Thank you everybody for joining our webinar today with the Enterprise Group. The purpose of today's presentation is to give our audience a better understanding of the business through our presentation, and then questions with management. The presentation's gonna be led by Des O'Kell, Senior Vice President, and he's also joined by Leonard Jaroszuk, CEO, as well as Warren Cabral, Chief Financial Officer. If you'd like a copy of today's presentation, simply email me at glen@bristolir.com and I'll send you a copy. We'll break for questions at the end of the formal presentations. When we do break, we encourage those questions. As a reminder, we're only taking questions through the web portal. If you're listening over the telephone, please access the web link sent earlier to ask a question. You can submit a question using the text box within the portal at any time.
I'll ask the questions on the air for everyone to hear, and Len, Des, or Warren will answer. I'm not going to reference any names, but simply read the questions asked. As we have a fairly large audience today, if I can't get to your question online and it's not yet been addressed during the call and can be, I'll come back to you by email. I'm not going to read the forward-looking statements, but I do state that they apply, and I reference them on page two of this PowerPoint. With that said, once again, thank you for joining us. Remember, this is fairly informal, and we do encourage those questions to help you better understand the business and its growth path. And now I'll turn the call over to Des to start his- sorry, to Leonard, to introduce the company and to start the presentation.
Well, thank you very much, Glen and Bristol, for organizing this webinar for us. We really appreciate that. My name is Leonard Jaroszuk, President and CEO of Enterprise Group. We've got with us, Des O'Kell, Senior Vice President of Corporate Development, and Warren Cabral, our CFO. Des is going to do a nice, detailed presentation on our company, where we were, where we are, and where we're going, which is all very exciting. We've got some very interesting, opportunities in front of us and, a couple of corporate, developments that are very exclusive to our opportunities. So I'd like to turn it over to Des O'Kell to do a detailed presentation for you, and we definitely welcome your questions and answers afterwards.
Thank you very much for joining us, and I hope you're having a great day. Go ahead, Des.
Yeah, thanks, Len. Appreciate that. Thanks, folks, for all joining in. We'll just get here to the start of the presentation. What I'd like to start off with is to understand who our clients are and what we do for them. Our clients are the producers of oil and natural gas here in the Western Canadian Basin. What we bring to the client is what we call site infrastructure. They are on projects that are in very many cases very remote areas. They require 24/7 infrastructure. What we bring out are the mobile structures, offices, command centers, medic buildings, infrastructure like bathrooms, and so forth. We also bring out the power systems that power the entire site.
So these, these project sites could be drilling, they could be completions and fracking, water transfer efforts, and plant builds. When they're building their plants in these remote areas, these plants sometimes take a year, year and a half to build. We're bringing all that, site infrastructure so they can operate on these remote sites 24/7 for as long as they are there. And of course, our equipment needs to be very robust, mobile, and of course, able to work and, and stay, reliable in temperatures, as far down as, - 40. We just announced some numbers last week on our Q1. I'll run through a few of the highlights there. Revenue increased 23% from last year to CAD 12.3 million. Net income of CAD 4 million, up 42% from the previous.
Adjusted EBITDA at CAD 6.3 million, up 44%. EPS, we were able to move that from CAD 0.06 a share to CAD 0.08 a share this year. Cash flow is extremely strong, CAD 5.7 million. We have over 2,500 pieces of specialized equipment. We operate with 120 employees currently. We are in a Canadian energy economy that is back on, so our fleet utilization is what we would call robust. A little while ago, I think, March 12th, we closed a CAD 7 million equity raise at CAD 0.85 a unit with a half warrant. What we'd like to do at this for this presentation is make sure that there's a few points here that we want you to leave with.
We are a leader in mobile site infrastructure to the Canadian energy sector, and we possess the current advantage of sole provider of low-emission site electrification systems. We'll get into the mobile power systems that we've developed some very novel methods on as we go through this presentation. We're remarkably profitable with substantial margins, and we're in a rapid expansion trajectory. We're provider to the most reputable and sizable producer clients in the sector. We are in favorable trends in the energy market, with avenues to venture into new markets, fostering considerable expansion organically and via acquisition and mergers. We've just entering our 20th year as Enterprise, and we've over the history of those 20 years, we've made nine acquisitions.
