Key Points
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Record second-quarter performance: Revenue rose 24.4% year over year to CAD 714.1 million, while adjusted EBITDA increased about 35% to CAD 119.2 million. The 16.7% EBITDA margin exceeded the company’s target range, though management expects second-half margins to remain within the existing 15.5%–16.5% guidance.
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Growth driven by market-share gains and strong activity: CES held a 29.7% share of active North American land rigs, with particularly strong positions in Canadian drilling fluids and the Permian Basin. Management sees sustained Canadian activity and continued U.S. growth through 2026 and into 2027, especially in land production chemicals.
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Strong cash generation and shareholder returns: Funds flow from operations reached a record CAD 97 million, while the company plans roughly CAD 100 million in 2026 capital spending. CES repurchased more than 1.5 million shares around quarter-end, renewed authorization for up to 18.1 million additional repurchases, and ended the quarter with leverage of 1.15 times adjusted EBITDA.
CES Energy Solutions (TSE:CEU) reported record second-quarter revenue and adjusted EBITDA, supported by market-share gains, higher service intensity and strong activity across its North American drilling fluids and production chemicals businesses.
President and CEO Ken Zinger said quarterly revenue reached an all-time high of CAD 714.1 million, up 24.4% from the prior-year period. Adjusted EBITDA rose about 35% year over year to a record CAD 119.2 million, while the company’s 16.7% EBITDA margin exceeded its stated target range of 15.5% to 16.5%.
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The company generated CAD 497 million of revenue in the U.S., its sixth consecutive quarterly record in that market, and CAD 217.1 million in Canada, its strongest second-quarter Canadian revenue result. U.S. operations represented 70% of consolidated revenue during the period, while Canada accounted for 30%.
Margins supported by revenue and temporary factors
Management said the quarter’s margin performance reflected record revenue, increased service intensity, and a single short-term project. It also cited the effect of a weaker Canadian dollar and increased values in certain product categories under its standard cost accounting process.
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During the question-and-answer session, management said that excluding those temporary factors, the EBITDA margin would likely have been “somewhere squarely between the 16%-16.5% range.” The company nevertheless expects margins in the second half to remain in the higher half of its 15.5% to 16.5% target range.
CES did not raise its formal margin guidance, despite exceeding the upper end of the range in several recent quarters. Zinger said supply shortages, shipping disruptions and price volatility associated with the Iran conflict have created an unpredictable environment for sourcing and pricing products. He said the company does not expect those conditions to result in meaningful or sustained margin erosion.
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“The company continues to fire on all cylinders,” management said, while noting that it wants to avoid setting a higher target before it has a clear path to sustaining it.
Market share and operating outlook
CES said it was servicing 235 of 791 active North American land rigs at the time of the call, representing a 29.7% market share. Its Canadian Drilling Fluids business was serving 89 of 219 Canadian jobs, or a 40.6% share. In the U.S., AES was supplying chemistry and services to 146 of 572 active land rigs, including a 39.5% share in the Permian Basin.
Zinger said Canadian activity has remained strong after breakup, with the Western Canadian Sedimentary Basin rig count at its highest August level since 2014. He said the company expects elevated activity to continue through the third and fourth quarters and into the first quarter of 2027, citing added takeaway capacity and improved energy futures pricing.
In the U.S., CES described its outlook as constructive for the remainder of 2026 and into 2027. Management said revenue at AES Completion Services, the business formerly known as HydroLite, has increased more than fivefold since CES acquired it in June 2024. Jacam Catalyst, the company’s U.S. production chemicals division, has completed its transition into locations awarded through a large land-based request for proposal announced previously.
Management identified U.S. land production chemicals as its most immediate growth opportunity. Zinger said CES is continuing to gain share in that market and sees large business opportunities coming through regularly. The company estimates the U.S. land production chemicals market is worth roughly CAD 4 billion to CAD 4.5 billion annually and said it held approximately 21% market share according to a prior third-party report.
Longer-term chemical opportunities
CES also discussed Canadian heavy-oil treating and offshore Gulf of America production chemicals as longer-cycle growth opportunities. The company said it has added two small Canadian heavy-oil facilities and is conducting trials at three larger facilities. Zinger cautioned that such trials may take months or years before converting into awards.
Offshore, CES said it is operating on four platforms and has expanded its technical capabilities, including an offshore-focused laboratory in The Woodlands, Texas. Management said the business is not yet generating the 20% to 30% margins historically associated with comparable offshore production-chemical operations because CES is investing ahead of revenue growth. It expects the operation to move toward and through corporate-average EBITDA margins over the next several years as it scales.
Production chemicals represented 53% of CES revenue during the quarter, with drilling fluids accounting for 47%. Management said drilling fluids businesses are also gaining share and increasing revenue per rig per day, which has risen 40% over the past three years.
Cash flow, capital spending and buybacks
Funds flow from operations reached a record CAD 97 million in the quarter, compared with CAD 62 million in the first quarter and CAD 77 million a year earlier. Cash flow from operations was CAD 60 million, while free cash flow totaled CAD 25 million, with working-capital investments supporting the company’s record revenue levels.
CES expects 2026 cash capital expenditures of approximately CAD 100 million, divided evenly between maintenance and expansion investments. Capital expenditures net of disposals were CAD 24 million in the second quarter.
The company repurchased 780,000 common shares during the quarter at an average price of CAD 17 per share, totaling CAD 13.3 million. Subsequent to quarter-end, it bought another 735,000 shares at an average price of CAD 16.60 per share for CAD 12.2 million. CES renewed its normal course issuer bid on July 22, authorizing repurchases of up to 18.1 million shares.
CES also refinanced its debt during the quarter, issuing CAD 300 million of 5.625% senior unsecured notes due in 2033. The proceeds were used to repay CAD 275 million of notes due in 2029 and partially repay its credit facility. Management said the refinancing is expected to reduce annual interest costs by approximately CAD 2 million.
Total debt ended the quarter at CAD 513 million, while total debt to adjusted EBITDA was 1.15 times, within CES’ stated target range of one to 1.5 times. The company said it remains comfortable maintaining its dividend, pursuing share repurchases and considering strategic tuck-in acquisitions that complement its chemicals-focused businesses.
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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The article “CES Energy Solutions Q2 Earnings Call Highlights” was originally published by MarketBeat.