higher credit quality and increased size and scope of the company. The amendment, combined with the issuance of CAD 300 million of seven-year notes at 5 and 5/8 in Q2, further strengthens the company's capital structure and effectively addresses CES's near-term and foreseeable long-term requirements. Total debt at the end of the quarter was CAD 565 million, representing an increase of CAD 52 million from June 30th, 2026. Total debt was primarily comprised of the new CAD 300 million in Senior Notes, a net draw on the Senior Facility of CAD 162 million, and CAD 97 million in lease obligations.

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

Total debt to adjusted EBITDAC of 1.17x at the end of the quarter compared to 1.15x at June 30th, 2026, demonstrating our continued commitment to maintaining prudent leverage levels in the 1x-1.5x range. This prudent and flexible capital structure is further illustrated by our current net draw of approximately CAD 187 million, which has increased by CAD 25 million from the end of the quarter, driven by the settlement of the company's quarterly dividend and ongoing NCIB share repurchases. We are very comfortable with our current debt level, maturity schedule, and leverage in the 1x-1.5x range, thereby enabling strong return of capital to shareholders and prioritizing a sustainable dividend and share buybacks, in addition to strategic tuck-in acquisition opportunities.

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

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 100 days compared to 110 days in Q3 2025. This translates to an operating working capital as a percentage of annualized quarterly revenue of 27%, compared to our historical range of 30%-35%. Each percentage improvement at these revenue levels represents approximately CAD 31 million on our balance sheet. We continue to remain focused on profitable growth, acceptable margins, working capital optimization, and prudent CapEx, 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 very strong trailing 12-month ROCE of 24% and an ROIC of 20%, and well above our internal weighted average cost of capital.

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

The business model continues to demonstrate its cash compounding characteristics through a combination of high return metrics, low CapEx levels, strong 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 investment in working capital as required and CapEx projects that deliver IRRs well 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 very prudent payout ratio of 11%, below our target range of 10%-20%, and to be revised when we report Q4 or Q1 in the following year as per our usual cadence.

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

We continue to plan to be in the market repurchasing our attractively priced shares 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-1.5x target leverage range. In the context of these guardrails and current market conditions, we intend to maintain buyback activity levels as illustrated during the past quarter. 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.

[Operator]

If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. Your first question comes from the line of Aaron MacNeil with TD Cowen. Please go ahead.

[Aaron MacNeil, Analyst at TD Cowen]

Hey, morning, all. Thanks for taking my questions. Ken, you touched a bit on this in your prepared remarks. I know you referenced the large customer wins. You said that 2027 looks stronger than 2026. I am hoping you can maybe contextualize the potential revenue growth rate into 2027 a bit more. I guess, how would you characterize what you have got in hand today? Maybe that is just as simple as applying the current revenue run rate going forward, but maybe there is something else. What level of growth do you think is potentially on the table if you can sort of stick the landing on some of the opportunities you have outlined? Ultimately, what do you see as the potential range of outcomes at this time?

[Ken Zinger, President and CEO at CES Energy Solutions]

Sure, yeah. I mean, in the market that we see in front of us today, I will start with sort of a guess on where we are going next year based on our forecast, but we can visualize revenue growing by 10% again year-over-year, and that is sort of our baseline prediction in a market that is stable. If we continue to have macro tailwinds, it could be more, but based on what we see in front of us today, that is kind of the ballpark of where we think the market is going. As far as where we have been getting the wins and where some lumpiness might come, or some bigger chunks might come from, I mentioned that we feel like we have sort of high single digits, low double digits in the heavy oil space.

[Ken Zinger, President and CEO at CES Energy Solutions]

Continued traction in that space combined with maybe a big win on that big facility that we are working on could lead to some more growth that we are not counting on today. That market is higher-margin business, not because we can charge more, we always have to charge the same as our competitors, but it is because it has just got a higher mix of specialty chems. The 10% growth overall, that is predicated a lot by just the service intensity aspect we have been witnessing for the last five years. We do not see that not continuing.

