CES Energy Solutions (CEU) 2024年年度報告「TSX」.pdf

《CES Energy Solutions (CEU) 2024年年度報告「TSX」.pdf》由會員分享，可在線閱讀，更多相關《CES Energy Solutions (CEU) 2024年年度報告「TSX」.pdf（66頁珍藏版）》請在三個皮匠報告上搜索。

1、MANAGEMENTS DISCUSSION AND ANALYSISThe following managements discussion and analysis(MD&A)of the financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto of CES Energy Solutions Corp.(CES or the Company)for years ended D

2、ecember 31,2024,and 2023,and CES 2024 Annual Information Form.Readers should also refer to the Forward-looking Information&Statements legal advisory and the sections regarding Non-GAAP Measures and Other Financial Measures and Operational Definitions at the end of this MD&A.This MD&A is dated March

3、6,2025,and incorporates all relevant Company information to that date.Amounts are stated in Canadian dollars unless otherwise noted.USE OF NON-GAAP MEASURES AND OTHER FINANCIAL MEASURESThis MD&A contains certain financial measures that are not recognized by Canadian generally accepted accounting pri

4、nciples(GAAP),and which are used by Management to evaluate CES financial performance,financial position and cash flow.These non-GAAP measures and other financial measures do not have a standardized meaning prescribed under IFRS Accounting Standards as issued by the International Accounting Standards

5、 Board(IASB),and therefore may not be comparable to similar measures presented by other entities.Securities regulations require that non-GAAP financial measures are clearly defined,qualified and reconciled with their most closely comparable GAAP measure.Please refer to the section titled Non-GAAP Me

6、asures and Other Financial Measures for further information on the definition,calculation and reconciliation of the non-GAAP measures and other financial measures contained in this MD&A.BUSINESS OF CESCES is a leading provider of technically advanced consumable chemical solutions throughout the life

7、-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,sur

8、factants,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 ba

9、sins 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

10、names AES Drilling Fluids(AES),AES Completion Services,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,CES Completion Services,PureChem Services(PureChem),StimWrx E

11、nergy(StimWrx),Sialco Materials(Sialco),and Clear Environmental Solutions(Clear).CES continues to invest in research and development of new technologies and in the top-end scientific talent that can develop and refine these technologies.CES operates 13 separate lab facilities across North America:tw

12、o in Houston,Texas;one in each of Midland,Texas;Gardendale,Texas;Sterling,Kansas;Casper,Wyoming;Roosevelt,Utah;Dickinson,North Dakota,Johnstown,Colorado;Calgary,Alberta;Grande Prairie,Alberta;Carlyle,Saskatchewan;and Delta,British Columbia.In the US,CES main chemical manufacturing and reacting facil

13、ity is located in Sterling,Kansas with additional low temperature reacting and chemical blending capabilities just outside of Midland,Texas and chemical blending capabilities in Sonora,Texas.In Canada,CES has a chemical manufacturing and reacting facility located in Delta,British Columbia with addit

14、ional chemical blending capabilities located in Carlyle,Saskatchewan;Nisku,Alberta;and Grande Prairie,Alberta.CES also leverages third party partner relationships to drive innovation in the consumable fluids and chemicals business.2024 Annual Report 1FINANCIAL HIGHLIGHTSThree Months Ended December 3

15、1,Year Ended December 31,20242023%Change20242023%ChangeRevenueUnited States(1)390,203 361,091 8%1,571,433 1,466,990 7%Canada(1)215,181 192,366 12%782,244 696,522 12%Total Revenue605,384 553,457 9%2,353,677 2,163,512 9%Net income41,855 49,187 (15)%191,106 154,642 24%per share basic 0.18 0.21 (14)%0.8

16、2 0.62 32%per share-diluted0.18 0.20 (10)%0.81 0.61 33%Adjusted EBITDAC(2)103,174 84,607 22%403,190 315,821 28%Adjusted EBITDAC(2)%of Revenue 17.0%15.3%1.7%17.1%14.6%2.5%Funds Flow from Operations(2)68,774 68,180 1%293,009 251,651 16%Change in non-cash working capital(6,543)(28,888)(77)%11,655 50,12

17、8 (77)%Cash provided by(used in)operating activities62,231 39,292 58%304,664 301,779 1%Free Cash Flow(2)34,648 15,230 128%186,932 211,584 (12)%Capital expendituresExpansion Capital(1)15,155 16,541 (8)%68,078 55,835 22%Maintenance Capital(1)5,818 2,345 148%22,918 17,575 30%Total capital expenditures2

18、0,973 18,886 11%90,996 73,410 24%Dividends declared6,760 5,901 15%27,738 23,337 19%per share 0.030 0.025 20%0.120 0.095 26%Common Shares OutstandingEnd of period-basic 225,329,085 236,042,566 225,329,085236,042,566End of period-fully diluted(2)228,948,223 241,385,242 228,948,223241,385,242Weighted a

19、verage-basic 226,704,896 239,160,013 232,341,309249,108,042Weighted average-diluted 230,379,790 244,555,366 236,577,679254,909,191As atFinancial PositionDecember 31,2024September 30,2024%ChangeDecember 31,2023%Change Total assets1,539,331 1,473,994 4%1,377,265 12%Total long-term debt344,888 332,999

20、4%390,616 (12)%Long-term financial liabilities(3)412,608 399,630 3%419,416 (2)%Total Debt(2)452,588 439,334 3%469,619 (4)%Working Capital Surplus(2)681,085 633,262 8%632,764 8%Net Debt(2)(228,497)(193,928)18%(163,145)40%Shareholders equity814,230 746,309 9%657,995 24%CES Energy Solutions Corp.Manage

21、ments Discussion and AnalysisThree and Twelve Months Ended December 31,2024(stated in thousands of Canadian dollars,except for share counts,per share amounts and operational metrics)1Supplementary Financial Measure.Supplementary Financial Measures are provided in this MD&A because Management believe

22、s they assist the reader in understanding CES results.Refer to the section entitled Non-GAAP Measures and Other Financial Measures contained within this MD&A.2Non-GAAP measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by

23、other entities.The most directly comparable GAAP measure for Adjusted EBITDAC is Net income,for Funds Flow from Operations is Cash provided by(used in)operating activities,for Shares Outstanding,End of period-fully diluted is Common Shares outstanding,and for Total Debt,Net Debt,and Working Capital

24、Surplus is Long-term financial liabilities.Refer to the section entitled Non-GAAP Measures and Other Financial Measures contained within this MD&A.3Includes long-term portion of the Senior Facility,the Senior Notes,the Canadian Term Loan Facility,lease obligations,deferred acquisition consideration,

25、and long-term portion of cash settled incentive obligations.2024 Annual Report 2Highlights for the three and twelve months ended December 31,2024,in comparison to the three and twelve months ended December 31,2023,for CES are as follows:Revenue:In the fourth quarter,CES generated revenue of$605.4 mi

26、llion,representing a sequential decrease of$1.1 million fromthe record quarterly revenue set in Q3 2024,and an increase of$51.9 million or 9%compared to$553.5 million in Q4 2023.Forthe twelve months ended December 31,2024,CES generated revenue of$2.4 billion,an increase of$190.2 million or 9%relativ

27、eto the year ended December 31,2023.Increasing service intensity levels,higher industry rig counts in Canada,and strong marketshare positions,resulted in an overall uptick in revenue compared to prior year,despite softening industry rig counts in the US.Revenue-US:Revenue generated in the US during

28、Q4 2024 was$390.2 million,representing a sequential decrease of$12.4 million or 3%compared to Q3 2024,and an increase of$29.1 million or 8%compared to Q4 2023.For the twelvemonths ended December 31,2024,revenue generated in the US was up 7%to$1.6 billion relative to the twelve monthsended December 3

29、1,2023.US revenues for both the three and twelve month periods benefited from higher productionlevels and increased service intensity,which more than offset the impact of decreased industry drilling activity.CEScontinued to maintain its strong industry positioning,achieving US Drilling Fluids Market

30、 Share of 21%and 22%for thethree and twelve months ended December 31,2024,respectively,compared to 22%and 21%for the three and twelvemonths ended December 31,2023,respectively.Revenue-Canada:Revenue generated in Canada during Q4 2024 set a new quarterly record at$215.2 million,representing a sequent

31、ial increase of$11.3 million or 6%compared to Q3 2024,and an increase of$22.8 million or 12%compared to Q4 2023.For the twelve months ended December 31,2024,revenue generated in Canada was up 12%to$782.2 million relative to the twelve months ended December 31,2023.Canadian revenues for both the thre

32、e and twelvemonth periods benefited from higher industry activity and production chemical volumes year over year.CanadianDrilling Fluids Market Share of 36%and 34%for the three and twelve months ended December 31,2024,respectively,compared to 33%and 34%for the three and twelve months ended December

33、31,2023,respectively.Adjusted EBITDAC:Adjusted EBITDAC set a quarterly record at$103.2 million,representing a sequential increase of 1%compared to Q3 2024,and an increase of 22%compared to Q4 2023.Adjusted EBITDAC as a percentage of revenue of 17.0%inQ4 2024 came in ahead of 16.9%and 15.3%recorded i

34、n Q3 2024 and Q4 2023,respectively.For the twelve months endedDecember 31,2024,Adjusted EBITDAC was up 28%to a record$403.2 million from$315.8 million in 2023,and AdjustedEBITDAC as a percentage of revenue increased to 17.1%from 14.6%a year ago.Adjusted EBITDAC improvements for both thethree and twe

35、lve month periods were driven by strong revenue levels combined with improved margins,resulting from increasedservice intensity,an attractive product mix,effective supply chain management,and continued adoption of innovative,technologically advanced products,supported by a prudent cost structure and

36、 vertically integrated business model.Net Income:Net income for the three months ended December 31,2024,decreased 15%to$41.9 million and net income for thetwelve months ended December 31,2024,increased 24%to$191.1 million relative to the comparative 2023 periods.Both thethree and twelve month period

37、s benefited from strong activity levels combined with improved margins and prudent managementof expenses,partly offset by increased foreign exchange losses associated with the appreciation of the US dollar,which was morepronounced in Q4 2024,and higher stock based compensation expenses relating to t

38、he appreciation of the Companys share priceon associated cash-settled awards throughout the year.Shareholder Returns:During the quarter,CES returned$44.6 million to shareholders(Q4 2023-$25.1 million),through$37.7million in shares repurchased under its NCIB and its quarterly dividend of$6.9 million(

39、2023-$19.1 million and$6.0 million,respectively).For the twelve months ended December 31,2024,CES returned$128.4 million to shareholders(2023-$93.5million),through$101.5 million in share repurchases under its NCIB and$26.9 million in dividends paid(2023-$70.9 millionand$22.5 million,respectively).Ca