We've made two very, very timely and opportune, good valuation dispositions, and we've had some amalgamations along the way. We have a healthy balance sheet and liquidity, which will facilitate our strategy for continued growth. Management and insider ownership now exceeds 35%, and we're interested in continuing to grow that ownership. We have a history of significant insider buying and share buybacks. Our NCIB program that we initiated in the middle of this last energy downturn, that took about seven years to get through, we were able to buy back 20% of the company, 11.3 million shares were bought at an average price of CAD 0.26, while our industry was a bit out of favor.
We are guided by a seasoned leadership team with a track record of effective strategic implementation and savvy downturn navigation, and a fervent dedication to enhancing value for investors. These are the four subsidiaries that we operate under. I'll give a brief description of these four, and then as we go through the presentation, we're gonna spend a little more time on the Evolution Power Projects. Like I mentioned, we are in an energy Canadian energy economy that is upticking. It started to uptick around Q3 of 2021, so we're almost three years into that. Every year, our clients, the producers, have been increasing their CapEx spend in the field to develop their resources. When they increase their spend, they're asking more of the energy services company, like ourselves, for that assistance in the field.
What we've been able to do is develop our Power Projects methods, and not only all of our four subsidiaries are caught in an updraft in our energy economy. We're all benefiting from more spending in the sector, but we have a real turbo lift with the activities that Evolution Power Projects has developed, so we'll spend some time on that as we go along. Westar Oilfield Rentals and Hart Oilfield Rentals, these are two mirror image businesses offering the complete infrastructure site infrastructure package. One call, the whole package comes out. Westar Oilfield Rentals operates in British Columbia, Hart Oilfield Rentals operates in Alberta. Artic Therm, here in the middle, this is our IP and patent-rich flameless heating company. Obviously, you know, in the world of flameless, this is a big advantage when you're dealing in the hydrocarbon business.
Because they're flameless, these units can be put right up near wellheads or refineries or wherever there's presence of potential hydrocarbons, because there's no spark or flame source. You can see by our locations, we're concentrated in what I would call the foothills trend along the Rocky Mountains. You know, Central Alberta, Drayton Valley, a location, Whitecourt, Grande Prairie, Fort St. John. We're huddled right around the big deposits of the Montney, the Duvernay, the Viking and the Cardium. So the majority of our clients are gas and gas liquids producers.
So when we talk about catalysts like LNG Canada, the project that Shell is headlining, and then we look at some of the other LNG projects that are coming to a fruition, and our eventual participation in the global LNG market, this is an absolute needle mover for our clients, and therefore, it's a needle mover for us. We do have a location up in the oil sands in Fort McMurray, 'cause we provide a lot of heating to the oil sands region. So but you can see there, as we move along, it'll be important to note the gas and gas liquids producers and our location concentration. This is a smattering of the names that we work for in the field. These are ones you'll recognize.
There are many of them are Tier 1, and obviously some of you might be shareholders of these companies as well. So Evolution Power Projects. Let's talk about the mobile power systems that are traditionally or historically are used on site. Normally, when we mobilize our infrastructure site packages out to site, it usually it historically has a lot of diesel power generation. So when we talk. And I'm just gonna flip to a diagram here. You can see this is an abbreviated photo of a typical site. Why I mean abbreviated, it's minimized a little bit.
Those buildings in the back, right-hand structure section of the photo, there's usually you know, 8-15 buildings, those mobile structures that we bring out to site. There's usually 8 or 8, 8-15 of those. But you can see this, this, this photo of of what we're doing, and what kind of infrastructure is on site. Everything requires power, and we bring out a lot of lighting to the site. These, these are 5-15-acre sites, so lighting is a big deal. You can see some of these stadium light towers here dotted around the area. At the bottom of of these light towers is a 6-20-kilowatt diesel generator.
So when you have six to, you know, 16 of these light towers on site, and then, of course, 100-kilowatt or 150-kilowatt genset also to power buildings and communication towers and so forth, there's a tremendous amount of diesel power on site. What we've been doing over the past five years is we have developing methods where what we do is we eliminate all of those diesel generators and replace it with one central natural gas microturbine. And that microturbine powers a microgrid that is distributed to the outside of the site, and everything of our equipment, the entire integration of the site infrastructure plugs into the microgrid. So we're leading the way by advancing these natural gas to electricity methods of mobile power supply for our clients. Important to know that-...
We're in an ESG world, so many of our clients are interested in improving their ESG scorecard. Obviously, you know, it's an attraction for shareholders and money managers to know that they're doing things to reduce emissions and clean up their way of performing in their business, and so forth. But here in Canada, we have some new legislation, both federally and provincially, in the last three years, that identify what we call large emitters.