[Ken Zinger, President and CEO at CES Energy Solutions]

We are just continuing to take market share specifically in the U.S. When I talk about growth opportunities, Gulf of Mexico is on one end of that, where we are working on it and slowly making progress, but it is going to take some time, like heavy oil did.

[Ken Zinger, President and CEO at CES Energy Solutions]

I mean, heavy oil seems like an overnight success, but it is a 10-year overnight success that we are starting to get some traction in. The big win will be in U.S. production chemicals on land. That is a market where we are having continued wins on RFPs and success because we have done a great job throughout the business with procurement and supply chain and last-mile logistics. I mean, we continue to support customers. We are only able to charge what our competitors charge or what value we can bring the customer, and that is what we do. But the way we get these margins up is by very prudent purchasing and logistics and supply, and that is what our teams have been great at here. We learned all that through 2016 through 2022.

[Ken Zinger, President and CEO at CES Energy Solutions]

We talked about this one and how surprised we were last quarter even that we were able to protect margins, but it's just new practices. Everyone's got their eye on the ball, and everyone's being reactive, and it's leading to very good results.

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

Aaron, just to put some numbers to help you guys with the math, if you look at the sizes of those markets that we've talked about and you make assumptions that we've talked about, if you look at the onshore production chemical market in the U.S. and you believe we can gain 10% market share over the next couple of years, that's $500 million-ish of revenue. In offshore, that's a CAD 1 billion market right now, Canadian. If you think we could get to 25% or 30%, that's another CAD 250 million-CAD 300 million. For the oil sands, it's an CAD 800 million market, and if you think we could get to 20% or 30%, that's another CAD 240-ish. That all adds up to CAD 1 billion of incremental revenue over the next few years.

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

I would emphasize what's been mentioned before, which is the offshore production chemical market and the oil sands production chemical market are in the margin range above where we are. They're in the 20%-30% range just because of a lot of the technical and high switching cost aspects that we've talked about. If you apply those margins to those potential revenues, that's when you see the big opportunity that we're pursuing, and that's why we're buying back shares.

[Ken Zinger, President and CEO at CES Energy Solutions]

Yeah, none of that even encompasses the international stuff that we've talked about in the past. We haven't forgotten about international, and we haven't sort of moved away from it. We're dealing with what's in front of us, but we do still have teams looking at international, and we do still have that on the radar as a potential growth avenue in the future.

[Aaron MacNeil, Analyst at TD Cowen]

Your answers actually dovetail nicely into my follow-up question, and I can appreciate you may not have these numbers back pocket, but anything anecdotal that you could share would be helpful. You mentioned the market sizes, CAD 4 billion-CAD 4.5 billion for U.S. land production chemicals, CAD 800 million for offshore, or sorry, CAD 800 million for Canadian heavy oil, and CAD 1 billion for offshore. You mentioned the service intensity piece. How big are those markets growing on a standalone basis over time? Do you have a sense of what the U.S. land production chemicals market size was five years ago?

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

It is a really good question. It is something we track, and it is something that folks like Richard Spears and David Dodd at Kimberlite do track. I cannot tell you what it was five years ago, but what I will tell you is there is pretty tight consensus that those markets are growing in the 3%-5% range. So, back to what Ken was talking about, at the end of the four targeted areas, those numbers are today. That is without the expansion of those markets.

[Aaron MacNeil, Analyst at TD Cowen]

Understood. Thanks, guys. I will turn it back.

[Operator]

Your next question comes from the line of Tim Monachello with ATB Cormark Capital Markets. Please go ahead.

[Tim Monachello, Analyst at ATB Cormark Capital Markets]

Hey, good morning.

[Ken Zinger, President and CEO at CES Energy Solutions]

Morning, Tim.

[Tim Monachello, Analyst at ATB Cormark Capital Markets]

Maybe you can elaborate a little bit on your capital plans for 2027. Sounds like you have roughly CAD 60 million of growth capital in there. Where is that capital going to be allocated, and what kind of return profiles do you think you get?

