CES Energy Solutions Corp T.CEU

And TD

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Q2/24 RESULTS: UPDATED ESTIMATES AND CONFERENCE CALL TAKEAWAYS

THE TD COWEN INSIGHT

We are surprised that CES is trading relatively flat today following a meaningful Q2/24 EBITDAS beat (a function of broader market weakness in our view). CES trades at a modest premium to the coverage universe on a FCF yield basis, which we view as warranted given its continued strong outperformance relative to industry benchmarks. Maintain BUY, target increases to $11.00 ($9.50 previously).

Event: We are updating our estimates following management's conference call. Impact: POSITIVE

Q2/24 Results: CES reported Q2/24 EBITDAS of $95.4 million, 8% above our street-high estimate of $88.3 million and 16% above consensus of $82.2 million. Details on Page 4.

Conference Call Takeaways:

EBITDAS Margin Guidance: Management expects go-forward EBITDAS margins to be in the range of 15.5% to 16.5 (14.0% to 15.0% previously), which is relatively consistent with its TTM average of 16.2%. H1/24 margins of 17.3% are above the range provided and management characterized the range as something they can achieve with a high confidence interval. Through H2/24 and 2025, we are modeling EBITDAS margins of 16.5% and 16.0%, respectively, highlighting that go-forward CES results may exceed our forecast if margins remain consistent with H1/24.

Pro-Flow Acquisition: Management noted that the transaction was accretive, that margins were above CES' current operations and that its operations are primarily in West Texas, but that it believes there are opportunities to utilize CES' footprint to expand the reach of this business across North America.

Capital Allocation and Shareholder Returns: Management reiterated that it expects to fully utilize its NCIB program at its prevailing valuation. Management indicated it will reassess share repurchases once multiples reach the 6.0x-7.0x range. Additionally, given meaningful increase in free cash flow generation of the business, we believe CES could also announce an increase to its dividend as early as Q4/24 to supplement its returns to shareholders.

Estimate Changes: We contemplate management's revised EBITDAS guidance mentioned above and, as a result, our 2024 and 2025 EBITDAS estimates increase by 3% and 7%, respectively. Our 2024 capital spending estimate increases to $77.5 million (up from $70 million previously), representing the midpoint of management's updated guidance