40、sh Flow From Operations:For Q4 2024,net cash provided by operating activities totaled$62.2 million compared to$39.3million during the three months ended December 31,2023.For the twelve months ended December 31,2024,net cash providedby operating activities of$304.7 million compared to$301.8 million f

41、or the twelve months ended December 31,2023.Theincreases in net cash provided by operating activities for both the three and twelve month periods were driven by strong financialperformance with higher contribution margins on associated activity levels relative to the comparative reference periods.CE

42、S Energy Solutions Corp.Managements Discussion and AnalysisThree and Twelve Months Ended December 31,2024(stated in thousands of Canadian dollars,except for share counts,per share amounts and operational metrics)2024 Annual Report 3Funds Flow from Operations:CES generated$68.8 million in Funds Flow

43、from Operations in Q4 2024,compared to$88.5million generated in Q3 2024 and$68.2 million generated in Q4 2023.For the twelve months ended December 31,2024,CESgenerated$293.0 million of Funds Flow from Operations compared to$251.7 million in 2023.Funds Flow from Operationsexcludes the impact of worki

44、ng capital,and is reflective of the continued strong surplus free cash flow generated in 2024.Free Cash Flow:CES generated$34.6 million in Free Cash Flow in Q4 2024,compared to$40.1 million generated in Q3 2024,and$15.2 million generated in Q4 2023.The increase in Q4 2024 was driven by strong financ

45、ial performance with highercontributions margins on associated activity levels,relative to the comparable period in 2023.For the twelve months endedDecember 31,2024,CES generated$186.9 million of Free Cash Flow compared to$211.6 million in 2023.The decrease for thetwelve months ended December 31,202

46、4,was driven by larger required capital expenditures to support record revenue levels,relative to 2023.Free Cash Flow includes the impact of quarterly working capital variations,net of capital expenditures and leaserepayments.Working Capital Surplus:As at December 31,2024,CES had a Working Capital S

47、urplus of$681.1 million,which increasedfrom$633.3 million at September 30,2024,and$632.8 million as at December 31,2023.The movement during the three andtwelve months ended December 31,2024,was primarily driven by a rapid appreciation of the US dollar which resulted inincreases to working capital on

48、 the revaluation of balances held in the Companys US subsidiaries.Excluding the impact offoreign exchange rates,the movement in the quarter was driven by increases to inventory and accounts receivable to support theyear over year increases in activity levels.The Company continues to focus on working

49、 capital optimization benefiting from thehigh quality of its customers and diligent internal credit monitoring processes.Total Debt:As at December 31,2024,CES had Total Debt of$452.6 million compared to$469.6 million at December 31,2023.Included in Total Debt at December 31,2024,is the Senior Facili

50、ty of$148.8 million(December 31,2023-$140.6 million),$200.0 million of Senior Notes,which replaced the previously outstanding Canadian Term Loan for$250.0 million,and leaseobligations of$91.9 million(December 31,2023-$73.1 million).The decrease in Total Debt during the year was driven by therepaymen

51、t of the Canadian Term Loan using the proceeds from the Senior Notes issuance,resulting in a permanent reduction inthe Companys fixed term debt,and the continued strong financial performance and ongoing efforts to optimize working capitalcycles.These benefits were partly offset by increased levels o

52、f lease obligations and deferred acquisition consideration associatedwith the acquisition of Hydrolite.Net Debt:Working Capital Surplus exceeded Total Debt at December 31,2024,by$228.5 million(December 31,2023-$163.1million).As of the date of this MD&A,the Company had total long-term debt of approxi

53、mately$360.0 million,comprised of anet draw on its Senior Facility of approximately$160.0 million and its outstanding$200.0 million Senior Notes due May 24,2029.Strategic Acquisition:On July 1,2024,CES closed the acquisition of all of the business assets of Hydrolite Operating LLC.(Hydrolite).Hydrol

54、ite provides comprehensive completion fluids solutions,including advanced mixing plant services,onsitesolids processing,and wholesale chemicals and kill mud,with a focus on servicing the Permian basin.Operating as AESCompletion Services,the acquisition augments the full-cycle service offerings of th

55、e Companys operations by providing solutionsbetween the drilling and production phases and will be enhanced by CES advanced technology and supply chain capabilities,extensive customer reach in its North American platform,and vertically integrated business model.The aggregate purchase pricewas$15.0 m

56、illion consisting of$10.2 million in cash consideration and$4.8 million in deferred consideration,which is payable incash as an earn-out upon achieving certain EBITDA thresholds over a twenty-four month period post close.CES Energy Solutions Corp.Managements Discussion and AnalysisThree and Twelve M

57、onths Ended December 31,2024(stated in thousands of Canadian dollars,except for share counts,per share amounts and operational metrics)2024 Annual Report 4OUTLOOK The demand trends of developing countries and global demand requirements to support eventual energy transition initiatives,combined with

58、depletion of existing resources,reduced investment in the upstream oil and gas sector over recent years,and diminished available inventory quality has necessitated increased service intensity for available resources thereby resulting in continued constructive end markets for CES services which enhan

59、ce drilling and production performance.This constructive environment supports a favorable outlook for CES primary North American target market.Despite economic uncertainty and ongoing global conflicts,energy industry fundamentals continue to support critical drilling and production activity for oil

60、and natural gas.Moreover,current depressed global inventories and fewer high-quality drilling locations provide cautious optimism for suitable pricing,despite potential economic headwinds and geopolitical instability impacting customer spending plans.Currently,oil prices are sustained by increasing

61、global demand and limited supply growth and while natural gas has demonstrated price weakness since early 2023,we anticipate a sustained period of elevated gas drilling activity in the US and Canada as projects under construction come online.While the current political landscape and potential impact

62、 of recently imposed tariffs in both the US and Canada continues to generate uncertainty,including within the energy sector,CES business model provides relative protection due to its significant proportion of revenue derived in the US versus Canada,its vertically integrated business models in both c

63、ountries,and flexible supply chain capabilities.CES continues to be optimistic in its outlook for the next year as it expects to benefit from stable upstream activity,increased service intensity levels,adoption of advanced critical chemical solutions,and continued strength in commodity pricing acros

64、s 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 2025 capital expenditures,net of proceeds on disposals of assets,to be a

65、pproximately$80.0 million,evenly weighted between maintenance and expansion capital to support sustained 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 prudent

66、growth initiatives throughout divisions.CES has proactively managed both the duration and the flexibility of its debt.In May 2024,CES successfully issued$200.0 million of Senior Notes due May 24,2029.The net proceeds from the issuance of the Senior Notes,together with draws on the Companys Senior Fa

67、cility were used to repay the$250.0 million secured Canadian Term Loan Facility on more attractive terms,and provided maturity extension to 2029.This further strengthens the Companys capital structure and reduces the cost of capital alongside its previously amended and extended Senior Facility due A

68、pril 2026.The combination of the Senior Notes and the Senior Facility effectively addresses CES near-term and foreseeable longer-term requirements.CES routinely considers its capital structure,including increasing or decreasing the capacity of its Senior Facility,issuance or redemption of Senior Not

69、es,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,bus

70、iness 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

71、 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.CES Energy Solutions Corp.Managements

72、Discussion and AnalysisThree and Twelve Months Ended December 31,2024(stated in thousands of Canadian dollars,except for share counts,per share amounts and operational metrics)2024 Annual Report 5RESULTS FOR THE PERIODS Revenue and Operating ActivitiesGeographical revenue information relating to the

73、 Companys activities and key operating metrics are as follows:RevenueThree Months Ended December 31,Year Ended December 31,20242023%Change20242023%ChangeUnited States(1)390,203 361,091 8%1,571,433 1,466,990 7%Canada(1)215,181 192,366 12%782,244 696,522 12%605,384 553,457 9%2,353,677 2,163,512 9%Top

74、five customers as a%of total revenue(1)27%28%(1)%27%27%Top customer as a%of total revenue(1)9%9%9%9%1Supplementary Financial Measure.Supplementary Financial Measures are provided in this MD&A because Management believes they assist the reader in understanding CES results.Refer to Non-GAAP Measures a

75、nd Other Financial Measures for further detail.Key Operating MetricsThree Months Ended December 31,Year Ended December 31,20242023%Change20242023%ChangeUS34,851 31,913 9%33,650 30,391 11%Canada10,067 8,752 15%9,259 7,641 21%Total Treatment Points(1)44,918 40,665 10%42,909 38,032 13%US11,169 12,340 (

76、9)%46,865 51,087 (8)%Canada6,816 5,908 15%24,935 23,780 5%Total Operating Days(1)17,985 18,248 (1)%71,800 74,867 (4)%US121 134 (10)%129 140 (8)%Canada74 64 16%68 65 5%Total Average Rig Count(1)195 198 (2)%197 205 (4)%US industry rig count(2)569 601 (5)%580 670 (13)%Canadian industry rig count(3)205

77、193 6%200 189 6%US DF Market Share(1)21%22%(1)%22%21%1%Canadian DF Market Share(1)36%33%3%34%34%1Refer to Operational Definitions for further detail.2Based on the monthly average of Baker Hughes published weekly land data for the United States in the referenced period.3Based on the monthly average o

78、f CAODC published weekly data for Western Canada in the referenced period.Revenue in the US for both the three and twelve months ended December 31,2024,benefited from higher production levels and increased service intensity,despite a slowdown in drilling activity year over year driven by continued c

79、apital discipline by producers and consolidation of customers.CES US average rig count decreased by 10%in Q4 2024 compared Q4 2023,and despite the larger industry decline for the twelve month comparative period,only decreased by 8%year over year,illustrating CES presence in attractive markets and fa

80、vorable customer exposure.CES was able to participate in this drilling environment with US DF Market Share of 21%and 22%for the three and twelve months ended December 31,2024,respectively,compared with 22%and 21%,respectively,for the three and twelve months ended December 31,2023.The US production c

81、hemicals business saw an increase in sales in the three and twelve months ended December 31,2024,relative to the 2023 comparative periods,as actual volumes continued to increase,leading to higher contributions following 9%and 11%increases in treatment points,respectively,as compared to the prior per

82、iods in 2023.CES Energy Solutions Corp.Managements Discussion and AnalysisThree and Twelve Months Ended December 31,2024(stated in thousands of Canadian dollars,except for share counts,per share amounts and operational metrics)2024 Annual Report 6Revenue in Canada set an all-time quarterly record at

83、$215.2 million,surpassing the previous high of$203.9 million in Q3 2024.Canadian revenues for both the three and twelve month periods benefited from higher industry activity and production chemical volumes year over year.The Canadian industry rig count increased by 6%for both the three and twelve mo

84、nth periods in 2024 from the comparable periods in 2023,as drilling activity was constructive year over year.CES Canadian average rig count increased by 16%in Q4 2024 relative to Q4 2023,and by 5%for the twelve months ended December 31,2024,for a resulting Canadian Drilling Fluids Market Share of 36