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

Yeah, broadly speaking, that CAD 60 million-ish of growth, which is just over half of what we intend to spend next year, is going to be above our weighted average cost of capital, which we believe is somewhere between 11.5% and 12.5%, and well above our hurdle rates that are in the 16% for production chemicals and about 20% for drilling fluids. There are projects that the presidents of each of the divisions have executed already where they have deployed fours, fives, sixes, seven millions at a time, where the returns that they are realizing on those investments are in the 30s and 40s, like staggering. That is just the way they run their businesses, and that is also one of the reasons why you have seen some of what we believe are durable increases in the EBITDA margin profile of the company.

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

If I had to give you an overall level, Tim, it would be in that 15%-20% range, to be fair.

[Tim Monachello, Analyst at ATB Cormark Capital Markets]

Okay. That's helpful. Back to the heavy oil side, you mentioned that you're in the sort of high single-digit to low double-digit market shares there on a CAD 800 million TAM. Does that market share correlate to the revenue contribution you're seeing on an annualized basis today, and where would that have been at the beginning of the year?

[Ken Zinger, President and CEO at CES Energy Solutions]

Well, I can go to the beginning of the year. We believe we were kind of 3% or 4%, about half of what we are right now. We've kind of doubled the business in the last nine months that we're doing there, and then we've got more trial flow as well, so we're pretty optimistic about the direction it's going in, as far as how it affects next year.

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

Yeah. It's a little bit lumpy, right? I think what we're going to see is a snowball effect from that market, where success begets success. I think our business model is benefiting from the trend towards modular oil sands capital programs. It's tough to predict, but I would, on the low side, expect this run rate that Ken implied through his number, his market share, and expect that to grow at the growth rate of the market. But you could see that accelerating.

[Tim Monachello, Analyst at ATB Cormark Capital Markets]

Got it. Do these modular projects that you are currently on carry the same characteristics as some of the larger projects in terms of the stickiness, and probably not on the stickiness, I would assume, but on the margin profile?

[Ken Zinger, President and CEO at CES Energy Solutions]

On the margin profile and product mix and service intensity and servicing importance, yes, they are the same. It is very technical still. What becomes easier is, I would call it less sticky, because you do not have all of your, like, a company does not have 40% of its production coming out of one of these big facilities anymore. They are going to have these modular facilities where it is only 5% or 10% of their production. Therefore, they will be a little more apt to try things because the penalty of failure is not as big.

[Tim Monachello, Analyst at ATB Cormark Capital Markets]

Okay, got it. When you talk about U.S. land production chemicals, it is sort of an opaque market from our seats. Are there any large RFPs that you are looking at or you are seeing more access to, similar to what you won in 2026, that could provide a lumpy step change again in the next kind of 12-24 months, do you think?

[Ken Zinger, President and CEO at CES Energy Solutions]

Nothing that we are aware of today. We will communicate that if it happens, because it will likely have the same impact, maybe less of an impact now because we are bigger, but the same kind of impact. We will have to pre-hire and pre-prep on equipment and chemicals in order to even bid on this thing, on those types of projects. So when we get one like that, we will let you know. I would just say, we are getting full realization from that last big one that we got. We are also, to Tony's snowballing comment, success begets success. The bigger we get, the more we seem to win. We are getting more and more success on even the mid-size and small stuff.

[Ken Zinger, President and CEO at CES Energy Solutions]

We're in a really good spot right now, and we got some momentum, and I don't think anything happens in North American land without a company at least thinking about us.

[Tim Monachello, Analyst at ATB Cormark Capital Markets]

Got it. The international piece, you highlighted that, small piece of the business today, and I think most of your effort's been focused in the Middle East. But the Latin American market, both the Vaca Muerta and in Venezuela, seem to be picking up and gaining momentum. Lots of companies talking about increasing activity in both of those basins over the next, or in 2027 and beyond. Are you active in those markets as well?