So if there's businesses out there, like, they could be anything from oil and gas players or cement plants or car manufacturers, if you're producing 10 kt of CO2 equivalent, you're deemed a heavy emitter, and you're obligated under legislation to not only track all your emissions, you need to bring it down under a threshold. If you're over that threshold, there's financial penalties. If you're under, you can earn carbon credits. So not only is there ESG incentives out there, but there are legislative incentives to reduce emissions here in Canada. Our natural gas to electricity methods substitute 10-20 diesel generators per site, reduces the daily consumption of diesel by thousands of liters, and significantly lowers ambient noise at the site. Eliminating diesel fuel handling completely is not only an environmental benefit, but also a safety advantage.
This is a little bit of what we, what you, you can expect on our sites. You can see we have a one central natural gas turbine generator here in the top left that works with. And this is important to note here. We can work with the gas that's produced on-site or nearby that our client is producing, or we can have a third-party provider bring on compressed natural gas, like there's companies out there like Certarus that bring that service out there. So if in 85%+ of our cases, we're actually utilizing the client's natural gas that's produced on-site or nearby. That completely reduces or eliminates our client's expense for fuel delivery for diesel or what have you.
So they're, when they're using their own gas, there's actually zero fuel charges. You can see here in some of the photos, down below, you can see the microgrid and the cabling above ground on stools. This is heavy, heavy DLO-style cabling, and of course, the distribution panels that are along the microgrid, of course, are all quick lock or twist lock receptacles, so very safe. These are 480-volt systems, so they're not small by any means in voltage size. So there's some benefits to the transition to from diesel to natural gas, and here's a few of them. Obviously, significant cost savings.
I've got a chart here that will talk about specific to diesel to natural gas that'll show you that massive savings, and of course, increased site efficiency, reduced downtime, and increased reliability. This is a point I wanna make a serious point about. Our margins that we'll get into have been growing as we've been moving along here. Not only do we have efficiencies, but when we move from a diesel-run site to a natural gas-run site with a microturbine, the reliability of the microturbine in all weather is 99.8% uptime.
When we have 10-20 diesel units on-site, especially in winter with extreme cold, there's a cost to us for our field techs to run out to site to remedy a problem, whether it's a repair or an equipment swap-out. When we go out and mobilize for our clients, we mobilize the site, and while that site is operating for several weeks to several months, it's our obligation to keep it operating. So there's less of our time going out when we have a singular microturbine on-site. It's far more reliable in all weather conditions than diesel. So we'll talk about our margins as we go through. Of course, lower emission profiles when we move from diesel to natural gas, like you can see here.
I've got a specific chart coming up. We'll talk about the emissions. Spill risk elimination is a real thing. There's fewer engines on-site. One central fuel connection with natural gas, it eliminates refueling of multiple engines, and of course, eliminates the fuel delivery. That tank truck that's coming up to site two and three hours up the highway is completely eliminated. We're offering an uninterrupted power supply. Of course, along with this is increased safety, decreased road traffic, and of course, exposure to the diesel fuel itself. Drastic noise reduction results in improved operation and communication quality on-site and simplified access to power.
I just wanna take a little focus here on a classic 350 kW diesel generator, as opposed to our 333 kW gas turbine in a direct comparison. Full load, that diesel generator will consume about 2,400 L a day at CAD 1.60 a liter, almost CAD 4,000 a day in fuel costs. For a 90-day project, almost CAD 350,000. Our gas-to-microturbine, now, this is important to note, this is utilizing third-party compressed natural gas coming on our site or the client site in a vessel. So we are, in this comparison, we are not using the client's natural gas. We are paying a third party to come, or the client is paying for it, to come on-site.
$7 an MCF, that turbine will utilize about 75 MCF per day. We're talking about a CAD 523 cost for compressed natural gas over a 90-day project. Cost for fuel, only CAD 47,000. So when we use third-party compressed natural gas, there's an 86% savings in fuel costs. If we're utilizing the client's natural gas, it goes to a 100% fuel savings. This is a chart talking about the emissions. Again, that 350-kilowatt diesel generator, producing pollutants such as particulate matter 2.5, particulate matter 10, SOx, NOx, volatile organic compounds, and carbon monoxide.