85、%and 34%,respectively,compared with 33%and 34%,respectively,for the comparative 2023 periods.Canadian Treatment Points for the three and twelve months ended December 31,2024,increased by 15%and 21%,respectively,relative to 2023,with increased production volumes and associated production related chem

86、ical sales year over year.Although absolute Treatment Points are a guiding indicator of activity levels for the production chemical business,these individual treated wells increasingly exhibit higher volumes of produced oil,natural gas,and associated water,which correspondingly requires higher volum

87、es of production chemicals.These favorable characteristics are associated with increased measured depths and higher production volume attributes of many modern wells.As evidenced by the graphs below,Treatment Points have continued to generally trend upward.The years 2020 and 2021 were negatively imp

88、acted by the economic effects of COVID-19,the lower commodity price environment seen throughout 2020,and the impact of extreme weather in the southern US in Q1 of 2021,with the subsequent periods demonstrating growth and stabilization.Quarterly Treatment PointsCanadian Treatment PointsQ4-18Q3-19Q2-2

89、0Q1-21Q4-21Q3-22Q2-23Q1-24Q4-2401,0002,0003,0004,0005,0006,0007,0008,0009,00010,00011,000US Treatment PointsQ4-18Q3-19Q2-20Q1-21Q4-21Q3-22Q2-23Q1-24Q4-2405,00010,00015,00020,00025,00030,00035,000Included in revenue generated in Canada for the three and twelve months ended December 31,2024,is$2.9 mil

90、lion and$9.9 million(2023-$3.7 million and$10.5 million)of revenue generated by Clear,the Companys Environmental Services segment.Clear is a vertically integrated environmental service provider,providing environmental consulting,water management and water transfer services,as well as drilling fluids

91、 waste disposal services.The financial results of Clear are otherwise not material and as such have been aggregated with the consolidated results of the Company throughout this MD&A.Cost of Sales and Gross Margin Gross Margin represents the operating profit earned on revenue after deducting the asso

92、ciated costs of sales including cost of products,operational labour,operational related depreciation,transportation,and all other operational related costs.Margins vary due to changes in the type of products sold,relative product mix,well type,geographic area,and nature of activity.Generally,labour

93、costs,although a significant component of cost of sales,have less of an impact on CES margins than other cost elements such as product costs.Use of consultants and the variable component of compensation for employees provide CES with a means to manage seasonal activity swings,as well as overall fluc

94、tuations in the demand for CES products and services.CES Energy Solutions Corp.Managements Discussion and AnalysisThree and Twelve Months Ended December 31,2024(stated in thousands of Canadian dollars,except for share counts,per share amounts and operational metrics)2024 Annual Report 7The table bel

95、ow details the calculation of Adjusted Gross Margin relative to Gross Margin determined in accordance with IFRS.Three Months Ended December 31,Year Ended December 31,20242023Change20242023ChangeGross Margin147,823 126,975 20,848 581,084 479,349 101,735 Gross Margin%of revenue(1)24%23%1%25%22%3%Adjus

96、t for:Depreciation included in cost of sales18,583 16,052 2,531 69,840 58,839 11,001 Adjusted Gross Margin(2)166,406 143,027 23,379 650,924 538,188 112,736 Adjusted Gross Margin(2)%of revenue 27%26%1%28%25%3%1Supplementary Financial Measure.Supplementary Financial Measures are provided in this MD&A

97、because Management believes they assist the reader in understanding CES results.Refer to Non-GAAP Measures and Other Financial Measures for further detail.2Non-GAAP measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by oth

98、er entities.The most directly comparable GAAP measure for Adjusted Gross Margin is Gross Margin.Refer to the section entitled Non-GAAP Measures and Other Financial Measures contained within this MD&A.For the three and twelve months ended December 31,2024,Adjusted Gross Margin increased to 27%and 28%

99、,respectively,from 26%and 25%for the sames periods in 2023.These improvements to Adjusted Gross Margin in both the three and twelve month periods were driven by strong activity levels combined with improved margins as a result of increased service intensity,an attractive product mix,and the continue

100、d vertical integration of technologically advanced products supported by a prudent cost structure.General and Administrative Expenses(G&A)The table below details the calculation of Adjusted General and Administrative Costs(Adjusted G&A)relative to general and administrative expenses under IFRS.Three

101、 Months Ended December 31,Year Ended December 31,20242023Change20242023ChangeGeneral and administrative expenses79,758 64,306 15,452 314,814 256,180 58,634 G&A expenses%of revenue(1)13%12%1%13%12%1%Adjust for:Stock-based compensation12,485 4,285 8,200 51,239 19,807 31,432 Depreciation&amortization4,

102、041 1,601 2,440 15,841 14,006 1,835 Adjusted General and Administrative Costs(2)63,232 58,420 4,812 247,734 222,367 25,367 Adjusted G&A costs(2)%of revenue 10%11%(1)%11%10%1%1Supplementary Financial Measure.Supplementary Financial Measures are provided in this MD&A because Management believes they a

103、ssist the reader in understanding CES results.Refer to Non-GAAP Measures and Other Financial Measures for further detail.2Non-GAAP measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities.The most directly comp

104、arable GAAP measure for Adjusted General and Administrative Costs is General and Administrative Expenses.Refer to the section entitled Non-GAAP Measures and Other Financial Measures contained within this MD&A.The increases in Adjusted General and Administrative Costs for both the three and twelve mo

105、nths ended December 31,2024,are primarily reflective of increased activity levels and associated headcount.As a percentage of revenue,Adjusted G&A of 10%and 11%for the three and twelve months ended December 31,2024,respectively,was in line with 11%and 10%for the same periods in 2023,as the increase

106、in the fixed cost base was aligned with the increase in revenue levels year over year.Stock-Based CompensationStock-based compensation expense increased by 191%and 159%,respectively,for the three and twelve months ended December 31,2024,in comparison to the same periods in 2023.The increase was prim

107、arily driven by the Companys cash-settled compensation plan,reflecting a significant appreciation in the Companys share price throughout the referenced periods,along with the timing and price of equity-based and cash-based grants under the Companys stock-based compensation plans.CES Energy Solutions

108、 Corp.Managements Discussion and AnalysisThree and Twelve Months Ended December 31,2024(stated in thousands of Canadian dollars,except for share counts,per share amounts and operational metrics)2024 Annual Report 8Finance CostsFor the three and twelve months ended December 31,2024,and 2023,finance c

109、osts were comprised of the following:Three Months Ended December 31,Year Ended December 31,2024202320242023Interest on debt,net of interest income8,119 10,324 34,292 38,168 Amortization of debt issue costs419 3,140 1,303 5,678 Foreign exchange loss(gain)23,843(5,113)26,922(6,041)Financial derivative

110、(gain)loss(9,796)2,085(31,397)(4,242)Other finance costs62 386 713 1,497 Finance costs22,647 10,822 31,833 35,060 Interest expenseFinance costs for the three and twelve months ended December 31,2024,include interest on debt,net of interest income,of$8.1 million and$34.3 million,respectively,compared

111、 to$10.3 million and$38.2 million,respectively,for the three and twelve months ended December 31,2023.For the both the three and twelve months ended December 31,2024,lower total long-term debt balances resulted in a correspondingly lower interest expense relative to the comparative periods in 2023.I

112、ncluded in these amounts is interest on the Companys Senior Notes and Canadian Term Loan Facility for the relevant periods.Foreign exchange gains and lossesFinance costs for the three and twelve months ended December 31,2024,include a foreign exchange loss of$23.8 million and$26.9 million,respective

113、ly,compared to a foreign exchange gain of$5.1 million$6.0 million for the three and twelve months ended December 31,2023,respectively.Foreign exchange gains and losses are primarily related to the Companys USD denominated balances held in Canada and were impacted by the significant appreciation of t

114、he US dollar in Q4 2024.Financial derivative gains and lossesFinance costs for the three and twelve months ended December 31,2024,include a net derivative gain of$9.8 million and$31.4 million,respectively,compared to a net derivative loss of$2.1 million and a net derivative gain of$4.2 million,respe

115、ctively,for the three and twelve months ended December 31,2023,relating to the Companys foreign currency and equity derivative contracts.As of December 31,2024,the Company had a financial derivative asset of$22.1 million(December 31,2023-financial derivative asset of$5.1 million and financial deriva

116、tive liability of$0.1 million).CES has a Board approved hedging and derivative policy that sets out the guidelines and parameters Management follows when approaching its risk management strategies.The Company periodically uses USD forward purchase contracts to manage its exposure to upcoming USD den

117、ominated purchases pursuant to its Canadian and US operations.At December 31,2024,the Company had no outstanding foreign exchange contracts.The Company periodically enters into equity derivative contracts to mitigate equity price risk,primarily related to the cash-based portion of the stock-based co

118、mpensation plan.The equity derivatives mitigate exposure to fluctuations in share price by fixing the future settlement cost on a portion of the cash-settled plan.The following table details the outstanding equity derivative contracts as of December 31,2024:PeriodPriceContractNotional PrincipalNumbe

119、r of SharesJuly 2025$3.4268Swap$6,8572,001,074 July 2026$3.9882Swap$5,4711,371,771 July 2027$7.5000Swap$2,970396,000 Total$4.0591$15,2983,768,845 CES Energy Solutions Corp.Managements Discussion and AnalysisThree and Twelve Months Ended December 31,2024(stated in thousands of Canadian dollars,except

120、 for share counts,per share amounts and operational metrics)2024 Annual Report 9Current and Deferred Income TaxesIncome tax expense is related to taxable income in Canada,the US,and other international jurisdictions.Three Months Ended December 31,Year Ended December 31,2024202320242023Current income

121、 tax expense 6,900 5,768 35,733 15,637 Deferred income tax(recovery)expense(3,410)(2,602)9,115 19,294 Total income tax expense3,490 3,166 44,848 34,931 Current income tax expense increased for the three and twelve months ended December 31,2024,relative to the comparable 2023 periods,primarily due to

122、 higher taxable earnings and lower tax loss utilization in the US and Canada and higher current taxes related to the Companys international jurisdictions.Deferred income tax expense decreased for the three and twelve months ended December 31,2024,relative to the comparable 2023 periods,primarily due

123、 to temporary difference movements and lower tax loss utilization in the US and Canada and changes in the recognition of deferred tax assets.Working Capital Surplus CES had a Working Capital Surplus of$681.1 million as at December 31,2024,which increased from$633.3 million as at September 30,2024,an

124、d$632.8 million as at December 31,2023.The movement during the three and twelve months ended December 31,2024,was primarily driven by a rapid appreciation of the US dollar which resulted in increases to working capital on the revaluation of balances held in the Companys foreign subsidiaries.Excludin

125、g the impact of foreign exchange rates,the movement in the quarter was driven by increases to inventory and accounts receivable to support the year over year increases in activity levels.The Company continues to focus on working capital optimization benefiting from the high quality of its customers

