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CES Energy Solutions Corp reported its financial results for the second quarter of 2025, surpassing analyst expectations with an earnings per share (EPS) of $0.23, compared to the forecasted $0.1784, marking a surprise of 28.92%. Revenue also slightly exceeded predictions, coming in at $574 million against an anticipated $571.84 million. According to InvestingPro analysis, the company appears undervalued based on its Fair Value calculation, with a strong financial health score of 3.35 out of 5. Following the earnings announcement, CES Energy’s stock remained stable at $7.29, with no immediate change in the after-hours session.
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Key Takeaways
- CES Energy Solutions reported a record U.S. revenue of $405.6 million.
- The company achieved a 4% year-over-year increase in total revenue.
- CES maintained its leading market share in U.S. drilling fluids, expanding its presence in gas-focused basins.
Company Performance
CES Energy Solutions demonstrated robust performance in Q2 2025, achieving a 4% increase in revenue year-over-year. The company’s strong presence in the U.S. market contributed significantly to this growth, with U.S. revenue reaching an all-time high. The firm continues to expand its market share in production chemicals, highlighting its competitive advantage in the industry.
Financial Highlights
- Revenue: $574 million, up 4% year-over-year.
- U.S. Revenue: $405.6 million, setting a new record.
- Canadian Revenue: $168.4 million, marking a quarterly record.
- Adjusted EBITDAC: $88.3 million, with a 15.4% margin.
- Free Cash Flow: $35 million.
Earnings vs. Forecast
CES Energy Solutions surpassed expectations with an EPS of $0.23 against a forecast of $0.1784, resulting in a 28.92% surprise. Revenue also slightly exceeded forecasts, with actual figures at $574 million compared to the expected $571.84 million. This performance marks a strong quarter for CES, continuing its trend of exceeding market forecasts.
Market Reaction
Following the earnings announcement, CES Energy’s stock price remained unchanged at $7.29. The company’s stock has been stable, trading within its 52-week range of $5.59 to $10.2. The lack of immediate market reaction may indicate investor confidence in the company’s long-term strategy and performance.
Outlook & Guidance
CES Energy Solutions anticipates capital expenditures of $80 million for 2025 and aims to maintain debt levels between 1-1.5x EBITDA. The company expects continued growth in 2025, with an even stronger outlook for 2026, driven by strategic acquisitions and expansion into new markets.
Executive Commentary
"Our business has never been stronger or healthier than it is today," stated Ken Zinger, CEO of CES Energy Solutions. CFO Tony Alucino emphasized the company’s focus on profitable growth, saying, "We continue to remain focused on profitable growth."
Risks and Challenges
- Fluctuations in oil and gas prices could impact CES’s revenue and profitability.
- Increased competition in the drilling fluids and production chemicals markets may pressure margins.
- Economic uncertainties and regulatory changes in North America could pose challenges.
Q&A
During the earnings call, analysts inquired about CES’s bidding on significant production chemical contracts and potential market share gains in onshore markets. The company highlighted its focus on lowering customer costs through specialty products and exploring opportunities in gas-focused basins.
Full transcript - CES Energy Solutions Corp (CEU) Q2 2025:
Conference Operator: Good day and welcome to the CES Energy Solutions Second Quarter twenty twenty five Results Conference Call and Webcast. As a reminder, all participants are in a listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Tony Alucino, Executive Vice President and Chief Financial Officer. Please go ahead, sir.
Tony Alucino, Executive Vice President and Chief Financial Officer, CES Energy Solutions: Good morning, everyone, and thank you for attending today’s call. I’d like to note that in our commentary today, there will be forward looking financial information and that our actual results may differ materially from the expected results due to various risk factors and assumptions. These risk factors and assumptions are summarized in our second quarter MD and A and press release dated 08/07/2025, and in our annual information form dated 03/06/2025. In addition, certain financial measures that we will refer to today are not recognized under current general accepted accounting policies. And for a description and definition of these, please see our second quarter MD and A.
At this time, I’d like to turn the call over to Ken Zinger, our President and CEO.
Ken Zinger, President and CEO, CES Energy Solutions: Thank you, Tony, and welcome, everyone, and thank you for joining us on the second quarter twenty twenty five earnings call. On today’s call, I will provide a brief summary of our financial results released yesterday, followed by an update on capital allocation and then our divisional updates for Canada and The U. S. As well as our outlook for the remainder of 2025. I will then pass the call over to Tony to provide the detailed financial update.
