Mr. Ken Zinger reports

CES ENERGY SOLUTIONS CORP. ANNOUNCES STRONG Q3 2023 RESULTS

CES Energy Solutions Corp. has released record third quarter financial results for Q3 2023 as quarterly revenue, adjusted EBITDAC (net income before interest, taxes, depreciation and amortization, finance costs, other income (loss), stock-based compensation, and impairment of goodwill) and cash flow generation continued to grow year over year. Third quarter highlights include:

• Revenue of $536.5-million; increased 2 per cent year over year;
• Adjusted EBITDAC of $80.2-million; increased 9 per cent year over year;
• Adjusted EBITDAC margin of 15.0 per cent; increased 100 basis points year over year;
• Cash flow from operations of $99.9-million and free cash flow of $75.6-million;
• Leverage declined to 1.46 times total debt/adjusted EBITDAC from 1.57 times at June 30, 2023, and 2.17 times at Dec. 31, 2022;
• Working capital surplus exceeded total debt at Sept. 30, 2023, by $160.6-million;
• Repurchased $40-million of common shares during the quarter and $10.4-million of common shares subsequent to Sept. 30, 2023.

CES continued its trend of strong cash flow generation amid a constructive supply demand environment, increasing levels of service intensity and benefiting from leading market share positions throughout its business. With leverage down to very prudent levels and an effective capital structure in place supported by the recently announced senior note redemption, CES has been able to aggressively pursue return of capital to its shareholders. During the quarter, CES returned $46.3-million to shareholders through $40-million or 11,993,100 common shares repurchased under its NCIB (normal course issuer bid) and its quarterly dividend of $6.3-million, collectively representing returns to shareholders of 46 per cent of cash flow from operations and 61 per cent of free cash flow.

Third quarter results

In the third quarter, CES generated revenue of $536.5-million, representing a sequential increase of $20.7-million or 4 per cent compared with Q2 2023, off of seasonally lower activity levels in Canada, and an increase of 2 per cent compared with Q3 2022 as production levels have seen a modest increase year over year. For the nine months ended Sept. 30, 2023, CES generated revenue of $1.6 billion, an increase of $250.4-million or 18 per cent relative to the nine months ended Sept. 30, 2022. As producers' capital spending and production levels have stabilized, higher production chemical volumes and increasing service intensity resulted in an overall uptick in revenue compared with prior year, despite a decline in the US and Canadian rig counts. CES continues to realize high levels of revenue underpinned by industry stabilization, and strong market share throughout the business.

Revenue generated in the US during Q3 2023 was $361.5-million, representing a sequential decrease of $14-million or 4 per cent compared with Q2 2023 and an increase of 3 per cent compared with Q3 2022. For the nine months ended Sept. 30, 2023, revenue generated in the US was up 23 per cent to $1.1 billion relative to the nine months ended Sept. 30, 2022. US revenues for the three and nine months ended Sept. 30, 2023, were impacted by decreased industry drilling activity in the quarter, the effects of which were offset by higher production levels and market share gains year over year. CES maintained its strong industry positioning, with US Drilling Fluids Market Share of 21 per cent and 20 per cent for three and nine months ended Sept. 30, 2023, respectively, and year over year improvement from 18 per cent for the three and nine months ended Sept. 30, 2022.

Revenue generated in Canada during Q3 2023 was $175-million, representing a sequential increase of $34.7-million or 25 per cent compared with Q2 2023 as expected off of seasonally lower activity levels in Canada, and in line with revenue of $175.2 from Q3 2022. Canadian revenues were positively impacted by a 47 per cent sequential increase in rig counts relative to Q2 2023 coming out of spring breakup, and higher production volumes year over year. Canadian Drilling Fluids Market Share for Q3 2023 of 34 per cent was behind Q3 2022 of 37 per cent, but up from 32 per cent on a sequential quarterly basis. For the nine months ended Sept. 30, 2023, revenue generated in Canada of $504.2-million was up 9 per cent from $461.2-million relative to the nine months ended Sept. 30, 2022, driven by higher production volumes year over year.

CES achieved Adjusted EBITDAC of $80.2-million in Q3 2023, representing a sequential increase of 9 per cent compared with Q2 2023, and an increase of 9 per cent compared with Q3 2022. Adjusted EBITDAC as a percentage of revenue of 15.0 per cent achieved in Q3 2023 compared with 14.3 per cent recorded in Q2 2023 and 14.0 per cent recorded in Q3 2022. For the three month period, Adjusted EBITDAC improved both sequentially and year over year on higher revenue levels associated with increasing industry production volumes and improved margins. For the nine months ended Sept. 30, 2023, Adjusted EBITDA was up 31 per cent to $231.2-million. The company has continued to be effective in pricing and procurement activities while maintaining prudent G&A levels, combined with increased scale.