126、and diligent internal credit monitoring processes.Total Debt Total Debt as at December 31,2024,of$452.6 million decreased from$469.6 million at December 31,2023,and is primarily comprised of long-term debt,which totaled$344.9 million as at December 31,2024,compared to$390.6 million at December 31,20

127、23.The decrease in Total Debt during the year is driven by the repayment of the Canadian Term Loan using the proceeds from the Senior Notes issuance,resulting in a permanent reduction in the Companys fixed term debt,and the continued strong financial performance and ongoing efforts to optimize worki

128、ng capital cycles.These benefits were partly offset by increased levels of lease obligations and deferred acquisition consideration associated with the acquisition of Hydrolite.Additional discussion relating to the Companys Senior Facility,Senior Notes,and other long-term financial liabilities is in

129、cluded in the Liquidity and Capital Resources section of this MD&A.Related Party TransactionsIncluded in general and administrative expenses is remuneration of key management personnel,which includes executive officers and directors of the Company.In addition to salaries and director fees,respective

130、ly,the Company also provides compensation to executive officers and directors under the Companys RSU plan.Remuneration of key management personnel is comprised of:Year Ended December 31,20242023Salaries and cash-based compensation17,902 14,905 Stock-based compensation10,336 8,543 28,238 23,448 CES E

131、nergy Solutions Corp.Managements Discussion and AnalysisThree and Twelve Months Ended December 31,2024(stated in thousands of Canadian dollars,except for share counts,per share amounts and operational metrics)2024 Annual Report 10QUARTERLY FINANCIAL SUMMARYThe following is a summary of selected fina

132、ncial information of the Company for the last eight completed quarters:Three Months EndedDec 31,2024Sep 30,2024Jun 30,2024Mar 31,2024Dec 31,2023Sep 30,2023Jun 30,2023Mar 31,2023RevenueUnited States(1)390,203 402,632 390,924 387,674 361,091 361,469 375,455 368,975 Canada(1)215,181 203,887 162,272 200

133、,904 192,366 175,048 140,387 188,721 Revenue605,384 606,519 553,196 588,578 553,457 536,517 515,842 557,696 Net income41,855 46,638 48,155 54,458 49,18738,552 33,901 33,002 per share-basic0.18 0.20 0.20 0.23 0.21 0.15 0.13 0.13 per share-diluted0.18 0.20 0.20 0.23 0.20 0.15 0.13 0.13 Adjusted EBITDA

134、C(2)103,174 102,537 95,447 102,032 84,60780,218 73,893 77,103 Adjusted EBITDAC%of Revenue(2)17.0%16.9%17.3%17.3%15.3%15.0%14.3%13.8%per share-basic(2)0.46 0.44 0.41 0.44 0.35 0.32 0.29 0.30 per share-diluted(2)0.45 0.43 0.40 0.43 0.35 0.32 0.29 0.30 Dividends declared6,760 6,886 7,056 7,036 5,9016,0

135、21 6,312 5,103 per share0.030 0.030 0.030 0.030 0.025 0.025 0.025 0.020 Common Shares OutstandingEnd of period-basic 225,329,085 229,525,039 235,188,873 234,519,860 236,042,566 240,859,525 252,463,642 255,129,525 End of period-fully diluted(2)228,948,223 233,530,844 239,430,548 239,276,274 241,385,2

136、42 246,637,289 258,516,081 261,101,788 Weighted average-basic 226,704,896 233,176,879 235,162,870 234,373,347 239,160,013 248,808,899 253,756,497 254,882,825 Weighted average-diluted 230,379,790 237,181,631 239,402,896 238,934,382 244,555,366 254,588,996 258,297,780 260,850,689 1Supplementary Financ

137、ial Measure.Supplementary Financial Measures are provided in this MD&A because Management believes they assist the reader in understanding CES results.Refer to Non-GAAP Measures and Other Financial Measures for further detail.2Non-GAAP measure that does not have any standardized meaning under IFRS a

138、nd therefore may not be comparable to similar measures presented by other entities.The most directly comparable GAAP measure for Adjusted EBITDAC is Net income,and for Shares Outstanding,End of period-fully diluted is Common shares outstanding.Refer to the section entitled Non-GAAP Measures and Othe

139、r Financial Measures contained within this MD&A.Seasonality of OperationsThe Western Canadian drilling industry is subject to seasonality with activity usually peaking during the winter months in the first and last quarters of any given calendar year.As temperatures rise in the spring,the ground tha

140、ws and becomes unstable,resulting in government road bans,which severely restrict activity in the second quarter.These seasonal trends typically lead to quarterly fluctuations in Canadian operating results and working capital requirements,which should be considered in any quarter over quarter analys

141、is of the Company.The overall seasonality of the Companys operations has,and will continue to become less pronounced as a result of expansion in the US and increased diversification of operations away from the drill-bit.CES Energy Solutions Corp.Managements Discussion and AnalysisThree and Twelve Mo

142、nths Ended December 31,2024(stated in thousands of Canadian dollars,except for share counts,per share amounts and operational metrics)2024 Annual Report 11SELECTED ANNUAL INFORMATIONThe following is a summary of selected annual financial information of the Company for the last three completed years:

143、Year Ended December 31,($000s,except per share amounts)2024%Change2023%Change2022RevenueUnited States(1)1,571,433 7%1,466,990 15%1,276,944 Canada(1)782,244 12%696,522 8%645,375 Total Revenue2,353,677 9%2,163,512 13%1,922,319 Income before taxes235,954 24%189,573 50%126,754 per share-basic1.02 34%0.7

144、6 52%0.50 per share-diluted1.00 35%0.74 54%0.48 Net income191,106 24%154,642 62%95,218 per share-basic0.82 32%0.62 68%0.37 per share-diluted0.81 33%0.61 89%0.36 Adjusted EBITDAC(2)403,190 28%315,821 23%257,022 Adjusted EBITDAC(2)%of Revenue 17.1%17%14.6%9%13.4%per share-basic(2)1.74 37%1.27 26%1.01

145、per share-diluted(2)1.70 38%1.24 26%0.98 Dividends declared27,738 19%23,337 34%17,359 per share0.120 26%0.095 40%0.068 As at December 31,Financial position($000s)2024%Change2023%Change2022Total assets1,539,331 12%1,377,265 (2)%1,411,003 Total long-term debt344,888 (12)%390,616 (21)%491,482 Long-term

146、 financial liabilities(3)412,608 (2)%419,416 (21)%532,771 Total Debt(2)452,588 (4)%469,619 (16)%557,531 Working Capital Surplus(2)681,085 8%632,764 (8)%691,096 Net Debt(2)(228,497)40%(163,145)22%(133,565)Shareholders equity814,230 24%657,995 8%609,049 1Supplementary financial measure.Supplementary F

147、inancial Measures are provided in this MD&A because Management believes they assist the reader in understanding CES results.Refer to Non-GAAP Measures and Other Financial Measures for further detail.2Non-GAAP measure or ratio that does not have any standardized meaning under IFRS and therefore may n

148、ot be comparable to similar measures presented by other entities.The most directly comparable GAAP measure for Adjusted EBITDAC is Net income,and for Total Debt,Net Debt and Working Capital Surplus is Long-term financial liabilities.Refer to the section entitled Non-GAAP Measures and Other Financial

149、 Measures contained within this MD&A.3Includes long-term portion of the Senior Facility,the Senior Notes,the Canadian Term Loan Facility,lease obligations,deferred acquisition consideration,and long-term portion of cash settled incentive obligations.CES Energy Solutions Corp.Managements Discussion a

150、nd AnalysisThree and Twelve Months Ended December 31,2024(stated in thousands of Canadian dollars,except for share counts,per share amounts and operational metrics)2024 Annual Report 12LIQUIDITY AND CAPITAL RESOURCESLong-Term DebtThe Companys long-term debt is comprised of the following balances:As

151、atDecember 31,2024December 31,2023Senior Facility149,826 142,458 Canadian Term Loan Facility(1)250,000 Senior Notes200,000 349,826 392,458 Less:net unamortized debt issue costs(4,938)(1,842)Total long-term debt344,888 390,616 1Canadian Term Loan Facility as at December 31,2023,includes current porti

152、on of$20.8 million.Senior Facility As at December 31,2024,the Company has a syndicated and operating credit facility(the Senior Facility)of approximately C$equivalent$450.0 million.The Senior Facility matures on April 25,2026,is secured by substantially all of the Companys assets,and includes custom

153、ary terms,conditions and covenants.The Senior Facility is comprised of a Canadian facility of$300.0 million and a US facility of US$110.0 million and had a net draw of$148.8 million(December 31,2023-net draw of$140.6 million),with capitalized transaction costs of$1.1 million(December 31,2023-$1.8 mi

154、llion).Transaction costs attributable to the Senior Facility are recorded as part of the facility and amortized to finance costs over the remaining term.Amounts drawn on the Senior Facility incur interest at the banks prime rate or US base rate plus an applicable pricing margin ranging from 0.25%to

155、2.00%or the Canadian Bankers Acceptance rate or the SOFR rate plus an applicable pricing margin ranging from 1.25%to 3.00%.The Senior Facility has a standby fee ranging from 0.281%to 0.675%.The applicable pricing margins and standby fees are based on a sliding scale of Total Net Debt to EBITDA ratio

156、.Under the Senior Facility,CES is subject to the following financial covenants:The ratio of Total Net Debt to trailing EBITDA must not exceed 4.00:1.00 calculated on a rolling four-quarter basis;The ratio of Net Senior Debt to trailing EBITDA must not exceed 3.00:1.00 calculated on a rolling four-qu

157、arter basis;andThe ratio of EBITDA to interest expense must be greater than 2.50:1.00,calculated on a rolling four-quarter basis.The relevant definitions of key ratio terms as set forth in the syndicated and operating credit facilities agreement are as follows:Total Net Debt is defined as all obliga

158、tions,liabilities,and indebtedness excluding deferred income tax liabilities anddeferred tax credits,office leases,other leases characterized as an operating lease,and accrued interest not yet due andpayable.Net Senior Debt is defined as Total Net Debt,as defined above,minus the principal amount owi

159、ng on the Companys SeniorNotes,any permitted vendor take-back debt,and all cash and cash equivalents.EBITDA is defined as net income before interest,taxes,depreciation and amortization,gains and losses on disposal of assets,amortization of capitalized deferred financing costs,goodwill impairment,unr

160、ealized foreign exchange gains and losses,unrealized derivative gains and losses,equity settled stock-based compensation,and other gains and losses not consideredreflective of underlying operations.EBITDA attributable to businesses acquired in the period are permitted to be added toEBITDA.CES Energy

161、 Solutions Corp.Managements Discussion and AnalysisThree and Twelve Months Ended December 31,2024(stated in thousands of Canadian dollars,except for share counts,per share amounts and operational metrics)2024 Annual Report 13The above noted definitions are not recognized under IFRS and are provided