We will take questions and then we will wrap up the call. As always, I will start my comments today by highlighting some of the major financial accomplishments we achieved in 2025. These highlights include quarterly revenue of $574,000,000 which was 3.5% higher than 2024 Quarterly EBITDA of $88,300,000 which represented a 15.4% margin. Total debt to trailing twelve months EBITDA was at 1.25 times at the end of Q2 twenty twenty five, which was exactly at the midpoint of our targeted range of one to 1.5 times. Cash conversion cycle days in Q2 of one hundred and twelve days also midpoint of our targeted range of one hundred and ten to one hundred and fifteen days.
All time record quarterly U. S. Revenue of $405,600,000 record revenue for our Q2 in Canada of $168,400,000 I’m pleased to report that as of 07/18/2025, CES completed its stated goal of repurchasing the entire 19,200,000.0 shares allowed under our prior NCIB. For twenty twenty five, twenty twenty six, CES has once again renewed our NCIB for the full 10% of the public float or 18,900,000.0 shares. By way of updating our capital allocation plans, I am pleased to report the following.
Consistent with our prior messaging, we intend to address the dividend once per year in Q4 or Q1 of each year as evidenced by the recent 42.5% increase in dividend per share announced in March 2025. We will continue to support the business with the necessary investments required to provide acceptable growth and returns. This includes anticipated CapEx in 2025 of $80,000,000 We will continue to research and execute on strategic tuck in acquisition opportunities into related business lines or geographies where we believe we can add value and grow returns. We once again intend to fully execute on our current NCIB of 18,900,000.0 shares prior to its expiry in July 2026. We will continue to target a debt level in the one to 1.5 times debt to trailing twelve months EBITDA range.
I will now move on to summarize Q2 performance overall and by division. Today, our rig count on North American land stands at 198 rigs out of the seven zero two listed as running currently, representing an industry leading North American market share of over 28.2%. I want to highlight that this is our highest market share ever. In Q2, 71% of CES revenue was generated in The United States and 29% in Canada. As previously noted, I will highlight again that our U.
S. Revenue for Q2 twenty twenty five set a new all time record as our highest U. S. Revenue quarter ever. In conjunction with this, our Canadian division set a new all time record revenue for our second quarter.
We are very proud of this accomplishment, especially in light of the slowing activity throughout the year to date. As we have been referencing for the past few months, margins in the 2025 were expected to be adversely affected by a variety of headwinds, the most notable being persistent tariff and counter tariffs uncertainty, which has caused significant restructuring of our supply chain as we attempt to purchase and manufacture as much as possible within the same country as it is being sold. Margins are also being affected by our current staffing versus revenue levels as we have been aggressively hiring throughout our production chemical businesses in North American land as well as offshore. These costs are showing up mainly in gross margin as these are mostly field and warehouse staff. We are doing this in order to ensure staffing and supply capability should we win some of the larger tenders that we are currently in the final stages of selection.
We have been told to expect the results of these tenders over the next few months. Then we will get to work to optimize at a headcount as soon as we have certainty on the outcomes. We would expect the financial impact of these opportunities to begin showing up in late Q3 and into Q4 should we be awarded this business. We will provide an update on these opportunities when we report in November. The Canadian Drilling Fluids division continues to lead the WCSB in market share.
Today, are providing service to 67 of the 177 jobs listed as underway in Canada or a 37.8 market share. After a good start in Q1, the active drilling rig count in Canada throughout Q2 and so far in Q3 has been trending consistently lower than in 2024 by approximately 20% year over year. I will also note that our current rig count is only down by about 10% from 2024 versus 20% by the industry. Additionally, due to service intensity and the mix of well types being drilled, our overall Q2 revenue in Canada hit an all time record for Q2. We remain very optimistic about the prospects for 2025 due to the completion and startup of infrastructure projects and their associated takeaway capacity.
Although not immune from low oil prices, the WCSV is still in a very good position to weather any storm should it materialize. And of course, the basin is currently in a great position when it comes to natural gas. PureChem, our Canadian production chemical business continued its run of very strong results in Q2. PureChem continued its impressive growth trajectory as all of the business lines continued to perform at a high level. The revenue and earnings from our primary business, Production Treating, continues to drive growth in Canada as we consistently strive to deliver superior products and service combined with competitive market pricing.