Net income for the three and nine months ended Sept. 30, 2023, increased 58 per cent to $38.6-million from $24.5-million, and 92 per cent to $105.5-million from $54.8-million, respectively, compared with prior year periods, driven by higher activity levels.

During the quarter, CES returned $46.3-million to shareholders (Q3 2022 - $5.3-million), through $40-million in common shares repurchased under its NCIB and its quarterly dividend of $6.3-million. Year to date, CES has returned $68.3-million (2022 - $13.7-million) to shareholders, through $51.8-million in common shares repurchased and $16.5-million in dividends paid.

For Q3 2023, net cash provided by operating activities totaled $99.9-million, compared with net cash used by operating activities of $16.3-million during the three months ended Sept. 30, 2022. For the nine months ended Sept. 30, 2023, net cash provided by operating activities of $262.5-million compared with net cash used by operating activities of $41.5-million for the nine months ended Sept. 30, 2022. The change was primarily driven by strong financial performance combined with a lower required investment in working capital as activity levels remained stable during the three and nine months ended periods of 2023, coupled with higher net income on associated activity levels relative to the comparative periods.

CES generated $57.9-million in Funds Flow from Operations in Q3 2023, compared with $63-million generated in Q2 2023 and up 18 per cent from $48.9-million generated in Q3 2022. For the nine months ended Sept. 30, 2023, CES generated $183.5-million of Funds Flow from Operations compared with $128.1-million in 2022. Funds Flow from Operations excludes the impact of working capital, and is reflective of the continued strong surplus free cash flow generation in stable market conditions seen in the first three quarters of 2023.

CES generated $75.6-million in Free Cash Flow in Q3 2023, up 13 per cent from $66.7-million generated in Q2 2023, and compared with a use of $35-million in Q3 2022. For the nine months ended Sept. 30, 2023, CES generated $196.4-million of Free Cash Flow compared with a use of $85.2-million in 2022. Free Cash Flow includes the impact of net capital expenditures and lease repayments, and is reflective of the company's surplus free cash flow generation in excess of required capital expenditures.

As at Sept. 30, 2023, CES had a Working Capital Surplus of $614.6-million, which decreased from $641.4-million at June 30, 2023 (Dec. 31, 2022 - $691.1-million) as revenue and activity levels have stabilized and working capital investments have moderated. The reduction during the quarter was driven by a 5 per cent reduction in inventory and a 16 per cent increase in accounts payable and accrued liabilities, partially offset by a 6 per cent increase in accounts receivable. The company continues to focus on working capital optimization benefiting from the high quality of its customers and diligent internal credit monitoring processes.

CES exited the quarter with a net draw on its syndicated senior facility (the "Senior Facility") of $92.2-million compared with $120.2-million at June 30, 2023 and $208.5-million at Dec. 31, 2022. Total Debt of $454-million at Sept. 30, 2023, compared with $478-million at June 30, 2023 and $557.5-million at Dec. 31, 2022, of which $288-million relates to Senior Notes which mature on October 21, 2024. The decreases realized during the quarter were primarily driven by strong cash flow generation enhanced by a reduction in required working capital investments as described above, partly offset by $40-million in share repurchases and $6.3-million in dividends paid. Working Capital Surplus exceeded Total Debt at Sept. 30, 2023, by $160.6-million (Dec. 31, 2022 - $133.6-million). As of the date of this press release, the company had a net draw on its Senior Facility of approximately $118-million representing a reduction of approximately $90.5-million since Dec. 31, 2022. These reduced draw levels reflect the onset of strong free cash flow generation from sustained revenue levels supported by CES' capex-light business model and stabilizing end market activity levels.

On October 19, 2023, CES announced that it will redeem all of the company's outstanding 6.375 per cent Senior Notes due October 21, 2024, which have an aggregate principal amount of $288-million, on November 30, 2023. CES will redeem the Notes by drawing down on its available $250-million Canadian Term Loan Facility, with the balance of approximately $38-million to be drawn from its $450-million Senior Facility, which had a net draw of $92.2-million at Sept. 30, 2023. These facilities mature on April 25, 2026, and provide CES with ample liquidity to support its current business requirements and potential future needs.