162、strictly for the purposes of the Companys SeniorFacility covenant calculations.The covenant calculations as at December 31,2024 and December 31,2023,are as follows:As atDecember 31,2024December 31,2023Total Net Debt403,534 427,784 EBITDA for the four quarters ended337,470 295,252 Ratio1.196 1.449 Ma

163、ximum4.000 4.000 Net Senior Debt192,111 427,784 EBITDA for the four quarters ended337,470 295,252 Ratio0.569 1.449 Maximum3.000 3.000 EBITDA for the four quarters ended337,470 295,252 Interest Expense for the four quarters ended32,930 37,855 Ratio10.248 7.800 Minimum2.500 2.500 Senior NotesOn May 24

164、,2024,the Company completed the private placement of$200.0 million of 6.875%senior unsecured notes(the Senior Notes)due on May 24,2029,for net proceeds after offering expenses and commission of$195.6 million.The Company used the proceeds from the issuance of the Senior Notes,along with amounts avail

165、able under the Senior Facility,to repay the$250.0 million Canadian Term Loan Facility.The Senior Notes contain certain early redemption options,whereby the Company can choose to redeem all of or a portion of at various redemption prices,which include the principal amount plus any accrued and unpaid

166、interest to the applicable redemption date.The Company has the ability to redeem all of its outstanding Senior Notes on or after May 24,2026.Interest is payable on the Senior Notes semi-annually on May 24 and November 24.The Senior Notes are unsecured,ranking equal in right of payment to all existin

167、g and future unsecured indebtedness,and have been guaranteed by the Companys current and future subsidiaries.Certain restrictions exist relating to items such as making restricted payments and incurring additional debt.As at December 31,2024,the Company was in compliance with the terms and covenants

168、 of its lending agreements.For the year ended December 31,2024,the Company recorded$36.3 million(2023-$44.8 million)in interest expense related to its long-term debt and lease balances,including the amortization of debt issue costs.Scheduled principal payments on the Companys long-term debt at Decem

169、ber 31,2024,are as follows:2025 2026149,826 2027 2028 and thereafter200,000 349,826 CES Energy Solutions Corp.Managements Discussion and AnalysisThree and Twelve Months Ended December 31,2024(stated in thousands of Canadian dollars,except for share counts,per share amounts and operational metrics)20

170、24 Annual Report 14LeasesThe Company incurs lease payments under a number of lease arrangements for which the underlying leased assets secure the lease obligations.Leases are entered into and exited in coordination with specific business requirements,which includes the assessment of the appropriate

171、durations for the related leased assets.The Companys leases are for terms ranging from January 2025 through September 2034 with a weighted average interest rate of 7.08%(2023-6.15%).As at December 31,202373,101 Additions50,998 Interest expense5,487 Lease payments(41,946)Effects of movements in excha

172、nge rates4,253 As at December 31,202491,893 Current portion of lease obligation34,589 Long-term portion of lease obligation57,304 Future minimum lease payments outstanding under the Companys lease obligations at December 31,2024,are as follows:Less than 1 year39,857 1-5 years59,210 5+years4,016 Tota

173、l lease payments103,083 Amount representing implicit interest(11,190)Lease obligations91,893 Payments recognized in the financial statements relating to short-term leases,variable lease payments,and leases of low-value assets for the year ended December 31,2024,were$4.7 million(2023-$3.8 million).Th

174、e Companys short-term leases and leases of low-value assets consist of leases of information technology,office equipment,and short-term facility rentals and variable lease payments relate to operating costs on office leases.CES Energy Solutions Corp.Managements Discussion and AnalysisThree and Twelv

175、e Months Ended December 31,2024(stated in thousands of Canadian dollars,except for share counts,per share amounts and operational metrics)2024 Annual Report 15Other IndebtednessThe following table details the remaining contractual maturities of the Companys financial liabilities as of December 31,20

176、24:Payments Due By Period(1)Less than 3 months3 months to 1 year1-2 years2-5 years5+yearsTotalAccounts payable and accrued liabilities230,073 18,071 248,144 Dividends payable(2)6,760 6,760 Income taxes payable 16,161 16,161 Deferred acquisition consideration2,873 2,518 2,518 7,909 Senior Facility 14

177、9,826 149,826 Senior Notes(3)200,000 200,000 Interest on Senior Notes 13,750 13,750 34,375 61,875 Lease obligations(4)5,767 28,822 27,549 26,122 3,633 91,893 Commitments(5)5,117 7,605 22 239 12,983 Other long-term liabilities 7,111 787 7,898 250,590 86,927 200,776 261,523 3,633 803,449 1 Payments de

178、nominated in foreign currencies have been translated using the December 31,2024,exchange rate.2 Dividends declared as of December 31,2024.3 The Senior Notes are due on May 24,2029.4 Lease obligations reflect principal payments and excludes any associated interest portion.5 Commitments include amount

179、s relating to short-term leases,leases of low-value assets,variable payments associated with long-term leases,and inventory and capital commitments.As of the date of this MD&A,Management is satisfied that CES has sufficient liquidity and capital resources to meet the long-term payment obligations of

180、 its outstanding loans and commitments.To support growth in the business and related working capital needs CES routinely considers its capital structure,including increasing or decreasing the capacity of its Senior Facility,issuing new senior notes,and other potential financing options.CES assesses

181、its requirements for capital on an ongoing basis and there can be no guarantee that CES will not have to obtain additional capital to finance the expansion plans of the business or to finance future working capital requirements.In the event that additional capital is required,based on the market con

182、ditions at the time,it may be difficult to issue additional equity or increase credit capacity and the cost of any new capital may exceed historical norms and/or impose more stringent covenants and/or restrictions on CES.CES continues to focus on evaluating credit capacity,credit counterparties,and

183、liquidity to ensure its ability to meet its ongoing commitments and obligations.The Company is involved in litigation and disputes arising in the normal course of operations.Management is of the opinion that any potential litigation it is aware of will not have a material adverse impact on the Compa

184、nys financial position or results of operations and therefore the above table does not include any provisions for any outstanding litigation or potential claims.Summary of Statements of Cash FlowsThe following table summarizes the Companys Statements of Cash Flows for the three and twelve months end

185、ed December 31,2024,and 2023:Three Months Ended December 31,Year Ended December 31,20242023Change20242023ChangeNet cash provided by(used in)Operating Activities62,231 39,292 22,939 304,664 301,779 2,885 Investing Activities(19,734)(15,885)(3,849)(95,218)(71,833)(23,385)Financing Activities(42,497)(2

186、3,407)(19,090)(209,446)(229,946)20,500 CES Energy Solutions Corp.Managements Discussion and AnalysisThree and Twelve Months Ended December 31,2024(stated in thousands of Canadian dollars,except for share counts,per share amounts and operational metrics)2024 Annual Report 16Cash Flows from Operating

187、ActivitiesFor the three and twelve months ended December 31,2024,net cash provided by operating activities totaled$62.2 million and$304.7 million,respectively,compared to$39.3 million and$301.8 million,respectively,for the comparable 2023 periods.The increases in net cash provided by operating activ

188、ities for both the three and twelve month periods were driven by strong financial performance with higher contributions margins on associate activity levels relative to the comparative reference periods.Cash Flows from Investing ActivitiesFor the three and twelve months ended December 31,2024,net ca

189、sh flows used in investing activities totaled$19.7 million and$95.2 million,respectively,compared to$15.9 million and$71.8 million,respectively,for the comparable 2023 periods.The increases in net cash flows used in investing activities for both the three and twelve month periods were driven by high

190、er capital expenditures in the current year,in support of sustained elevated revenue levels,and the acquisition of Hydrolite.Details of cash used for investment in property and equipment are as follows:Three Months Ended December 31,Year Ended December 31,2024202320242023Expansion Capital(1)15,155 1

191、6,541 68,078 55,835 Maintenance Capital(1)5,818 2,345 22,918 17,575 Total investment in property and equipment20,973 18,886 90,996 73,410 Change in non-cash investing working capital(169)(601)(2,354)(1,235)Cash used for investment in property and equipment20,804 18,285 88,642 72,175 Adjust for:Proce

192、eds on disposal of assets(2,706)(2,952)(7,534)(11,159)Net cash used for investment in property and equipment(2)18,098 15,333 81,108 61,016 1Supplementary Financial Measure.Supplementary Financial Measures are provided in this MD&A because Management believes they assist the reader in understanding C

193、ES results.Refer to Non-GAAP Measures and Other Financial Measures for further detail.2Non-GAAP measure or ratio that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities.The most directly comparable GAAP measure for Ne

194、t cash used for investment in property and equipment is Cash used for investment in property and equipment.Refer to the section entitled Non-GAAP Measures and Other Financial Measures contained within this MD&A.Expansion Capital expenditures in Q4 2024 included$0.8 million(twelve months ended Decemb

195、er 31,2024-$7.5 million)in respect of a new barite grinding facility in the Superior Weighting division and$0.7 million(twelve months ended December 31,2024-$3.7 million)in respect of the Gardendale distribution expansion in the Jacam Catalyst division,in addition to spending incurred for field equi

196、pment,processing and warehouse equipment,and vehicles and rolling stock to support growth throughout the business for the three and twelve months ended December 31,2024,particularly in the US.Maintenance Capital expenditures in Q4 2024 primarily included the replacement of field and warehouse equipm

197、ent,and vehicles and rolling stock throughout the business to support existing activity levels.Historically,the long-term capital investments required for CES to execute its business plan are not significant in relation to the total revenue and EBITDAC generated by the Company and the majority of ca

198、pital expenditures are made at the discretion of CES based on the timing and the expected overall return on the investment.CES expects 2025 capital expenditures,net of proceeds on disposals of assets,to be approximately$80.0 million,evenly weighted between maintenance and expansion capital to suppor

199、t sustained 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 prudent growth initiatives throughout divisions.Cash Flows from Financing ActivitiesFor the three mon

200、ths ended December 31,2024,cash flows used by financing activities totaled$42.5 million compared to$23.4 million for the comparable 2023 period,resulting from increased common share repurchases under the Companys NCIB.For the twelve months ended December 31,2024,cash flows used by financing activiti

201、es totaled$209.4 million,compared to$229.9 million for the comparable 2023 period.The decrease is primarily impacted by the reduction in the net draw on the Senior Facility by$68.4 million in 2023 as required investments in working capital were lower than in 2022.In 2024,the increase in the net draw

202、 on the Senior Facility was driven by working capital investments to support elevated activity levels,partly offset by increased common share repurchases under the Companys NCIB.CES Energy Solutions Corp.Managements Discussion and AnalysisThree and Twelve Months Ended December 31,2024(stated in thou

203、sands of Canadian dollars,except for share counts,per share amounts and operational metrics)2024 Annual Report 17Dividend PolicyThe Company declared dividends to holders of common shares for the twelve months ended December 31,2024,as follows:Dividend Record DateDividend Payment DatePer Common Share