Although we believe there may be a pullback activity in Canada during the 2025, I will point out again that fracking remains an important but small contributor to our overall PureChem revenue. In The United States, AES, our U. S. Drilling fluids group is providing chemistries and service to 131 of the five twenty five rigs listed as active in The USA land market today for a continually widening number one market share of U. S.
Land rigs at 25%. At AES, we truly believe we have a unique structure within the drilling fluid space in North America. We believe we have a superior technical capabilities, procurement teams as well as manufacturing and distribution people and facilities, all of which are laser focused on bringing value to our customers. The number of rigs drilling in The United States is down by 7.5% since we last reported in May and also by 7.5% year over year. However, AES is actually up by four rigs year over year or 3%.
Currently, we enjoyed a basin leading 97 rigs out of the two fifty nine listed as working in the Permian Basin or 37.5% of the market, our highest share in this basin ever. I would also like to note that AES completion services formerly Hydralyte continues to operate at a much higher level than when we acquired them. On June 1, CES Energy Solutions closed a small deal to acquire Fossil Fluids in Oklahoma. Fossil is an impressive niche drilling fluids company that we knew very well. The specialization in the increasingly attractive Cherokee shale hybrid oil and gas play provides us with exposure to yet another growing basin with alignment to the strong trends in the current natural gas environment.
We are very happy to welcome owner Martin Kelly and all the employees of fossil fluids to our team here at CES Energy Solutions. Finally, our JChem Catalyst division continues its trend of growth during the past few years and into 2025. The division is focused on further market penetration in all areas in which they operate. JCAM Catalyst has continued to invest in CapEx and personnel during the first half of the year in order to support its high activity levels and also to support upcoming business opportunities. It is important to note that JCAM’s business like PureChem’s is almost entirely leveraged to production related spending by E and Ps and is therefore not as sensitive to the same activity related uncertainty that upstream revenues can face.
Recent and potential future RFP opportunities along with some recent consolidation in the North American production chemical space have us extremely optimistic about continuing our march toward being the number one provider of production chemistry and service to the entire United States land market. As previously noted, we are already the number one production chemical provider to the Permian Basin and we are now taking steps and hiring specialists in order to become a relevant supplier in the Gulf Of America as well. At this time, I would like to reiterate the confidence we have in the resilience of our business model in the face of the current market uncertainty. Our business is countercyclical and requires minimal CapEx, especially during times of disruption in our industry. Noteworthy as well is that in spite of the pullback in upstream activity, we are still experiencing revenue and opportunity growth in 2025.
Therefore, our current strategy is a cautious focus on maintaining relationships with current clients and continuing to pursue potential new clients and markets. Our goal is to exit this short term activity pullback in an even stronger position than when we entered it. And as history has shown, we have a solid record of achieving a stated goal even through some of the worst financial times for our industry like 02/2009, 2015 and 2020. Obviously, the somewhat sluggish market we are currently experiencing is no comparison to those years named. However, we believe we have tremendous torque in the business right now.
And whenever U. S. Upstream activity inevitably accelerates, we are in a strong position to once again benefit from this recovery. In the meantime, we continue to expect 2025 to be a year of growth with 2026 looking even stronger as the oil market seems headed towards a more positive structure and natural gas demand continues to grow. With regard to USA tariffs and the suggested Canadian counter tariffs, these continue to have little to no direct effect on our business in their current state.
However, we remain committed to the goal of restructuring our manufacturing and supply chains in order to minimize future exposures as much as possible. Where possible, we will manufacture products within the same country in which they are being sold. Although this is a long and complicated process, significant progress has already been made. We will continue with this strategy until we have insulated the business as much as possible from future tariff risks. I will state again for clarity that as noted clearly on our Q1 call, the impact from tariffs announced to date are not material to our overall business.
Finally, I want to comment that our business has never been stronger or healthier than it is today and that we are uniquely positioned to not only weather these current market headwinds, but also to benefit from it as we have in the past. We intend to accomplish this by utilizing our NCIB to strategically repurchase and cancel shares at what we believe is currently an attractive multiple. At the same time, we will also be supporting our current business and customers while keeping a watchful eye out for more tuck in type consolidation wherever we see value. As always, I want to extend my appreciation to each and every one of our employees for their commitment to the business, culture and success of CES. Due to the growth we are still experiencing as well as the growth we anticipate experiencing, we have increased our total number of employees at CES from 2,530 on January 1 to 2,692 at the end of Q2.
