Mr. John Hooks reports

PHX ENERGY ANNOUNCES RECORD SECOND QUARTER FINANCIAL RESULTS

PHX Energy Services Corp. has released its second quarter results for 2023.

Second quarter highlights

• For the three-month period ended June 30, 2023, PHX Energy generated consolidated revenue of $155.6-million, the highest level of second quarter revenue on record and the third highest level of quarterly revenue in the corporation's history despite the second quarter being typically slow in Canada due to spring breakup. Revenue in the first quarter of 2023 and fourth quarter of 2022 are the first and second highest quarterly revenue on record, respectively.
• Earnings from continuing operations increased to $18.1-million, an increase of 41 per cent over the second quarter of 2022, and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) from continuing operations increased to $34.8-million, which represented 22 per cent of consolidated revenue. Earnings and adjusted EBITDA from continuing operations are the best second quarter results on record. Additionally, adjusted EBITDA is the corporation's second highest quarterly level in its history. Included in the 2023 quarter's adjusted EBITDA is $2.6-million in cash-settled share-based compensation expense. Excluding cash-settled share-based compensation expense, adjusted EBITDA from continuing operations in the second quarter of 2023 was $37.4-million, 24 per cent of consolidated revenue.
• PHX Energy's United States division revenue in the second quarter of 2023 was $125-million, 19-per-cent higher than the second quarter of 2022 and just slightly below the records achieved in the previous two quarters. U.S. division revenue in the 2023 quarter represented 80 per cent of consolidated revenue.
• PHX Energy's Canadian division reported $29.4-million of quarterly revenue, its highest level of second quarter revenue on record.
• The U.S. dollar continued to have a favourable impact on the 2023 quarter's financial results. In the 2023 three-month period, the average U.S. dollar to Canadian dollar foreign exchange rate was 1.34 compared with 1.28 in the 2022 period. Albeit, the U.S. dollar has weakened compared with the first quarter of 2023.
• The corporation generated excess cash flow of $25.5-million in the 2023 three-month period, after deducting for maintenance capital expenditures from asset retirements, maintenance capital expenditures from downhole equipment losses, and growth capital expenditures of $3.9-million, $3.3-million and $4.9-million, respectively.
• In the 2023 quarter, PHX Energy paid $7.7-million in dividends which is double the dividend amount paid in the same 2022 quarter. On June 15, 2023, the corporation declared a dividend of 15 cents per share or $7.6-million, paid on July 17, 2023, to shareholders of record on June 30, 2023.
• PHX Energy delivered additional returns to shareholders through the use of its current NCIB, purchasing and cancelling 267,800 common shares for $1.6-million in the second quarter of 2023. Subsequent to June 30, 2023, the corporation purchased and cancelled 1,242,000 common shares for $8.1-million.
• As at June 30, 2023, the corporation had working capital of $111-million and net debt of $7.6-million with credit facility capacity in excess of $52-million.

Outlook

In the second quarter the company continued to produce strong financial and operating results despite a softening market. These results are testament to the company's talented team and leading-edge technology that allows the company to deliver the superior operational performance that operators demand.

• The company remains cautiously optimistic for the second half of 2023. The company expects the softening United States rig count to stabilize with the recent strengthening of oil commodity prices and tightening supply. Additionally, the company anticipates the Canadian industry activity will continue to trend above the levels seen in the prior year.
• In the U.S. the company may continue to see lighter activity than 2022 and expect levels to remain relatively consistent with those seen in the second quarter. The company anticipates that the premiums generated from its technology offering, particularly RSS, will continue to offset the subtle decline in activity. Additionally, the company believes its motor rental and sales division will continue to see growth in the remainder of the year and these streams will also contribute to improved revenue and margins year over year.
• In Canada the company expects its activity to continue to show an improvement over 2022 and revenues to track accordingly. The second quarter was a record spring breakup period for the company's Canadian division and currently this division is very active.
• The company believes the delivery of the additional equipment on order will be adequate to meet the volume of forecasted activity for the remainder of 2023. The company will assess future capital requirements in the coming months for anticipated growth in 2024 and will likely place early orders for certain materials and items that still have long lead times for delivery.
• In line with the company's strategy to expand its Atlas sales business, the company recently entered into an Atlas sales agreement with an existing international client. The company has already seen an upside in the second quarter from this new business line and will continue to pursue opportunities for expansion.
• The company continues to leverage its business strengths to reward its shareholders through the various mechanism of ROCS, including the company's base dividend program, share buybacks and the ability to trigger special dividends with excess cash. The company has bought back 19 per cent of its shares since 2017, including the purchase and cancellation of 1.5 million shares through the current NCIB thus far in 2023. Through the company's dividend program it has paid $36.7-million to shareholders since reinstating the program in December, 2020.