204、TotalMarchMar 29Apr 15$0.030 7,036 JuneJun 28Jul 15$0.030 7,056 SeptemberSept 30Oct 15$0.030 6,886 DecemberDec 31Jan 15$0.030 6,760 Total dividends declared$0.120 27,738 During the three and twelve months ended December 31,2024,the Companys Dividend Payout Ratio averaged 13%and 12%,respectively,comp

205、ared to 10%and 11%in the comparable periods in 2023.For the three month period the increase in the Companys Dividend Payout Ratio was driven by lower distributable earnings on a smaller working capital harvest,and an increase to the dividends declared per share.For the twelve month period the increa

206、se in the Companys Dividend Payout Ratio was driven by an increase to the dividends declared per share,partially offset by higher distributable earnings and a reduction in common shares outstanding relative to the,comparable period.Refer to Non-GAAP Measures and Other Financial Measures for further

207、details on the calculation of Dividend Payout Ratio.CES will continue to be protective of its balance sheet and provide liquidity to fund potential growth initiatives by being prudent with its cash dividend going forward.Through the course of the year,dividends declared as a proportion of net income

208、 and Distributable Earnings will vary based on the Companys financial performance.During periods of relatively strong financial performance,typically associated with higher activity levels,dividends declared as a percentage of net income and Distributable Earnings will decrease,and likewise,during p

209、eriods of relatively weaker financial performance dividends declared as a percentage of net income and Distributable Earnings will increase.Dividends are funded by cash provided by operating activities.During periods of insufficient cash availability,due to relatively weaker financial performance or

210、 changes in the level of working capital,dividends may be funded by available cash or through CES credit facilities.Management and the Board of Directors review the appropriateness of dividends on a quarterly basis taking into account,among otherconsiderations,the applicable solvency requirements un

211、der corporate legislation;current and anticipated industry conditions;and particularly,growth opportunities requiring Expansion Capital,managements forecast of Distributable Earnings,its forecasted Dividend Payout Ratio,and forecasted capital to be deployed under its NCIB.At this time,CES intends to

212、 continue to pay cash dividends to shareholders.In addition,future expansion,investments,acquisitions,or future share repurchases under CES NCIB program may be funded internally by allocating a portion of cash flow in conjunction with,or in replacement of,external sources of capital such as debt or

213、the issuance of equity.To the extent that CES deploys cash flow to finance these activities,the amount of cash dividends to shareholders may be affected.Alternatively,to the extent that CES sustainable operating after tax cash flow improves,the amount of cash dividends to shareholders may be increas

214、ed.Over the long-term,CES business model has historically shown it can support a proportion of cash flow from operations being paid out as a dividend or through share repurchases as the long-term Expansion Capital investments and Maintenance Capital expenditures required for CES to execute its busin

215、ess plan have not been significant in relation to the total revenue and Adjusted EBITDAC generated.Refer to Non-GAAP Measures and Other Financial Measures for further details on the calculation of Distributable Earnings.CES Energy Solutions Corp.Managements Discussion and AnalysisThree and Twelve Mo

216、nths Ended December 31,2024(stated in thousands of Canadian dollars,except for share counts,per share amounts and operational metrics)2024 Annual Report 18NCIBOn July 22,2024,the Company renewed its previous NCIB,which ended July 20,2024,to repurchase for cancellation up to 19,198,719 common shares,

217、being 10%of the public float of common shares at the time of renewal.The renewed NCIB will terminate on July 21,2025,or such earlier date as the maximum number of common shares are purchased pursuant to the NCIB or the NCIB is completed or is terminated at the Companys election.A summary of the Comp

218、anys NCIB program,excluding any associated taxes on share repurchases,is presented below:Renewed NCIB July 21,2023 to December 31,2024Year Ended December 31,2024Since Inception July 17,2018 to December 31,2024Common shares repurchased and canceled through NCIB10,600,100 15,176,230 69,229,487 Amount8

219、3,726 101,492 237,772 Average price per share7.676.693.43As at December 31,2024,the Company has repurchased 69,229,487 or approximately 26%of the common shares outstanding since inception of the NCIB programs on July 17,2018.Subsequent to December 31,2024,the Company repurchased 940,000 additional s

220、hares at a weighted average price of$8.97 for a total of$8.4 million.Share Capital and Stock-Based Compensation PlansA summary of the Companys common shares and stock-based compensation plans outstanding is as follows:As atMarch 6,2025December 31,2024December 31,2023Common shares outstanding224,685,

221、116 225,329,085 236,042,566 Restricted Share Unit Plan(RSU)3,338,680 3,619,138 5,342,676 Phantom Share Unit Plan(PSU)5,009,102 5,025,015 6,480,451 NON-GAAP MEASURES AND OTHER FINANCIAL MEASURESThe accompanying consolidated financial statements have been prepared in accordance with IFRS.Certain suppl

222、ementary information and measures not recognized under IFRS are also provided in this MD&A where Management believes they assist the reader in understanding CES results.These measures are calculated by CES on a consistent basis unless otherwise specifically explained.These measures do not have a sta

223、ndardized meaning under IFRS and may therefore not be comparable to similar measures used by other issuers.Non-GAAP financial measures and non-GAAP ratios have the definition set out in National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure.The non-GAAP measures,non-GAAP ratios

224、and supplementary financial measures used in this MD&A,with IFRS measures,are the most appropriate measures for reviewing and understanding the Companys financial results.The non-GAAP measures and non-GAAP ratios are further defined for use throughout this MD&A as follows:EBITDAC-is a non-GAAP measu

225、re that has been reconciled to net income for the financial periods,being the most directly comparable measure calculated in accordance with IFRS.EBITDAC is defined as net income before interest,taxes,depreciation and amortization,finance costs,other income(loss),stock-based compensation,and impairm

226、ent of goodwill,which are not reflective of underlying operations.EBITDAC is a metric used to assess the financial performance of an entitys operations.Management believes that this metric provides an indication of the results generated by the Companys business activities prior to how these activiti

227、es are financed,how the Company is taxed in various jurisdictions,and how the results are impacted by foreign exchange and non-cash charges.This non-GAAP financial measure is also used by Management as a key performance metric supporting decision making and assessing divisional results.Adjusted EBIT

228、DAC-is a non-GAAP measure that is defined as EBITDAC noted above,adjusted for specific items that are considered to be non-recurring in nature.Management believes that this metric is relevant when assessing normalized operating performance.CES Energy Solutions Corp.Managements Discussion and Analysi

229、sThree and Twelve Months Ended December 31,2024(stated in thousands of Canadian dollars,except for share counts,per share amounts and operational metrics)2024 Annual Report 19Adjusted EBITDAC%of Revenue-is a non-GAAP ratio calculated as Adjusted EBITDAC divided by revenue.Management believes that th

230、is metric is a useful measure of the Companys normalized operating performance relative to its top line revenue generation and a key industry performance measure.Adjusted EBITDAC per share(basic and diluted)-is a non-GAAP ratio calculated as Adjusted EBITDAC divided by the weighted average number of

231、 basic and diluted shares outstanding,respectively.Adjusted EBITDAC is a non-GAAP measure.Management believes it is a useful measure of the Companys normalized operating performance on a per share basis.Readers are cautioned that EBITDAC and Adjusted EBITDAC should not be considered to be more meani

232、ngful than net income determined in accordance with IFRS.EBITDAC,Adjusted EBITDAC,Adjusted EBITDAC%of Revenue and Adjusted EBITDAC per share are calculated as follows:Three Months Ended December 31,Year Ended December 31,202420232024 2023 Net income41,855 49,187 191,106 154,642 Adjust for:Depreciati

233、on and amortization22,624 17,653 85,681 72,845 Current income tax expense6,900 5,768 35,733 15,637 Deferred income tax(recovery)expense(3,410)(2,602)9,115 19,294 Stock-based compensation12,485 4,285 51,239 19,807 Finance costs22,647 10,822 31,833 35,060 Other loss(income)73(506)(1,517)(1,464)EBITDAC

234、103,174 84,607 403,190 315,821 Adjusted EBITDAC103,174 84,607 403,190 315,821 Adjusted EBITDAC%of Revenue 17.0%15.3%17.1%14.6%Adjusted EBITDAC per share-basic0.46 0.35 1.74 1.27 Adjusted EBITDAC per share-diluted0.45 0.35 1.70 1.24 Distributable Earnings-is a non-GAAP measure that is defined as cash

235、 provided by operating activities,adjusted for change in non-cash operating working capital less Maintenance Capital and repayment of lease obligations.Distributable Earnings is a measure used by Management and investors to analyze the amount of funds available to distribute to shareholders as divid

236、ends or through the NCIB program before consideration of funds required for growth purposes.Dividend Payout Ratio-is a non-GAAP ratio that is defined as dividends declared as a percentage of Distributable Earnings.Management believes it is a useful measure of the proportion of available funds commit

237、ted to being returned to shareholders in the form of a dividend relative to the Companys total Distributable Earnings.Readers are cautioned that Distributable Earnings should not be considered to be more meaningful than cash provided by operating activities determined in accordance with IFRS.CES Ene

238、rgy Solutions Corp.Managements Discussion and AnalysisThree and Twelve Months Ended December 31,2024(stated in thousands of Canadian dollars,except for share counts,per share amounts and operational metrics)2024 Annual Report 20Distributable Earnings and Dividend Payout Ratio are calculated as follo

239、ws:Three Months Ended December 31,Year Ended December 31,202420232024 2023 Cash provided by(used in)operating activities62,231 39,292 304,664 301,779 Adjust for:Change in non-cash operating working capital6,543 28,888(11,655)(50,128)Maintenance Capital(1)(5,818)(2,345)(22,918)(17,575)Repayment of le

240、ase obligations(9,316)(8,128)(34,271)(27,944)Distributable Earnings 53,640 57,707 235,820 206,132 Dividends declared6,760 5,901 27,738 23,337 Dividend Payout Ratio 13%10%12%11%1Supplementary Financial Measure.Supplementary Financial Measures are provided in this MD&A because Management believes they

241、 assist the reader in understanding CES results.Refer to Non-GAAP Measures and Other Financial Measures for further detail.Adjusted Gross Margin-is a non-GAAP measure that has been reconciled to Gross Margin for the financial periods,being the most directly comparable measure calculated in accordanc

242、e with IFRS.It represents Gross Margin under IFRS adjusted to exclude depreciation included in cost of sales as it relates to assets associated with operations and operating related activities,as well as adjusted for specific items that are considered to be non-recurring in nature.Management believe

243、s that this metric assists in determining CES profitability prior to charges for depreciation.This non-GAAP financial measure is also used by Management to quantify the operating costs inherent in the Companys business activities,prior to operational related depreciation.Adjusted Gross Margin%of Rev

244、enue-is a non-GAAP ratio that is calculated as Adjusted Gross Margin divided by revenue.Management believes that this metric is a useful measure of the Companys normalized cost of sales relative to its top line revenue generation.Readers are cautioned that Adjusted Gross Margin should not be conside