Although there may be more uncertainty in the markets today, we continue to position ourselves to provide the same industry leading support to our customers for the business we currently have direct line of sight on. With that, I’ll pass the call to Tony for the financial update.
Tony Alucino, Executive Vice President and Chief Financial Officer, CES Energy Solutions: Thank you, Ken. CES’ financial results set a new second quarter record for revenue and demonstrated a continuation of strong adjusted EBITDAC, funds flow from operations and high quality earnings despite typical Q2 seasonality, lower rig count and WTI price related end market volatility. These results underpin the unique resilience of CS’ consumable chemicals business model as our customers continue to adopt chemical related improved efficiencies and require higher treatment levels for increasingly prolific wells. CES continued to effectively deploy strong surplus cash flow to return capital to shareholders while investing in strategic CapEx, accretive tuck in M and A and working capital levels to support our current revenue run rate and position the company for identified growth opportunities. In Q2, CES generated revenue of $574,000,000 representing an annualized run rate level of approximately 2,300,000,000.0 and a 4% increase over the prior year’s CAD $553,000,000.
Revenue generated in The U. S. Set a new all time record and came in at CAD $4.00 6,000,000 and represented 71% of total revenue compared to CAD402 million in Q1 twenty twenty five and represented an increase of 4% over prior year revenue of CAD391 million. Revenue generated in Canada set a second quarter record at $168,000,000 compared to $230,000,000 in Q1 and was 4% ahead of $162,000,000 generated a year ago. Elevated service intensity and production chemical volumes continued in the quarter, driven by increasingly complex drilling programs.
Customer emphasis on optimizing production through effective chemical treatments benefited both countries and countered declines in rig counts and the depreciating U. S. Dollar illustrating again the resilience of our business model. Adjusted EBITDAC in Q2 came in at CAD 88,300,000.0 compared to CAD 99,900,000.0 in Q1 and CAD 95,400,000.0 in Q2 twenty twenty four. Q2’s adjusted EBITDAC margin of 15.4% came in near the low end of our targeted 15.5% to 16.5 range as was expected and communicated compared to prior year and prior quarter margins of 17.315.8% respectively.
This margin reflected investments in key personnel to support new business initiatives that Ken went through, variations in product mix and impact of wildfires in Canadian operations and some temporary pricing softness during the quarter when WTI dipped into the 50s. Including investments in working capital, CS generated CAD66 million in cash flow from operations in the quarter compared to CAD60 million in Q1 and CAD83 million in Q2 twenty twenty four. The decrease in cash flow from operations year over year was driven by an increase in working capital requirements to support record revenue levels, offset by very strong funds flow from operations. Absent the significant swing in FX rates, Q2 would have experienced our typical harvest versus the CAD10 million increase in working capital. Funds flow from operations, which isolates the effect of working capital fluctuations, was CAD77 million in Q2 compared to CAD78 million in Q1 and $62,000,000 in Q2 twenty twenty four.
The improvements compared to the prior year were driven by strong financial performance on higher associated activity levels. Free cash flow was $35,000,000 for Q2 compared to $26,000,000 in Q1 and $55,000,000 in Q2 twenty twenty four. As measured by a free cash flow to adjusted EBITDAC conversion rate, This equates to approximately 40% in the current quarter. The year over year decrease in free cash flow was primarily driven by higher investments in working capital to support these record revenue levels. CES maintained a prudent approach to capital spending through the quarter with CapEx spend net of disposals of CAD20 million, representing three percent of revenue.
We will continue to adjust plans as required to support existing business and attractive growth through our divisions. For 2025, we continue to expect cash CapEx to be approximately CAD80 million split evenly between maintenance and expansion capital to support incremental accretive business development opportunities and current revenue levels, while we retain the flexibility to alter spending levels commensurate with the changes in end markets and required support levels. During the quarter, we continued to be active in our NCIB program, purchasing 4,800,000.0 common shares at an average price of $6.36 per share for a total cash outlay of $31,300,000 representing 2.2% of outstanding shares at 04/01/2025. Subsequent to the quarter, we completed the NCIB program by repurchasing the remaining 1,100,000.0 shares at an average price of $7.18 per share for a total of $7,700,000 thereby purchasing the full 19,200,000.0 shares, representing 10% of our public float as at 07/09/2024 at an average price of $7.46 per share. On 07/22/2025, we renewed the previous NCIB to repurchase for cancellation up to 18,900,000.0 shares, representing 10% of the public float at the time of renewal.