[Ken Zinger, President and CEO at CES Energy Solutions]

We're selling a bit of chemical into those markets already, just through containers and pre-purchase in North America. We don't have people on the ground there yet. We've sent a couple of guys down there a couple of times to help service some things, and we got a project coming up here where we're going to send some people down there to do a project, to supply the service and the technical backup for a project that we're doing. But these are small chunks at this point, and we don't have facilities or people on the ground. But yes, we are, right now especially, pretty laser-focused on South America. The effort that we always thought the Middle East would be the better first step, but with everything going on there, we've changed our focus to South America, and we're spending time on that right now.

[Tim Monachello, Analyst at ATB Cormark Capital Markets]

Do you think that could be a 2027 event or an upside catalyst in 2027, or is that a longer term?

[Ken Zinger, President and CEO at CES Energy Solutions]

I think it might be longer term, but hopefully we can make some kind of a step to get legitimacy there in 2027, where to start making it profitable will probably take some time.

[Tim Monachello, Analyst at ATB Cormark Capital Markets]

Do international markets offer higher margins as well on the land side, or is it similar to North America?

[Ken Zinger, President and CEO at CES Energy Solutions]

It is similar, but it is really depends. I mean, those ones are all driven by your logistics expertise. So, understanding the background first before you go there, so you can understand how to get things there economically, and then utilize our manufacturing capabilities and strengths, I think will allow us to make margins that are at least as good, if not better than North America. But it is going to be. I mean, those are big RFPs. The reason you sometimes get better margins there is because you have to put a fudge factor in, because those contracts get awarded and you will get, like, a three-year deal. But there is risk to it because you are locked in on those prices.

[Ken Zinger, President and CEO at CES Energy Solutions]

They do not come back and let you negotiate like North America, where you can sort of adjust pricing on the fly based on inflation and dynamics in the market that you can prove. So, you tend to bid those with higher returns on them as long as the market is stable, and then if the market goes in your favor, you can make really good margins. However, if it goes the other way, like if we had been in the Middle East, it can be the opposite effect.

[Tim Monachello, Analyst at ATB Cormark Capital Markets]

Okay, got it. Well, you guys are making great results look easy, so congrats on another super solid quarter. Good stuff.

[Ken Zinger, President and CEO at CES Energy Solutions]

Thank you. Thank you, Tim.

[Operator]

Your next question comes from the line of John Gibson with BMO Capital Markets. Please go ahead.

[John Gibson, Analyst at BMO Capital Markets]

Morning. Thanks for taking my questions. Appreciate your acknowledgement that margins are moving structurally higher. I think you said now to the 16%-17% range. Can you maybe break down the buckets driving this growth, and how much is the Canadian SAGD work playing into this?

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

I'll start with broader, and then Ken can speak to SAGD. Broadly speaking, it's those things that we listed in the press release, and I mentioned in the narrative. Number one is service intensity continuing to increase. Number two is attractive product mix. We're finding that an increasingly higher percentage of the products that our customers are buying from us are our specialty chems that we manufacture on our own, thanks to our vertical integration. In some cases, some of those products can command gross margins of over 70%. As that mix increases, so too does our margins. The operational efficiencies that I talked about, those are real. When I was asked earlier on about the returns on that capital, you can see that when you look at our ROCE, that's bumping up against 25% now.

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

They're realizing significant returns on that capital. However, the way they're realizing that is they're doing things in a way more efficient way than they were before. We're not going to the customers and looking for price increases in those cases. We're looking inwards to figure out how we can use our supply chain technology and various divisions and expertise to improve margins. The last one is SG&A, which is mathematical. Each of the divisions and the company as a whole has done a really good job of keeping SG&A at prudent levels, is the way we describe it. When you do that at these high margin levels, at this new inflection phase of revenue generation for the company, that incremental margin hits the EBITDA line.

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

It's all those things that allow us to feel that margins in that new range, 16%-17%, are durable. We're closely watching the next few quarters, where you will see some margin compression for the same reasons they were related to that inventory revaluation. That's higher-cost inventory. Unless we're able to swap out different products, find efficiencies, or increase prices, we will get some compression. There's WTI that also is a mix into that, is a factor in that calculus where we're currently in the WTI environment in the 80s, and the futures curve is up $10 from where it was about three or four months ago, which leads to higher activity levels.