245、red to be more meaningful than Gross Margin determined in accordance with IFRS.Adjusted Gross Margin and Adjusted Gross Margin%of Revenue are calculated as follows:Three Months Ended December 31,Year Ended December 31,$000s2024202320242023Gross Margin147,823 126,975 581,084 479,349 Gross Margin%of r

246、evenue 24%23%25%22%Adjust for:Depreciation included in cost of sales 18,583 16,052 69,840 58,839 Adjusted Gross Margin166,406 143,027 650,924 538,188 Adjusted Gross Margin%of revenue 27%26%28%25%Adjusted General&Administrative Costs-is a non-GAAP measure that has been reconciled to General and Admin

247、istrative expenses for the financial periods,being the most directly comparable measure calculated in accordance with IFRS.Adjusted G&A costs excludes stock-based compensation,which is not reflective of underlying operations,depreciation and amortization,as it relates to assets not associated with o

248、perations and operating related activities,and specific items that are considered to be non-recurring in nature.Management believes that Adjusted G&A costs and Adjusted G&A costs%of Revenue assist in demonstrating CES profitability.Adjusted General&Administrative Costs%of Revenue-is a non-GAAP ratio

249、 that is calculated as Adjusted General and Administrative costs divided by revenue.Management believes that this metric is a useful measure of the Companys normalized G&A relative to its top line revenue generation.Readers are cautioned that Adjusted G&A costs should not be considered to be more me

250、aningful than G&A expenses determined in accordance with IFRS.CES Energy Solutions Corp.Managements Discussion and AnalysisThree and Twelve Months Ended December 31,2024(stated in thousands of Canadian dollars,except for share counts,per share amounts and operational metrics)2024 Annual Report 21Adj

251、usted G&A costs and Adjusted G&A costs%of Revenue are calculated as follows:Three Months Ended December 31,Year Ended December 31,2024202320242023General and administrative expenses79,758 64,306 314,814 256,180 G&A expenses%of revenue 13%12%13%12%Adjust for:Stock-based compensation12,485 4,285 51,23

252、9 19,807 Depreciation&amortization4,041 1,601 15,841 14,006 Adjusted General and Administrative Costs63,232 58,420 247,734 222,367 Adjusted G&A Costs%of revenue 10%11%11%10%Funds Flow from Operations-is a non-GAAP measure that has been reconciled to Cash provided by(used in)operating activities for

253、the financial periods,being the most directly comparable measure calculated in accordance with IFRS.Funds Flow from Operations is defined as cash flow from operations before changes in non-cash operating working capital and represents the Companys after tax operating cash flows.Readers are cautioned

254、 that this measure is not intended to be considered more meaningful than cash provided by operating activities or other measures of financial performance calculated in accordance with IFRS.Funds Flow from Operations is used by Management to assess operating performance and leverage,and is calculated

255、 as follows:Three Months Ended December 31,Year Ended December 31,2024202320242023Cash provided by(used in)operating activities62,231 39,292 304,664 301,779 Adjust for:Change in non-cash operating working capital6,543 28,888(11,655)(50,128)Funds Flow from Operations68,774 68,180 293,009 251,651 Free

256、 Cash Flow-is a non-GAAP measure that has been reconciled to Cash provided by(used in)operating activities for the financial periods,being the most directly comparable measure calculated in accordance with IFRS.Free Cash Flow is defined as cash flow from operations adjusted for capital expenditures

257、and repayment of lease obligations,net of proceeds on disposal of assets,and represents the Companys core operating results in excess of required capital expenditures.Readers are cautioned that this measure is not intended to be considered more meaningful than cash provided by operating activities,c

258、omprehensive income(loss),or other measures of financial performance calculated in accordance with IFRS.Free Cash Flow is used by Management to assess operating performance and leverage,and is calculated as follows:Three Months Ended December 31,Year Ended December 31,2024202320242023Cash provided b

259、y(used in)operating activities62,231 39,292 304,664 301,779 Adjust for:Expansion Capital(1)(15,155)(16,541)(68,078)(55,835)Maintenance Capital(1)(5,818)(2,345)(22,918)(17,575)Repayment of lease obligations(9,316)(8,128)(34,270)(27,944)Proceeds on disposal of assets2,706 2,952 7,534 11,159 Free Cash

260、Flow34,648 15,230 186,932 211,584 1Supplementary Financial Measure.Supplementary Financial Measures are provided in this MD&A because Management believes they assist the reader in understanding CES results.CES Energy Solutions Corp.Managements Discussion and AnalysisThree and Twelve Months Ended Dec

261、ember 31,2024(stated in thousands of Canadian dollars,except for share counts,per share amounts and operational metrics)2024 Annual Report 22Net Cash Used for Investment in Property and Equipment-is a non-GAAP measure that has been reconciled to Cash used for investment in property and equipment,bei

262、ng the most directly comparable measure calculated in accordance with IFRS.Management believes that this metric is a key measure to assess the total capital required to support ongoing business operations.Readers are cautioned that this measure is not intended to be considered more meaningful than c

263、ash used for investment in property and equipment or other measures of financial performance calculated in accordance with IFRS.Net Cash Used for Investment in Property and Equipment is calculated as follows:Three Months Ended December 31,Year Ended December 31,2024202320242023Cash used for investme

264、nt in property and equipment20,804 18,285 88,642 72,175 Adjust for:Proceeds on disposal of assets(2,706)(2,952)(7,534)(11,159)Net Cash used for investment in property and equipment18,098 15,333 81,108 61,016 Working Capital Surplus-is a non-GAAP measure that is calculated as current assets less curr

265、ent liabilities,excluding the current portion of lease obligations,current portion of long-term debt,and deferred acquisition consideration.Management believes that this metric is a key measure to assess operating performance and leverage of the Company and uses it to monitor its capital structure.N

266、et Debt and Total Debt-are non-GAAP measures that Management believes are key metrics to assess liquidity of the Company and uses them to monitor its capital structure.Net Debt represents Total Debt,which includes the Senior Facility,The Canadian Term Loan Facility,the Senior Notes,both current and

267、non-current portions of lease obligations,both current and non-current portions of deferred acquisition consideration,non-current portion of cash settled incentive obligations,offset by the Companys cash position,less Working Capital Surplus.Readers are cautioned that Total Debt,Working Capital Surp

268、lus,and Net Debt should not be construed as alternative measures to Long-term financial liabilities as determined in accordance with IFRS.Total Debt,Working Capital Surplus,and Net Debt are calculated as follows:As atDecember 31,2024December 31,2023Long-term financial liabilities(1)412,608 419,416 C

269、urrent portion of lease obligations34,589 27,980 Current portion of long-term debt 20,800 Current portion of deferred acquisition consideration5,391 1,423 Total Debt452,588 469,619 Deduct Working Capital Surplus:Current assets952,150 880,772 Current liabilities(2)(271,065)(248,008)Working Capital Su

270、rplus681,085 632,764 Net Debt(228,497)(163,145)1Includes long-term portion of the Senior Facility,the Senior Notes,the Canadian Term Loan Facility,lease obligations,deferred acquisition consideration,and cash settled incentive obligations.2Excludes current portion of lease liabilities,long-term debt

271、 and deferred acquisition consideration.CES Energy Solutions Corp.Managements Discussion and AnalysisThree and Twelve Months Ended December 31,2024(stated in thousands of Canadian dollars,except for share counts,per share amounts and operational metrics)2024 Annual Report 23Shares outstanding,End of

272、 period-Fully Diluted-is a non-GAAP measure that has been reconciled to Common Shares outstanding for the financial periods,being the most directly comparable measure calculated in accordance with IFRS.This measure is not intended to be considered more meaningful than Common shares outstanding.Manag

273、ement believes that this metric is a key measure to assess the total potential shares outstanding for the financial periods and is calculated as follows:As atDecember 31,2024December 31,2023Common shares outstanding225,329,085 236,042,566 Restricted share units outstanding,end of year3,619,138 5,342

274、,676 Shares outstanding,end of year-fully diluted228,948,223 241,385,242 Supplementary Financial MeasuresA Supplementary Financial Measure:(a)is,or is intended to be,disclosed on a periodic basis to depict the historical or expected future financial performance,financial position or cash flow of the

275、 Company;(b)is not presented in the financial statements of the Company;(c)is not a non-GAAP financial measure;and(d)is not a non-GAAP ratio.Supplementary financial measures found within this MD&A are as follows:Revenue-United States-comprises a component of total revenue,as determined in accordance

276、 with IFRS,and is calculated as revenue recorded from the Companys US divisions.Revenue-Canada-comprises a component of total revenue,as determined in accordance with IFRS,and is calculated as revenue recorded from the Companys Canadian divisions.Top 5 customers as a%of total revenue-calculated as r

277、evenue recorded from the five customers comprising the largest individual components of revenue divided by total revenue,as determined in accordance with IFRS,for the period.Top customer as a%of total revenue-calculated as revenue recorded from the one customer comprising the largest individual comp

278、onents of revenue divided by total revenue,as determined in accordance with IFRS,for the period.Gross Margin%of Revenue-calculated as gross margin,as determined in accordance with IFRS,divided by revenue,as determined in accordance with IFRS,for the period.General and Administrative Expenses%of Reve

279、nue-calculated as general and administrative expenses,as determined in accordance with IFRS,divided by revenue,as determined in accordance with IFRS,for the period.Expansion Capital-comprises a component of total investment in property and equipment as determined in accordance with IFRS,and represen

280、ts the amount of capital expenditure that has been or will be incurred to grow or expand the business or would otherwise improve the productive capacity of the operations of the business.Maintenance Capital-comprises a component of total investment in property and equipment as determined in accordan

281、ce with IFRS,and represents the amount of capital expenditure that has been or will be incurred to sustain the current level of operations.OPERATIONAL DEFINITIONS Operational terms used throughout this MD&A include:Canadian DF Market Share-CES estimates its market share in Canada for its drilling fl

282、uids operations by comparing,on a semi-weekly basis,active rigs where CES was contracted to provide services to the total active rigs for Western Canada.The number of total active rigs for Western Canada is based on Canadian Association of Energy Contractors(CAOEC)published data for Western Canada.U

283、S DF Market Share-CES estimates its market share in the US for its drilling fluids operations by comparing,on a semi-weekly basis,active rigs where CES was contracted to provide services to the total active land rigs in the United States.The number of total active rigs in the United States is based

284、on the weekly land based Baker Hughes North American Rotary Rig Count.CES Energy Solutions Corp.Managements Discussion and AnalysisThree and Twelve Months Ended December 31,2024(stated in thousands of Canadian dollars,except for share counts,per share amounts and operational metrics)2024 Annual Repo