Since the inception of the NCIB program in 2018, CES has repurchased 78,000,000 shares, representing 29% of the outstanding shares at that time at an average price of $3.82 per share. We ended the quarter with $491,000,000 in total debt, representing an increase of $22,000,000 from the prior quarter and $38,000,000 from 12/31/2024. Total debt is primarily comprised of $200,000,000 in senior notes, a net draw on the senior facility of $177,000,000 and $97,000,000 in lease obligations. Total debt to adjusted EBITDAC of 1.25 times at the end of the quarter compared to 1.17 times at March 31 and one point one two times at 12/31/2024, demonstrating our continued commitment to maintaining prudent leverage levels in the one to 1.5 times range. This prudent capital structure is further illustrated by our current net draw of $168,000,000 which has decreased by $9,000,000 from the end of the quarter.
During the quarter, we closed the amendment and extension of our senior facility, which included an increase to the Canadian facility by CAD100 million for a total facility size of approximately CAD550 million. The new deal provides improved pricing, right sized definitions and negative covenants and an extended term out to November 2028. This amendment in conjunction with last year’s issuance of senior notes due May 2029 leaves CES with no near term maturities. The upsized credit facility and improved terms are consistent with the increased size, scale and credit profile of CES. The new credit facility provides ample liquidity, optionality on return of capital opportunities and flexibility to repay and refinance the senior notes on our own schedule on suitable terms over the coming years.
We are very comfortable with our current debt level, maturity schedule and leverage in the one to 1.5 times range, thereby enabling strong return of capital to shareholders and prioritizing a sustainable dividend and share buybacks in addition to strategic tuck in acquisition opportunities. During the quarter, we closed the tuck in acquisition of Fossil Fluids, which incurred an upfront cash outlay of $7,000,000 to be followed by an EBITDA driven earn out over the next three years. Under Martin Kelly’s partnership with AES and CES, Fossil Fluids is already realizing results above our expectations, underscoring the accretive nature of selective M and A in this environment. We have experienced the same accretive contributions from the acquisition of Hydralyte in July 2024, where Blake Linarood’s leadership and partnership is providing stronger results than originally estimated. Our continued focus on working capital optimization has led to maintaining improvements in cash conversion cycle, which ended the quarter at one hundred and twelve days compared to one hundred and eleven a year ago.
This translates to an operating and working capital as a percentage of annualized quarterly revenue of 29.7% at the lower end of the historical range of the 30% to 35%. Each percentage improvement at these revenue levels represents approximately 23,000,000 on our balance sheet. We continue to remain focused on profitable growth, acceptable margins, working capital optimization and prudent capital expenditures, which collectively drive our key metric of return on average capital employed. This approach has led to a cultural adoption of these key factors, allowing us to maintain a strong trailing twelve month return on average capital employed of 22%. As demonstrated through our results, CS is bigger, stronger and more resilient than ever before, enabling strong surplus free cash flow generation in the current environment, providing valuable optionality for business strategy and return of capital options.
At this time, I’d like to turn the call back to the operator to allow for questions.
Conference Operator: Thank
Ken Zinger, President and CEO, CES Energy Solutions: you.
Conference Operator: And our first question today will come from John Gibson with BMO Capital Markets. Please go ahead.
Tony Alucino, Executive Vice President and Chief Financial Officer, CES Energy Solutions: Hey, morning, John.
John Gibson, Analyst, BMO Capital Markets: Good morning, all. Thanks for taking my questions. Just kind of wondering if you could elaborate on the projects you’re bidding on a preamble. Are these production chemicals jobs? I’m assuming it can mean for that they would be potential market share gains against your competitors?
Ken Zinger, President and CEO, CES Energy Solutions: Yes, they are, John. It’s Ken, sorry. The RFP pipeline is pretty full right now. And the unique thing about what’s going on right now is there’s some bigger companies running tenders that we historically have not had an opportunity to bid on. So they’re kind of business that’s been long term and excluded from us.
