Mr. Tony Pagnucco reports

BRI-CHEM ANNOUNCES 2023 FIRST QUARTER FINANCIAL RESULTS

Bri-Chem Corp. has released its first quarter 2023 financial results.

Key Q1 2023 highlights include:

• Consolidated sales for the three months ended March 31, 2023, were $27.2-million, an increase of 16 per cent compared with the same period last year due to management's efforts to maintain or increase its market share in the fluids distribution division in the United States as the industry is facing renewed competition due to the considerable demand for petroleum products in the post-COVID era.
• Consolidated gross margin for the three months ended March 31, 2023, decreased by $1.3-million compared with the same period last year. The decrease in gross margin dollars primary is related to the $893,000 asset impairment reversal realized in Q1 2022, which raised consolidated margins by approximately 5.1 per cent in Q1 2022.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) for the first quarter 2023 was $1.6-million compared with $2.4-million in Q1 2022, representing a 34-per-cent decrease year over year as a percentage of revenue and operating earnings was $1.3-million for the three months ended March 31, 2023, compared with operating earnings of $3.0-million the prior-year comparable quarter, representing a 57-per-cent decrease. The decrease is mainly due to a $893,000 impairment reversal realized in Q1 2022 and lower gross margins in Q1 2023 as higher input costs were incurred causing greater-than-expected margin erosion.
• Adjusted net earnings per diluted share for the three months ended March 31, 2023, were one cent per share compared with six cents per diluted share for the same period last year. The primary cause of the decrease is the Q1 2023 lower margins realized in the quarter and a $893,000 asset impairment reversal realized in Q1 2022, which directly increased consolidated gross margins.
• Working capital, as at March 31, 2023, was $15.7-million compared with $6.6-million at March 31, 2022, an increase of 138 per cent. The increase relates to notable increases in accounts receivable and inventory balances in response to increasing market momentum and stockpiling in tandem with the renegotiation of the term debt facility and its subsequent reclassification from current to long term. This is partially offset by increases to bank indebtedness and accounts payable balances.

Summary for the three months ended March 31, 2023

Consolidated sales for the three months ended March 31, 2023, were $27.2-million compared with $23.5-million for the same period in 2022, representing a $3.7-million increase over the comparable periods. The increase is due to increased drilling activity across most operating regions within Canada and the United States.

Bri-Chem's Canadian drilling fluids distribution division generated sales of $3.6-million for the three months ended March 31, 2023, compared with $3.4-million in the comparable prior period. The increase in sales predominantly relates to the higher drilling activity levels in 2023 than 2022. The number of active operating land rigs in Q1 2023 averaged 223, compared with 198 in the same period last year, amounting to an increase of 13 per cent over Q1 2022 (source: Baker Hughes). Bri-Chem's U.S. drilling fluids distribution division generated sales of $16.8-million for the three months ended March 31, 2023, compared with sales of $14.5-million for the comparable period in 2022, representing a quarterly increase of 15 per cent. This increase relates to the corresponding increase in rig activity in Q1 2023. The number of active operating land rigs in Q1 2023 averaged 743, compared with a Q1 2022 average of 616, representing an increase of 21 per cent (source: Baker Hughes).

Bri-Chem's Canadian blending and packaging division generated sales of $4.3-million for the three months ended March 31, 2023, compared with Q1 2022 sales of $3.4-million, representing a quarterly increase of $858,000. The increase in sales relates to increased cementing and stimulation activities in response to increased drilling. U.S. blending and packaging sales for the three months ended March 31, 2023, were $2.5-million compared with $2.2-million in the prior year. The surge relates to increased cementing activities in specific operating regions in California.

Operating earnings for the three months ended March 31, 2023, were $1.3-million compared with $3-million during the same period last year. Adjusted EBITDA was $1.6-million for Q1 2023 compared with $2.4-million for Q1 2022. Adjusted EBITDA as a percentage of sales was 6 per cent for the quarter, representing a 4-per-cent decrease attributable primarily to an $893,000 impairment reversal realized in Q1 2022 and the U.S. fluids distribution division realizing lower gross margins in Q1 2023 as higher input costs were incurred to support the company maintaining market share.

Outlook

In the first quarter of 2023, the price of WTI (West Texas Intermediate) was relatively stable but has recently shown some volatility due to the fear of a possible global recession. Bri-Chem remains focused on the business systems that have aided its stability throughout the many adverse conditions it has faced. It will continue to control fixed costs, maintain balance sheet strength and operate under a low-cost infrastructure while utilizing a disciplined approach to growth opportunities. The company generally expects that the oil field service sector will see a modest increase in activity in 2023 compared with 2022, but intensified competition, increasing operating overheads, and rising fuel and freight costs will have an impact on gross margins. The company endeavours to further strengthen financial results through organic growth initiatives, which can be realized by expanding product offerings and continuing to expand Bri-Chem's already broad distribution network of warehouses.

About Bri-Chem Corp.

Bri-Chem has established itself, through a combination of strategic acquisitions and organic growth, as the North American industry leader for wholesale distribution and blending of oil field drilling, completion, stimulation and production chemical fluids. It sells, blends, packages and distributes a full range of drilling fluid products from 26 strategically located warehouses throughout Canada and the United States.

We seek Safe Harbor.