285、rt 24Operating Days-For its drilling fluids operations,CES estimates its Operating Days,which are revenue generating days,by multiplying the average number of active rigs where CES was providing drilling fluid services by the number of days in the period.Average Rig Count-For its drilling fluids ope

286、rations,CES estimates its Average Rig Count,which is the average monthly number of active rigs where CES was providing drilling fluids in the referenced period.Treatment Points-Represents the average estimated number of unique wells or oilfield sites serviced monthly by CES in the referenced period

287、with production and specialty chemicals.CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATESAs a routine element of the financial statement preparation process,Management is required to make estimates and assumptions based on information available as at the financial statement date.These estimates and assump

288、tions affect the reported amounts of assets and liabilities,and the possible disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses for the period.Although estimates and assumptions must be made during the

289、 financial statement preparation process,it is Managements opinion that none of the estimates or assumptions were highly uncertain at the time they were made.Actual outcomes may differ from these estimates,which,by their nature,are uncertain.The impacts of such estimates are pervasive throughout the

290、 consolidated financial statements and may require accounting adjustments based on future occurrences.Revisions to accounting estimates are recognized in the period in which the estimate is revised and the revision affects both current and future periods.Management has made significant assumptions a

291、bout the future and other sources of estimation uncertainty at the reporting date that could result in a material adjustment to the carrying amounts of assets and liabilities in the event that actual results differ.Assumptions made relate to,but are not limited to,the following:Significant judgments

292、Determining CGUsFor the purpose of assessing impairment of non-financial assets,the Company must determine its CGUs.Assets and liabilities are grouped into CGUs at the lowest level of separately identified cash flows.Determination of what constitutes a CGU and the respective allocation of shared cor

293、porate carrying values is subject to management judgment.The asset composition of a CGU can directly impact the recoverability of assets included within the CGU.Management has determined that the appropriate CGUs for the Company are the Canadian Operations and the US Operations.Segment ReportingMana

294、gement has determined that the Company has a single reportable segment,Oilfield Chemicals.The CEO,as the chief operating decision maker,reviews consolidated financial information when making decisions about resource allocation and assessing performance.Significant estimatesAccounts receivableAccount

295、s receivable are recorded at the estimated recoverable amount,which requires management to estimate uncollectible accounts,taking into consideration the customers payment history,their credit worthiness and the current economic environment in which the customer operates.The primary input in CES expe

296、cted credit loss model on trade receivables is historical credit losses incurred in the US and Canada,adjusted as appropriate to reflect current conditions and estimates of future economic conditions.The Companys historical bad debt expenses have not been significant and are usually limited to speci

297、fic customer circumstances.However,significant or unexpected changes in economic conditions could impact the Companys future expected credit losses.Property and equipmentManagement estimates the useful lives and residual value of property and equipment based on the period during which the assets are

298、 expected to be available for use.The amounts and timing of recorded expenses for depreciation of property and equipment for any period are affected by these estimated useful lives.The estimates are reviewed at least annually and are updated if expectations change as a result of physical wear and te

299、ar,technical or commercial obsolescence,and legal or other limits to use.It is possible that changes in these factors may cause significant changes in the estimated useful lives of the Companys property and equipment in the future.CES Energy Solutions Corp.Managements Discussion and AnalysisThree an

300、d Twelve Months Ended December 31,2024(stated in thousands of Canadian dollars,except for share counts,per share amounts and operational metrics)2024 Annual Report 25Recoverability of asset carrying valuesThe recoverability of the Companys asset carrying values is assessed at the CGU level.The deter

301、mination of the CGUs is subject to management judgments taking into consideration:the nature of the underlying business operations,geographical proximity of operations,shared infrastructure,and exposure to market risk.The assessment of any impairment of property and equipment,intangible assets and g

302、oodwill is dependent upon estimates of the recoverable amount that take into account factors such as economic and market conditions,timing of cash flows,the useful lives of assets,and their related salvage values.The estimated future cash flows are dependent upon a number of factors including,among

303、others,future activity levels within the oil and natural gas industry,current economic and market conditions,potential changes in government regulations,long term projections of future financial performance and the selection of appropriate discount rates used to determine the present value of future

304、 cash flows.Future activity cannot be predicted with certainty and,as such,actual results may differ from these estimates.Changes to these estimates may affect the recoverable amounts of the Companys CGUs,which may then require a material adjustment to their related carrying values.Purchase price al

305、locations The assets acquired and liabilities assumed are recognized at fair value on the date the Company obtains control of a business.The measurement of each business combination is based on the information available on the acquisition date.The estimate of fair value of the acquired intangible as

306、sets,including goodwill,property and equipment,other assets,and the liabilities assumed are based on assumptions.The measurement is largely based on projected cash flows,discount rates,and market conditions at the date of acquisition.DerivativesThe fair value of outstanding derivatives is based on f

307、orward prices,forward foreign exchange rates,and the Companys share price as at the reporting date and may differ from what will eventually be realized.Changes in the fair value of the derivative contracts are recognized in net income.The actual gains and losses realized on eventual cash settlement

308、will vary due to subsequent fluctuations in realized prices.Cash Settled Stock-based compensationStock-based compensation expense and the corresponding liability for PSUs is based on the estimated fair value of the units outstanding at the end of each quarter,which is based on the Companys share pri

309、ce.Large fluctuations in the actual stock-based compensation expense and associated liability may occur due to changes in the underlying share price,and actual amounts settled may differ from these estimates.Income taxesManagement evaluates tax positions,annually or when circumstances require,which

310、involves judgment and could be subject to differing interpretations of applicable tax legislation.The Company recognizes a tax provision when a payment to tax authorities is considered probable.However,the results of audits and reassessments and changes in the interpretations of tax laws and regulat

311、ions may result in changes to those positions and,potentially,a material increase or decrease in the Companys income tax assets,liabilities and net income.Deferred income tax assets are recognized when it is considered probable that deductible temporary differences will be recovered in the foreseeab

312、le future.To the extent that future taxable income and the application of existing tax laws in each jurisdiction differ significantly from the Companys estimate,the ability of the Company to realize the deferred income tax assets could be impacted.Deferred income tax liabilities are recognized when

313、there are taxable temporary differences that will reverse and result in a future outflow of funds to a taxation authority.The Company records a provision for the amount that is expected to be settled,which requires judgment as to the ultimate outcome.Deferred income tax liabilities could be impacted

314、 by changes in the Companys judgment of the likelihood of a future outflow and estimates of the expected settlement amount,timing of reversals,and the tax laws in the jurisdictions in which the Company operates.CES Energy Solutions Corp.Managements Discussion and AnalysisThree and Twelve Months Ende

315、d December 31,2024(stated in thousands of Canadian dollars,except for share counts,per share amounts and operational metrics)2024 Annual Report 26Other Provisions&ContingenciesThe determination of other provisions and contingent liabilities is a complex process that involves judgments about the outc

316、omes of future events,estimates of timing and amount of future expenditures,the interpretation of laws and regulations,and discount rates.The amount recognized as a provision is managements best estimate of the consideration required to settle the present obligation at the end of the reporting perio

317、d,taking into account the risks and uncertainties surrounding the obligation.MATERIAL ACCOUNTING POLICY INFORMATIONThe Companys material accounting policy information can be found in Note 3 of the consolidated financial statements for the year ended December 31,2024.There have been no new standards

318、or interpretations issued during the three and twelve months ended December 31,2024,that materially impact the Company.CORPORATE GOVERNANCEDisclosure Controls and Procedures(DC&P)DC&P have been designed to provide reasonable assurance that information required to be reported by CES is gathered,recor

319、ded,processed,summarized and reported to senior management,including the President and Chief Executive Officer and Chief Financial Officer of CES,to allow timely decisions regarding required public disclosure by CES in its annual filings,interim filings,or other reports filed or submitted in accorda

320、nce with Canadian securities legislation.As at December 31,2024,Management,under the direction and supervision of the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer,evaluated the effectiveness of CES disclosure controls and procedures,as detailed b

321、y National Instrument 52-109 Certification of Disclosure in Issuers Annual and Interim Filings as required by Canadian securities laws.Based on that evaluation,the President and Chief Executive Officer and the Chief Financial Officer have concluded that,as at December 31,2024,the disclosure controls

322、 and procedures were effective.Internal Controls over Financial Reporting(ICFR)Management of CES is responsible for establishing and maintaining ICFR for CES to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purp

323、oses in accordance with CES GAAP and includes those policies and procedures that(a)pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of CES;(b)are designed to provide reasonable assurance that transactions ar

324、e recorded as necessary to permit preparation of financial statements in accordance with the CES GAAP,and that receipts and expenditures of CES are being made only in accordance with authorizations of management and directors of CES;and(c)are designed to provide reasonable assurance regarding preven

325、tion or timely detection of unauthorized acquisition,use or disposition of the CES assets that could have a material effect on the annual financial statements or interim financial statements.Management,under the direction and supervision of the President and Chief Executive Officer and the Chief Fin

326、ancial Officer and based on criteria set out in the 2013 Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission,conducted an evaluation of the design and effectiveness of CES ICFR as at December 31,2024.Based on their assessment,Managemen

327、t determined that ICFR were effective as at December 31,2024.There have been no changes to CES internal controls over financial reporting during the year ended December 31,2024,that have materially affected,or are reasonably likely to materially affect,its internal controls over financial reporting.

328、While the President and Chief Executive Officer and Chief Financial Officer believe that CES DC&P and ICFR provide a reasonable level of assurance that they are effective,they do not expect that the DC&P or ICFR will prevent all errors and fraud.A control system,no matter how well conceived or opera

329、ted,can provide only reasonable,not absolute,assurance that the objectives of the control system are met.For information regarding the corporate governance policies and practices of CES,the reader should refer to CES 2024 Annual Report,CES Annual Information Form dated March 6,2025,in respect of the

330、 year ended December 31,2024,and CES Information Circular in respect of the June 18,2024,Annual General and Special Meeting of shareholders each of which are available on the CES SEDAR+profile at www.sedarplus.ca.CES Energy Solutions Corp.Managements Discussion and AnalysisThree and Twelve Months En

331、ded December 31,2024(stated in thousands of Canadian dollars,except for share counts,per share amounts and operational metrics)2024 Annual Report 27RISKS AND UNCERTAINTIES AND NEW DEVELOPMENTSCES financial results described herein demonstrated the Companys capabilities in the markets in which the Co

332、mpany operates along with a proven defensible balance sheet and business model.CES customers are primarily North American oil and gas producers.Activity in the oil and gas industry is cyclical in nature.CES is directly affected by fluctuations in the level and complexity of oil and gas exploration a

333、nd development activity carried on by its clients.In Canada,drilling activity is seasonal and,in turn,throughout North America it is directly affected by a variety of factors including:weather;natural disasters such as floods,tornadoes,and hurricanes;oil,natural gas,and natural gas liquids commodity prices;pipeline takeaway capacity;outcomes of major LNG projects;access to capital markets;governme