Through the remainder of the year, the company will continue to provide attractive shareholder returns while maintaining its balance sheet strength and financing operational growth by investing in new technology development and capital expenditures.

Michael Buker, president

Aug. 8, 2023

Financial results

In the second quarter of 2023, market uncertainties continued. North American drilling activity was flat compared with the same quarter in 2022 and has declined from the first quarter of 2023. Despite these market trends, PHX Energy's consolidated revenue grew by 23 per cent to $155.6-million (2022 -- $126.2-million), the highest second quarter revenue on record.

For the three-month period ended June 30, 2023, in line with North American industry activity, PHX Energy's consolidated activity levels were relatively flat at 6,526 operating days compared with 6,486 operating days in the 2022 period. The corporation continued to leverage its premium technologies and strength in marketing and operations, and as a result, improved its average consolidated revenue per day for directional drilling services by 15 per cent quarter over quarter.

In the 2023 three-month period, PHX Energy's U.S. division revenue grew by 19 per cent to $125-million as compared with $105.4-million in the same 2022 period. Compared with the record in the first quarter of 2023, the U.S. division's revenue was relatively flat despite the decline in the rig count in the 2023 quarter. U.S. operating days decreased by 7 per cent from 4,707 in the second quarter of 2022 to 4,364 in the second quarter of 2023 while U.S. average revenue per day for directional drilling services improved by 18 per cent quarter over quarter. Revenue from the corporation's U.S. segment represented 80 per cent of consolidated revenue in the 2023 three-month period (2022 -- 83 per cent).

Similar to the U.S. division, the momentum of the strong first quarter results in Canada continued in the second quarter of 2023, and the corporation's Canadian division generated revenue of $29.4-million, a 49-per-cent increase from $19.7-million in the same 2022 quarter. Following the record revenue in the first quarter, this is the highest level of second quarter Canadian division revenue on record. In the 2023 three-month period, Canadian industry activity held steady compared with the same 2022 period while the corporation's Canadian operating days grew by 23 per cent to 2,076 days from the 1,688 operating days in the comparable 2022 period. Average revenue per day realized by the Canadian segment also improved by 19 per cent quarter over quarter.

Earnings from continuing operations and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) generated in the 2023 quarter are the best second quarter results in the corporation's history. For the three-month period ended June 30, 2023, earnings from continuing operations increased to $18.1-million from $12.8-million in the comparable 2022 period, an increase of 41 per cent. Adjusted EBITDA from continuing operations increased to $34.8-million (22 per cent of revenue) which is 39 per cent higher than the adjusted EBITDA reported in the same 2022 period of $25.1-million (20 per cent of revenue). Included in the 2023 three-month period adjusted EBITDA from continuing operations is cash-settled share-based compensation expense of $2.6-million (2022 -- $700,000). For the three-month period ended June 30, 2023, excluding cash-settled share-based compensation expense, adjusted EBITDA from continuing operations is $37.4-million, 24 per cent of consolidated revenue (2022 -- $25.8-million).

PHX Energy maintained its strong financial position and had working capital of $111-million and net debt of $7.6-million with available credit facilities in excess of $52-million as at June 30, 2023.

Normal course issuer bid

Pursuant to PHX Energy's current NCIB it is entitled to purchase for cancellation, from time to time, up to a maximum of 3,622,967 common shares, representing 10 per cent of the corporation's public float of common shares at the time of its approval by the TSX. The NCIB commenced on Aug. 16, 2022, and will terminate on Aug. 15, 2023. Pursuant to the current NCIB, 267,800 common shares were purchased by the corporation for $1.6-million and cancelled in the second quarter of 2023. Subsequent to June 30, 2023, the corporation purchased and cancelled 1,242,000 common shares for $8.1-million. Pursuant to the corporation's current NCIB, the corporation purchased in the open market through the facilities of the TSX and through other alternative Canadian trading platforms and cancelled an aggregate of 1,509,800 common shares of the corporation at an average price paid of $6.39 per common share. For the three-month period ended June 30, 2022, the corporation did not repurchase shares through its previous NCIB.

The corporation has made an application to the TSX for renewal of its NCIB for a further one-year term. The anticipated renewal of the NCIB is subject to the review and approval of the TSX.

About PHX Energy Services Corp.

PHX Energy is a growth-oriented, public oil and natural gas service company. The corporation, through its directional drilling subsidiary entities, provides horizontal and directional drilling services to oil and natural gas exploration and development companies principally in Canada and the United States. In connection with the services it provides, PHX Energy engineers, develops and manufactures leading-edge technologies. In recent years, PHX Energy has developed various new technologies that have positioned the corporation as a technology leader in the horizontal and directional drilling service sector in North America.

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