You can see the emission rates here and the reductions when we go to a gas turbine of 96.4% for both particulate matters, 100% reduction in SOx, almost 88% reduction in NOx, 99% reduction in volatile organic compounds, and an 85% reduction in carbon monoxide. And also, CO2 is reduced when you move from diesel to natural gas by well over 30%. So massive emissions reductions. We announced our 2023 annual statements here mid-March, and I've put the last four years onto a chart here.
This goes back to obviously the COVID year of 2020, and in the next column, 2020, 2021, about halfway through the year is when our Canadian energy economy started to uptick in CapEx spending in the field. And what you'll see here is not only are we delivering 20%-30% revenue increases across this table, our margins are increasing, you know, fairly substantially. Gross margins on the left-hand side, 24%-27% to 40%-45%. EBITDA margins at 13%, 16%, 30%, and up to 40%, for the year of 2023.
Looking at the same comparison for the last four years of Q1s comparative to each other, again, you can see the same trajectory that we're on, but the massive margin increases. Gross margins going from 33% to 46%, to 51%, and to 56% here in Q1 2024. EBITDAs are 25%, 40%, 45%, and 51%. Important to note, and we encourage you to ask some questions about this, that our CFO, Warren Cabral, will answer. We're finding our way with these margins. We're in a very good spot here. We have equipment classes that are in high demand, and we're the sole provider of the mobile power systems that I just described to you.
So we've got this first mover advantage that we still have. We've had it now for several years, and we still have that intact at the moment. This is a bit of a financial snapshot of where we stand today. Some good points here. Shares out, CAD 58.3 million, market cap of around CAD 65 million, EV of around CAD 85.5 million. Cash position is just over CAD 10 million. I want to draw your attention to the total net equity of CAD 51.3 million, which is a net book value of CAD 0.80 a share - CAD 0.88 a share. We have an asset-backed debt facility that in the terms of that facility, we are...
We get a third-party yearly annual appraisal of all of our equipment assets, and every six months after that, we do a desktop update. So we're very intimately knowledgeable about our orderly liquidated value of our assets. And when we adjust the appraisal numbers against our IFRS statement numbers of CAD 51.3 million, it's a very different number. The value of our assets are almost CAD 18 million higher. So with a total adjusted net equity for those orderly liquidated appraised assets, we're right along the lines of about CAD 70 million in assets. So an adjusted book value of more like CAD 1.20, which is around where we're trading today.
So we're still in very much a deep discount, not getting much, recognition for the position we hold in the segment, which is a growing business with tremendous cash flow. Len, is there anything you want to jump into here before,
Well, I just wanted to reiterate that we are the only provider of natural gas to power in Western Canada, and that is actually the growth of that division, Evolution Power, has just been phenomenal. You know, in the last 18 months, you know, 2023, we did a CapEx budget of CAD 6 million. We ended up spending over CAD 15 million for CapEx to fulfill demand for the product going forward. So it's definitely caught on, and existing customers are doubling down to expand their businesses.
Okay. I know we're running out of time here, so I'll make this quick.
Sorry.
Growth strategy from here, obviously there's continuing adoption from the oil and gas producers that have yet to make the diesel to natural gas transition. We have a tremendous amount of runway here. We're just scratching the surface in the Canadian energy sector, so there's more work to be done here, and we are fully on that path. We have existing customers that are increasing their remote power needs. We have clients that have doubled their drilling and completion activities, so they're asking for double the services and equipment for us. So there are all sorts of existing power needs that are growing with our existing clients. We're also starting to support additional operations in our segment, such as we're a natural extension to start looking at electric fracking.
We're doing a lot more water transfer operations and supplying camps and what have you. But water transfer, these water pumps that they're using to transport water are absolute power hogs. So, you know, right now we're on a project where we've got four microturbines that are synced together, and our equipment is very advanced that we're able to put multiple units and sync them together as one power plant. And we've got four units working just for water pumps on a very large-scale water transfer project. There's other growth from adjacent industries that include the mining industry, both at the build stage and operations. There's off-grid or away-from-grid construction projects that our mobile systems would be a natural for. There's also the temporary or emergency power response.
When there's emergencies, we can mobilize up very, very quickly, drop a unit and a microgrid, and power things up. And, you know, when we go out to site for our clients, we're mobilizing and setting up inside of 24 hours. So we are very, very quick about our deployment. There's growth from other regions that are not yet established. We're currently, as you see, our locations are primarily northeastern BC and Alberta, so there's expansion regionally to valuable markets across Canada that we don't currently service. And of course, there's growth through M&A. We've been around for, like I mentioned, we've made 9 acquisitions. It would be smart to say that Enterprise will still be continuing to look at quality new mergers and or acquisitions in the future.