More sophisticated and it requires having people on staff to be able to list in resumes as being the ones who will service the actual work. So it’s led to us having to hire, we’re running pretty loose right now with a lot more staff than we would normally be carrying because we believe we are in a really good spot to win some of these bids. The beauty of the overall tender picture right now is that the bids we’re looking at, almost none of them are existing business of ours, probably 75% of them are places where we’re not actually at risk of losing. We only have the upside up to gain. And they are significant.
They are market share gain type things and revenue gaining.
Tony Alucino, Executive Vice President and Chief Financial Officer, CES Energy Solutions: John, we’ve talked about the progression of The U. S. Production chemical business before. Like according to third party guys like Kimberley, that business has grown from 17% market share to 21% market share over the last couple of years. And that was without some of these larger opportunities that we weren’t able to bid for in the past.
So just like we did for AES five years ago when they were at 15 market share, 16% market share, and they’re now at 25%. We’re going to continue to fuel that potential growth.
John Gibson, Analyst, BMO Capital Markets: Okay. Appreciate that. Would these be onshore or potential offshore bids that
Conference Operator: you’re
Tony Alucino, Executive Vice President and Chief Financial Officer, CES Energy Solutions: looking It’s all onshore.
Conference Operator: Okay.
Ken Zinger, President and CEO, CES Energy Solutions: And I’ll throw in that PureChem is also seeing the same sort of thing with some unique opportunities on some heavy oil stuff that we haven’t participated in the past. So in the production chemical business, that’s kind of how we have to judge where we’re going in the rig count rig business obviously you have rig counts to keep close cut tabs on where you’re at market share wise. But in the production chemical side it’s kind of a very opportune time right now.
John Gibson, Analyst, BMO Capital Markets: Yes, I appreciate that. And last one for me. Can you talk about pricing in drilling fluids? Obviously, you’ve given some factor in prior downturns, which makes sense. Just wondering what magnitude you’re seeing this time around, if any?
Ken Zinger, President and CEO, CES Energy Solutions: Yes, we’re working with customers. I mean, where it’s possible and where we have the ability, we’re finding ways to help them, prefer to do it with locking in pricing and things like that. So far, unlike in 2014 when everybody had kind of elevated margins and pricing, the last seven, eight years in oil and gas have been pretty tight. Everybody’s been on tenders and bids and everyone’s got a procurement department now. So there isn’t a lot of room to give a whole bunch back.
But definitely as things get more competitive, you’ve got to find ways to bring value and we do that through specialty products, ways we can lower overall cost versus individual product prices and things like walking pricing in spite of risk around tariffs and stuff. And then we just have to adapt our supply chain to ensure it ourselves.
John Gibson, Analyst, BMO Capital Markets: Okay. I appreciate all that. Congrats on a good quarter in difficult market year. I’ll turn it back.
Conference Operator: Our next question will come from John Daniel with Daniel Energy Partners. Please go ahead.
John Daniel, Analyst, Daniel Energy Partners: Thank you. Thanks for including me. This might be one of the dumber operational questions, so apologies. But when you guys buy a business such as the fossil business and have a chance to look at their chemistry, if you will, how often do you find that they’re doing something different or perhaps better than what you have? Or alternatively, do you buy the business and quickly deploy your product and stop selling theirs?
Just some color would be helpful.
Ken Zinger, President and CEO, CES Energy Solutions: Sure. Yes. In the case of Hydralyte, it was a different business So we learned a lot from those guys. In the case of Fossil, we knew them really well, like they were using a wholesaler in their market and the wells they’re doing are wells that we’re competing with next door. So I mean, we didn’t I wouldn’t say we actually picked up any technology.
We picked up access to a unique LCM that they use that has a strong reputation So and gets used a lot in that we did get some value out of that. But primarily, what we can do is just lower their overall cost of goods and then start learning from the work they’re doing to see what we can bring to the table for technology ourselves.
John Daniel, Analyst, Daniel Energy Partners: Okay. Do they typically like I mean, this is a relatively small transaction, but is there any new customer mix that they bring to bear or no?
Ken Zinger, President and CEO, CES Energy Solutions: Yes, for sure. They have they’re strong with one of the big operators in The U. S. And that does play into it. Obviously, we weren’t doing any work for them in Oklahoma.
So now we are.
John Daniel, Analyst, Daniel Energy Partners: Okay. That’s all I have. Thanks for humoring me with that question.