During the quarter, CES repurchased 11,993,100 common shares at an average price of $3.34 per share for a total of $40-million. Since the July 21, 2023, commencement of the company's current NCIB program, the company repurchased 9,041,600 common shares up to Sept. 30, 2023, at an average price of $3.56 per share for a total of $32.2-million. Since inception of the company's NCIB programs on July 17, 2018, and up to Sept. 30, 2023, the company has repurchased 48,751,557 common shares at an average price of $2.40 per share for a total of $117.2-million. Subsequent to Sept. 30, 2023, the company repurchased 2,852,900 additional common shares at a weighted average price of $3.66 per share for a total of $10.4-million.

Outlook

The recovery in global energy demand combined with several years of lower investment in the upstream oil and gas sector have resulted in a balanced market for oil and natural gas, higher commodity prices, and a supportive outlook for the sector in CES' North American target market. We expect increased activity levels and higher service intensity to continue through 2023 and into 2024, moderated by potential broad economic headwinds related to recession risk, interest rates, and geopolitical instability, which may impact customer spending plans.

CES is optimistic in its outlook for the remainder of the year and into next year as it expects to benefit from strong upstream activity, increased service intensity levels, and continued strength in commodity pricing across North America by capitalizing on its established infrastructure, industry leading positioning, vertically integrated business model, and strategic procurement practices.

Commensurate with current record revenue levels, CES expects 2023 capital expenditures to be approximately $65-million weighted towards expansion capital to support higher activity levels and business development opportunities. CES plans to continue its disciplined and prudent approach to capital expenditures and will adjust its plans as required to support growth throughout divisions.

CES has proactively managed both the duration and the flexibility of its debt. In April 2023, CES successfully amended and extended its Senior Facility to April 2026. The Senior Facility effectively addresses CES' near-term and foreseeable longer-term requirements. The Canadian Term Loan Facility provides CES with the ability to repay and redeem the Senior Notes in full on November 30, 2023. Thereafter, CES has the opportunity to refinance and right-size the term portion of its capital structure on suitable terms at any time up until April of 2026. CES routinely considers its capital structure, including further increasing the capacity of its Senior Facility, refinancing of the company's Senior Notes, and other potential financing options.

CES' underlying business model is capex light and asset light, enabling the generation of significant surplus free cash flow. As our customers endeavor to maintain or grow production in the current environment, CES will leverage its established infrastructure, business model, and nimble customer-oriented culture to deliver superior products and services to the industry. CES sees the consumable chemical market increasing its share of the oilfield spend as operators continue to: drill longer reach laterals and drill them faster; expand and optimize the utilization of pad drilling; increase the intensity and size of their fracs; and require increasingly technical and specialized chemical treatments to effectively maintain existing cash flow generating wells and treat growing production volumes and water cuts from new wells.

Conference Call Details

With respect to the third quarter results, CES will host a conference call / webcast at 9:00 am MT (11:00 am ET) on Friday, November 10, 2023. A recording of the live audio webcast of the conference call will also be available on our website at www.cesenergysolutions.com. The webcast will be archived for approximately 90 days. North American toll-free: 1-(800)-319-4610

International / Toronto callers: (416)-915-3239

Link to Webcast: http://www.cesenergysolutions.com/

Business of CES

CES is a leading provider of technically advanced consumable chemical solutions throughout the life-cycle of the oilfield. This includes total 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. Key solutions include corrosion inhibitors, demulsifiers, H2S scavengers, paraffin control products, surfactants, scale inhibitors, biocides and other specialty products. Further, specialty chemicals are used throughout the pipeline and midstream industry to aid in hydrocarbon movement and manage transportation and processing challenges including corrosion, wax build-up and H2S.

CES operates in all major basins throughout the United States ("US"), including the Permian, Eagleford, Bakken, Marcellus and Scoop/Stack, as well as in the Western Canadian Sedimentary Basin ("WCSB") with an emphasis on servicing the ongoing major resource plays: Montney, Duvernay, Deep Basin and SAGD. In the US, CES operates under the trade names AES Drilling Fluids ("AES"), Jacam Catalyst LLC ("Jacam Catalyst"), Proflow Solutions ("Proflow"), and Superior Weighting Products ("Superior Weighting"). In Canada, CES operates under the trade names Canadian Energy Services, PureChem Services ("PureChem"), StimWrx Energy Services Ltd. ("StimWrx"), Sialco Materials Ltd. ("Sialco"), and Clear Environmental Solutions ("Clear").

We seek Safe Harbor.