I'll just keep running here. So in summary, we've achieved a leadership position in our industry segment. We boast significant profitability with substantial margins, resulting in robust cash flow. The Canadian energy landscape is experiencing rapid expansion, especially with investments in LNG, serving as a significant driver of growth. Escalating demand for the equipment, skilled labor, and expertise has improved our pricing. Back to that downturn that we were prior to the upturn, was a seven-year downturn. We lost half of our peers and competitors in the service industry. Now we're in an uptick market. There's a shortage of manpower, equipment, and we've been able to scale back up our pricing to where we were, or in fact, well past that now. So we're positioned exactly where we want to be.
We have a robust balance sheet and healthy cash flow, which will underpin our current expansion strategy, and we're guided by a seasoned and deeply dedicated management team. This is actually a shot of one of our 333 kW turbine generators. You've got today on the call Leonard Jaroszuk, myself, and Warren Cabral. We've been with the company basically since its inception. You get to ask questions of us, and so forth. But I'd like to just give a shout-out to our independent board. We have two CPAs here, John Pinsent, who is actually an FCPA, and John Campbell, a CPA and also a professional money manager. Neil Darling is our industry gent. He is the founder of Ramdar Resource Management, a drilling engineering firm.
He's an inside guy in Calgary that walks the hallways of all the companies you see on our client list, so he's a tremendous inside industry guy to have on our board. That pretty much brings the slide deck to a close. Glen, can we encourage-
I just wanted to add, Des-
Yeah
You know, you and I have never done a presentation in 30 minutes before, 'cause it always takes 45 minutes to an hour, and we've never left a boardroom any faster. We definitely welcome any one-on-one calls going forward. So Glen, it's all yours.
Perfect. Thanks, Des. Thanks, Len. So we'll get started. We've got quite a few questions in the queue already, but again, to our audience, just use that Q&A feature in Zoom, and we'll try to get your question answered. Excuse me. I'll combine questions along the way, 'cause I see there's some repetition in some, so hopefully everybody's question gets answered. So first, I guess, theme is, can you just talk a little bit about the competitive environment, potential moats that you have, and who you are your main competitors?
Right. Well, I'll take that. You know, in the site infrastructure world that we're in, there's very few competitors of ours that have multiple locations. In the Grande Prairie, and the Fort St. John, and so forth, there tends to be more single, you know, sole proprietor businesses with one location. We've got a couple that have multiple locations, but like I said, we've had a drastic reduction in our peers and competitors over that downturn. So it is a segment that is running on, you know, a low amount of equipment and manpower. So, we're in a very good position, 'cause we have some equipment classes that are in high demand, and of course, it's the best-in-class that we offer.
So, did I answer that question entirely, Glen?
I believe so.
Yeah.
Well, we have no competitors in the natural gas to power.
Correct.
Do some of your customers use you for all of your business divisions? Are there multiple-use contracts where you could have one customer contracting for oilfield site management and natural gas to electricity, or are contracts normally singular to one business unit?
Well, I mean, that can happen, where we're getting you know, the complete package is the majority of our business. I mean, we have all of our subsidiaries cross-sell all the basket of our assets, so we have tremendous integration between the four businesses. But for example, our heating division all of our business are selling heat. When it's wintertime and we're operating in arctic conditions, heat is required everywhere at all times. So you know, like I said, HART and Westar are the full package. Quite often we're putting out full packages, and those who have elected to utilize the gas to microgrid technology, those power systems will go along with the entire site package.
Okay, super. Thanks. Len, you touched on this as part of your formal remarks at the end, but can you just touch on how you're the only sole provider of low emission site electrification systems, and how do you hold that going forward? I guess add on from another question that I said earlier, can you talk to any proprietary nature of this technology?
Go ahead, Des.
Sure. First of all, in the microturbine world, there's less than this many manufacturers in the world. So what we've done across this five years, we have been working with a North American manufacturer of a microturbine, and we've got a very, very close relationship with them. What we've been able to do with that particular unit, 'cause, you know, traditionally, microturbines have some finickiness to them. They need in normal cases, they are installed, and they're stationary for decades, couple of decades or what have you. They're in one spot. We've had to make these units robust while being mobile. We have been successful with this particular unit, or this manufacturer, to make that unit very reliable in a mobile sense.