Ken Zinger, President and CEO, CES Energy Solutions: You bet. Thanks,
Conference Operator: And our next question will come from Jonathan Goldman with Scotiabank. Please go ahead.
Jonathan Goldman, Analyst, Scotiabank: Hi, good morning guys. Thanks for taking my questions. Really nice quarter. I was wondering if you can maybe help us parse out the different takes on the margins in the quarter. How much did the fires and the tariffs and the supply chain restructuring and also the front running investments in headcount act as a drag on margins?
Tony Alucino, Executive Vice President and Chief Financial Officer, CES Energy Solutions: Yes. It’s like we’re for obvious reasons, we’re not going to isolate each of those. But I would say combined, we had two things happening in Q2. One is the typical seasonality that you see in Q2 because of our Canadian operations that this quarter represented about 30% of overall revenue. And then some of those unique attributes that you mentioned would have probably been in the 30 basis points range.
And that would be on top of the typical seasonality effect that we have.
Ken Zinger, President and CEO, CES Energy Solutions: And I’ll throw in that the biggest factor was the overhead to staffing.
Jonathan Goldman, Analyst, Scotiabank: Definitely. And obviously, people can see the rationale behind that. And then maybe just thinking, and I know I want to minimize what you guys have accomplished already in terms of market share in The U. S, but maybe you can help us think about what’s driving the share gains? And is there an upper limit at this point?
Or do you see a continued runway to take share?
Ken Zinger, President and CEO, CES Energy Solutions: We still see a continued runway. I mean, we’ve been we’ve still been taking market share in the Permian Basin. I think we’re unique there in our supply chain and in our infrastructure that we can provide to customers, gives us a big advantage on top of the technology and service intensity improvements we can make for them with some chemicals and some chemistry. But the reason we have room to move in The U. S.
Primarily is because of all the other basins. So even though we’re inching up in the Permian now, we’re not doing it leaps and bounds anymore, but we’re getting more and more. But we’re focused on the Haynesville. We’re focused on the Cherokee Shale. We’re focused on the Northeast.
One of our big customers just did an acquisition up there and we’ve got a handful of rigs that are going to come out of that. And those are really good jobs as well. So we’re in the past, we’ve kind of left the gas market alone because we our focus was on Permian and oil and South Texas and oil. Now that there seems to be an appetite for gas and there seems to be egress for gas, we’re definitely putting more emphasis on those plays and that’s where the growth will come from primarily. And there’s lots of room to grow.
You look at Haynesville today, we’re at four rigs out of 40. So we’re at a 10% market share. We get a lot of room to grow there. And I’ll also point out that when gas is strong that reservoir or that area has typically run more like 80 rigs. So not only can we go up in share, but the rig count can double.
Tony Alucino, Executive Vice President and Chief Financial Officer, CES Energy Solutions: The other thing that we noticed over the years was the natural alignment with the secular trends that we’re seeing in the industry with our customers getting bigger and combining. And ten years ago, five years ago, we did way less work with the bigger companies. And now, and we have this in our investor presentation, if you look at the revenue that we get from public companies, customers, which is the vast majority of our customers, about 70% of that revenue comes from companies with market caps of $10,000,000,000 to $700,000,000,000 So naturally, as these guys continue to grow and they do M and A and they buy players with basins that are underdeveloped and we continue to do a good job with those companies, we’re going to continue to grow as well with them. And that’s also an indirect way that we’ve been growing that market share. I think everybody would agree that those trends are going to continue.
And if that’s true, those examples that Ken gave earlier about some of the bigger company business opportunities that we’re looking at, that should further support market share growth going forward.
Jonathan Goldman, Analyst, Scotiabank: No, that’s really good color. I’ll get back in queue. Thanks for the time guys.
Conference Operator: And this will conclude our question and answer session. I’d like to turn the conference back over to Ken Zinger for any closing remarks.
Tony Alucino, Executive Vice President and Chief Financial Officer, CES Energy Solutions: So we’re in Ken may have just dropped. Sorry. On behalf of the Thank you. Yes, go ahead, Ken.
Ken Zinger, President and CEO, CES Energy Solutions: Sorry, I was on mute. I didn’t realize that. Thank you to everyone who took the time to join us here today. We appreciate it. We look forward to speaking with you all again during our Q3 update on November 14.
Thanks.
Conference Operator: This brings a close to today’s conference call. You may disconnect your lines at this time and thank you for participating and have a nice day.
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