Mr. Tony Pagnucco reports

BRI-CHEM ANNOUNCES 2024 FIRST QUARTER FINANCIAL RESULTS AND SENIOR BANKING FACILITY AMENDMENTS

Bri-Chem Corp. has released its first quarter 2024 financial results.

Key Q1 2024 highlights include:

• Consolidated sales for the three months ended March 31, 2024, were $21.4-million, which is a 21-per-cent decrease from the prior year. The decrease is directly related to the 19-per-cent decrease in Q1 U.S. drilling activity, driven by a lower average rig count and corresponding cementing activities.
• Consolidated gross margin for the three months ended March 31, 2024, decreased by $715,000 compared with the same period last year. The gross margin dollar decrease is primarily related to the 21-per-cent decrease in consolidated sales.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) for the first quarter 2024 decreased by $2.1-million when compared with the same period in the prior year, and operating earnings decreased by $1.4-million for the three months ended March 31, 2024, compared with the prior year.
• Adjusted net loss per diluted share for the three months ended March 31, 2024, was seven cents per share compared with adjusted net earnings of one cent per diluted share for same period last year.
• Working capital, as at March 31, 2024, was $14.7-million compared with $15.9-million at March 31, 2023, a decrease of 8 per cent. The decrease relates to significant decreases in accounts receivable and was partially offset by increased bank indebtedness and accounts payable.

Summary for the three months ended March 31, 2024

Consolidated sales for the three months ended March 31, 2024, were $21.4-million compared with $27.2-million for the same period in 2023, representing a $5.8-million decrease over the comparable period. The decrease is due to decreased U.S. drilling activities, driven by a lower average rig count and cementing activities.

Bri-Chem's Canadian drilling fluids distribution division generated sales of $2.8-million for the three months ended March 31, 2024, compared with $3.6-million in the comparable prior period. The decrease in sales relates to the slowing of sales of select commodity items. The number of active operating land rigs in Q1 2024 averaged 209, compared with 223 in the same period last year (source: Baker Hughes). Bri-Chem's U.S. drilling fluids distribution division generated sales of $12.6-million for the three months ended March 31, 2024, compared with sales of $16.8-million for the comparable period in 2023, representing a quarterly decrease of 25 per cent. This decrease mainly relates to a decrease in the U.S. rig count as the number of active operating land rigs in Q1 2024 averaged 605, compared with a Q1 2023 average of 743 (source: Baker Hughes).

Bri-Chem's Canadian blending and packaging division generated sales of $4.6-million for the three months ended March 31, 2024, compared with Q1 2023 sales of $4.3-million, representing a quarterly increase of $277,000. The modest increase in sales relates to higher cementing and stimulation activities in Western Canada. U.S. blending and packaging sales for the three months ended March 31, 2024, were $1.4-million compared with $2.5-million in the prior year. The $1.1-million decrease relates to the loss of commodity sales due to customers initiating self supply initiatives.

Operating loss for the three months ended March 31, 2024, was $144,000, which is a decrease from the operating earnings of $1.3-million from the same period in the prior year. Adjusted EBITDA was negative $443,000 for Q1 2024 compared with $1.6-million for Q1 2023. The decrease is primarily driven by decreased margin due to lost sales, in tandem with a foreign exchange loss for the quarter. Adjusted EBITDA as a percentage of sales was negative 2 per cent for the quarter, which is a decrease from 6 per cent in Q1 2023. The adjusted EBITDA as a percentage of sales decrease is primarily attributable to foreign exchange loss in the quarter.

During Q1 2024, Bri-Chem finalized an amending agreement with Canadian Imperial Bank of Commerce relating to its senior lending facility in response to a covenant breach realized in the first quarter. The amended agreement acknowledges the breach of the fixed charge coverage ratio covenant, and the company is pleased to confirm that the renegotiated structure has been agreed to as a cumulative budgeted EBITDA covenant, tested monthly. The facility amendments also increase the availability block to $3.5-million.

Outlook

North American drilling activity levels were considerably lower in Q1 2024, when compared with Q1 2023. U.S. oil and gas rig counts have decreased 19 per cent quarter over quarter as gas prices dropped significantly in February, 2024, which has put a significant strain on U.S. gas drilling activity. Canadian market outlook remains positive with the completion of the Trans Mountain pipeline expansion expected in mid-2024, which will help increase capacity and access to global markets for Canadian oil and gas companies. The liquefied natural gas pipeline is expected to be in operation by mid-2025 and will serve as a further catalyst for the Canadian oil market. Bri-Chem expects oil field activity in the United States to remain relatively flat for the balance of the year or until natural gas pricing becomes more favourable for producers to expand drilling in gas regions. Bri-Chem's management team has begun to initiate expense management strategies and deploy an inventory reduction program to realign the business with current market conditions. New business development and organic growth will become an increasing focus of management in subsequent periods.

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 25 strategically located warehouses throughout Canada and the United States.

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