We've also been able to ruggedize it a little bit here to deal with our - 40s, which we deal with in the wintertime more often than you would think. So there is some proprietary, you know, sort of IP, if you want to call it that, on the technical side, that we've been able to work with this particular microturbine, which is absolutely rock solid in a mobile sense and reliability sense in those temperatures down to - 40. So we hold that moat. I also want to say that our competitors that are still running diesel operations like we did for 20 years, it's a very mechanical-based. Your employees are all very mechanical.
We've spent the last five years developing our move to- so all, 45% of our employees are electrical. They're master electricians, journeymen. We have an apprentice program. So there's a move there from being mechanical to electrical. Like I said, these are 480-volt systems, so the change in the direction of your employees needs to happen along with that. So these are the things that we're building a little moat around what we're doing. Like I said, Len mentioned, we are the sole provider of these natural gas to microgrid systems. I expect at some point we'll have some competition, but we haven't over the first few years of it. And it's a small industry in a way that if somebody was tooling up, I'm sure we'd hear about it, and we haven't yet.
I just want to add that it's not an easy business to get into. It's very costly. I mean, these turbines are not cheap. They are CAD 500,000-CAD 750,000 each. And like Des mentioned, you need electricians to disperse that product and cabling and paneling around. So, you know, so turbine cost does that, and then we also provide all the cabling and paneling to provide that power, and that's another CAD 250,000 a site. So you're talking about CAD 1 million a site. To just step into that business, you can't just write a check. You need to have the manpower and the capital to grow that business. Mm-hmm.
Perfect. Well, yeah, that's a good lead-in to one of the next questions, which is CapEx. Can you just talk a little bit about your CapEx needs moving forward? Do you see it increasing over time? And then also, what percentage of your CapEx is growth versus maintenance?
Go ahead, Warren.
Sure. We are in a growth cycle right now, so we do expect that our CapEx at the levels of roughly CAD 10 million-ish will continue that way over this cycle. Out of that, approximately, I'll say, you know, CAD 2 million-CAD 2.5 million of that spend would be used for maintenance CapEx. The balance would be for growth.
Okay, thank you. Could you address any recurring revenue nature of your business, I guess, within the customer, within the business?
Recurring, I'd have to get a little clarification on what you mean there. I mean, I can say, and hopefully I'm answering the question properly, but we have many clients. These projects are not singularly contracted. We sign 2-year and 3-year master services agreements, because when you qualify for those clients and you get a master services agreement, the intent is for some lengthy service. Projects may last 1 month to 15 months and any time in between. So we're constantly on a site. Once it's finished, we quite often move to the next site of that client. So, if that's what you're calling recurring revenue, I mean, we are a rental company. We bill out daily rentals.
Like I said, projects can last from a few months to a year and a half. So, I hope that answers the recurring, Warren, is, did you understand that question to be any different?
No, I think that's what they were looking at. Do we have long-term contracts, like defined revenue-based contracts that you hear have in other industries? You answered that well, Des, you know, we have the MSAs with our customers, and we are a daily rental business. But it is important to note that the MSAs, I mean, our customers, they take those very seriously, and there's quite a process that goes, when submitting an MSA, and that extends into all aspects, including safety and including all sorts of other components like ESG and some of the more up-to-date rules that are coming out. Us as a supplier, we're really scrubbed by those customers before they agree to the MSA and agree to signing the MSA.
So we're very, very happy when we do have those MSAs in place, and it means we have already started a good relationship with the customer. So the customers for us are recurring. We do have regular customers every year. The amount of work with each customer varies based on their activity and their needs for that season.
Okay, super. Thanks, Warren. Next question. I think Len touched on this a little bit in his, I guess, remarks. Can you talk a little bit more about your service territory? Specifically, do you have current operations in the U.S., and do you have plans to move into the U.S.?
Well, at the moment, I think I showed you the concentration of our locations. You know, our yard and shop locations that you see on that Western Canadian map, we need to be within 2.5, 3, at maximum, 3 hours away from our project sites or the client's project sites. So, we do have some ambition to look at some other regions in the Western Basin. As for the U.S. move and what have you, we have too much runway in the Canadian energy sector and some of the adjacent industries to grow by. The U.S. is a completely different animal. We are staying very disciplined, I believe, in not getting distracted with the U.S. market.