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

But related to that is when WTI does dip, if it does over the next few years, we're actually very comfortable with the range that we gave because service intensity, inventory quality degradation, steeper decline curves, they all continue. So, we're very comfortable with our ability to maintain durability in the margin performance.

[Ken Zinger, President and CEO at CES Energy Solutions]

I'll just jump. I'll add the one piece you asked specifically about, which is the heavy oil and what sort of a contribution that's making. It's obviously positive directionally, but if you do the math on it's not a huge chunk of our business at this point. It will continue to be positive directionally as it moves up, but it's pretty small in comparison to the wins that we're having in places like U.S. land.

[John Gibson, Analyst at BMO Capital Markets]

Appreciate that. Just had one follow-up. You talked about 10% growth next year, all things being equal, 16%-17% margins. Does this just assume you're kind of running off the rate you're going right now without any incremental market share gains in any markets?

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

Yeah. If you take what we delivered this quarter, and you extrapolate that into next year, you'll get to that 10% year-over-year that Ken mentioned. Then there are other factors. Our guys continue to surprise us. 3,000 employees continue to punch above their weight class, which is the reason we've outperformed in the past. We can't guarantee that, but that's the culture of the company.

[Ken Zinger, President and CEO at CES Energy Solutions]

Yeah, I think we talked about 10% last year. I know we talked about 10% last year when we had that big RFP win potentially coming, and then we did 20%-25%. So, the number I threw out is a number that we're pretty confident in based on our current run rate, and hopefully we'll surprise to the upside, surprise ourselves and the street.

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

Yeah, and that is all obviously in the context of current activity levels and WTI supply-demand dynamics.

[John Gibson, Analyst at BMO Capital Markets]

Thanks a lot, guys. Appreciate it. Congrats on the great quarter.

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

Thanks, John.

[Operator]

Your next question comes from the line of Carol Adu-Bobie with Scotiabank. Please go ahead.

[Carol Adu-Bobie, Analyst at Scotiabank]

Good morning. This is Carol on for Jonathan Goldman from Scotiabank. Thanks for taking my question. You were able to expand margins despite higher input costs. Has pricing now fully caught up with the cost inflation that you experienced earlier in the year, and are there any categories where further price pass-throughs may be needed?

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

The answer is no. It hasn't caught up, so we expect a little bit of margin expansion, which helps explain why we're comfortable with the 16%-17% range. As mentioned, that 17.8% would have been closer to the low 17s had it not been for some of those positive effects from the standard cost adjustment. Does that answer your question?

[Carol Adu-Bobie, Analyst at Scotiabank]

Yes, thank you.

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

Okay.

[Carol Adu-Bobie, Analyst at Scotiabank]

Just a quick follow-up. I wanted to ask, how should we think about working capital level heading into the fourth quarter?

[Tony Aulicino, EVP and CFO at CES Energy Solutions]

I think you should use that same math that we've laid out, where you take that formulaic approach where you take our last quarter, or in your case, you should have your estimate of what Q4 revenue would be. You annualize that, and you used to have to multiply that number by 30%-35%, but the company's done a great job of optimizing working capital, so you should use something closer to 27%-28%, and that will be the working capital requirement.

[Carol Adu-Bobie, Analyst at Scotiabank]

Okay, I appreciate the color. Thanks for taking my questions.

[Operator]

There are no further questions at this time. I will now turn the call back over to Ken Zinger for closing remarks.

[Ken Zinger, President and CEO at CES Energy Solutions]

Well, I just want to thank everyone who took the time to join us here today. We appreciate your time and look forward to speaking with you all again during our Q4 and year-end 2026 update call on March 10, 2027. Thank you and goodbye.

[Operator]

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Participants

Executives

• Tony Aulicino, EVP and CFO
• Ken Zinger, President and CEO

Analysts

• Aaron MacNeil, Analyst at TD Cowen
• Tim Monachello, Analyst at ATB Cormark Capital Markets
• John Gibson, Analyst at BMO Capital Markets
• Carol Adu-Bobie, Analyst at Scotiabank