CES Energy Solutions Q3 Earnings Call Highlights

Key Points

• CES posted record third-quarter results: Revenue rose 26.6% year over year to CAD 784.8 million, and adjusted EBITDAC increased to CAD 140 million. The 17.8% margin topped its prior target range, prompting the company to raise its target to 16%–17%.
• Production chemicals fueled growth: U.S. and Canadian revenue both reached records, while CES reported a 24% share of the North American land production chemicals market. Management sees potential for about 10% revenue growth in 2027 under stable market conditions, but cautioned that higher-cost inventory could pressure margins.
• Working capital strained cash generation: Despite record funds flow from operations of CAD 128 million, higher receivables and inventory contributed to negative CAD 8 million in free cash flow. CES plans CAD 100 million in 2026 capital spending and continued share buybacks while targeting debt leverage of 1–1.5 times.

CES Energy Solutions TSE: CEU reported its fourth consecutive quarter of record revenue and raised its target margin range after strong production chemicals growth and increased customer activity lifted third-quarter results.

Revenue rose 26.6% from a year earlier to CAD 784.8 million, while adjusted EBITDAC increased to CAD 140 million from CAD 103 million. The adjusted EBITDAC margin reached 17.8%, exceeding the company’s previous target range of 15.5% to 16.5%.

President and CEO Ken Zinger said the company could see revenue grow about 10% in 2027 under stable market conditions. Additional growth could follow if industry activity strengthens or CES wins more business, though he said the forecast does not count on a potential large heavy oil facility award.

Higher margin target

Executive Vice President and CFO Tony Aulicino said CES is raising its targeted adjusted EBITDAC margin range to 16% to 17%, based on expected customer activity, service intensity, product mix and the oil price environment.

Aulicino attributed the improved margin profile partly to greater demand for specialty chemicals manufactured by CES, operating efficiencies and controlled overhead costs. He also said favorable inventory cost revaluations helped the third-quarter result; without one-time items and timing effects, the margin would have been in the low- to mid-17% range.

The CFO cautioned that higher-cost inventory could compress margins in coming quarters unless CES offsets the effect through product substitutions, efficiencies or price increases. He said pricing had not fully caught up with earlier cost inflation.

Production chemicals drive growth

U.S. revenue reached a record CAD 534.6 million, or 68% of the quarterly total, while Canadian revenue also set a record at CAD 250.2 million. Zinger said gains at U.S. production chemicals division Jacam Catalyst outpaced the rest of the business.

According to the 2026 Kimberlite Research Report cited by Zinger, CES became the largest North American land production chemicals provider by market share, rising to 24% from 21% in 2025. The company also reported gains in Canadian heavy oil production treating, where Zinger estimated its market share at a high single-digit to low double-digit percentage, up from about 3% to 4% at the beginning of the year.

CES has won work at several small and mid-sized heavy oil facilities over the past six months. A separate trial at a large facility is expected to run well into 2027 before an award is made, Zinger said.

In U.S. land production chemicals, Zinger said CES was realizing the full benefit of a previous large contract win and gaining smaller and mid-sized customers. He said the company was not aware of another large request for proposals comparable to that win at present.

CES is also pursuing international opportunities. Zinger said the company has shifted its immediate focus toward South America after Middle East opportunities were delayed by the conflict involving Iran. CES sells small amounts of chemicals into South American markets but does not yet have facilities or permanent staff on the ground there, he said.

Working capital weighs on cash flow

Record funds flow from operations rose to CAD 128 million from CAD 86 million a year earlier. However, investment in receivables and inventory to support growth reduced cash flow from operations to CAD 22 million, compared with CAD 52 million a year earlier. Free cash flow was negative CAD 8 million, versus positive CAD 27 million in the prior-year quarter.

Aulicino said the increase in receivables reflected higher activity and a lag in collections, while inventory rose to support business opportunities and reflected some higher input costs. He suggested using working capital of approximately 27% to 28% of annualized quarterly revenue when estimating fourth-quarter requirements.

Capital spending and shareholder returns

CES expects capital spending of about CAD 100 million in 2026 and CAD 105 million to CAD 110 million in 2027, with next year’s spending weighted slightly toward growth. The company intends to continue buying back shares while keeping debt to trailing adjusted EBITDAC within its target range of 1 to 1.5 times; the ratio stood at 1.17 times at quarter-end.

During the third quarter, CES repurchased 1.96 million shares for CAD 35.3 million. It bought approximately another 1 million shares for CAD 19.7 million after the quarter. The company also increased its revolving and operating credit facilities to CAD 750 million from CAD 550 million and extended their maturity to November 2031.

Zinger said CES intends to review its dividend once a year when reporting fourth-quarter or first-quarter results.

About CES Energy Solutions (TSE:CEU)

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.

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