I know it's big and what have you, but it operates differently. We're not going to make anybody believe that we have the expertise to navigate the U.S. market. It's different than the Canadian market, and I think it's a distraction for us to move into the U.S., certainly in the short term or near term.
No, the low-hanging fruit right now is right in front of us. It's right in our backyard, and, you know, all of our clients that we're working for are supplying that LNG Canada pipeline that is, y ou know, it's two years behind schedule, and these guys are two years behind schedule, drilling to fill their commitments to that pipeline. So right now, they are doubling down to make their commitments and fill their end of the obligation on that pipeline. So, I mean, like they just mentioned, these guys are you know, they got one drill rig, they got two, now they got four. And at the same time, all the products that they need, they're going, "let's go more and more electrical." So it's right in our backyard.
You know, the U.S. is a dream down the road, but right now, we're picking the low-hanging fruit right in our backyard.
Okay, thanks, Len. Can you talk a little bit about the average lifespan of your equipment, its average age, and then utilization rates, and how you see that moving forward?
Yeah, I'm gonna ask Warren for a little bit of input here, but generally speaking, we're not gonna get in the habit of the utilization rates here certainly in the near term. Because we have so many classes of equipment, like the mobile structures, the power systems, they're at very high because they're in such demand, and we're at the very highest of utilization. And then there's lighting, which and other types of classes, we all have different levels of that in our fleet. Some equipment classes, like we're talking about the CapEx that Len and Warren were talking about, some of it is, you know, overloaded on some of these asset classes that we need much more of.
But generally speaking, I think it's comfortable to know that we are in an expanding energy market here in Canada. We don't see any signals of an end in sight as long as our eyesight can see, and what our clients are telling us. So, I hope that gives you an idea of where we are positioned. Warren, do you have something to add to that?
No, that's, that's a good overall. I mean, we do, y ou know, from a true accounting standpoint, we have many assets that are being depreciated over a 7-10-year period, and that is the larger items, like Des mentioned, all of our infrastructure-type items, our mobile structures. We've talked a lot about the large turbine generators, things of those classes or assets of those natures do have a very long, useful life.
Yeah, microturbine, if, you know, with one major overhaul, can last 2 decades. I mean, turbines that are located in stationary installations can have a 20+ year lifespan. Sorry, Len, I interrupted you.
Yeah, no, I was gonna say the same thing, so.
Okay.
Yeah. Thanks, guys. Next question: Can you tell me a little bit more about your corporate culture? How do you motivate and incentivize employees?
Go ahead, Warren, if you want to take that one.
Sure. No, it's. You know, some people do ask about the company and how we've been able to achieve what we're achieving, and, you know. Good people are extremely important to the company. We pride ourselves on having top-quality equipment, top-quality service, and top-quality people. And, you know, working together to achieve those three things are leading to the top-level customers that we have and the results that you see. So we really have a lot of different types of offices. We have a little bit different types of culture within those offices, depending on the regions. But we make sure we're competitive on the basic things, such as total compensation.
I think we do have a very competitive plan in place to attract and retain people, and we give people a chance to kind of grow within the operation. Many of our senior management have been, you know, have started off in different ways, such as being a Class 1 truck driver or being a journeyman in the trades, and they've worked their way throughout the ranks and shown that they would like to take on different roles, and have grown within the company. So we do have a lot of long-term employees, so it makes it much easier to help attract and retain others. And like I said, we feel we're competitive within the industry.
Thanks, Warren. Go ahead, Len.
I just want to add that, you know, Des mentioned the truck driver. He's a 16-year employee for Enterprise, and now he runs our Arctic Therm division. We have numerous tenured employees with us. You know, Des and I have been together for 35 years, 20 years with Enterprise, and Warren's been with us for almost 12 years. You know, it's a family. We really are a family operation and, you know, we treat our employees well, and they get rewarded well. You know, some of them will take stock options, and some of them just want bonuses, but we do whatever it takes to make them happy and keep them moving forward.
Okay, thank you. Next question: Can you touch on what you think drove, number one, the big downturn in your industry, and now what's driving the upturn? And how do you sort of view this outlook for the bullish cycle, and how long do you expect it to continue?
Mm-hmm. Well, I think going forward, I mean, if we look at the whole global, sort of aspect of oil and gas and so forth, one thing that you can sort of, kind of bet yourself on is that we've had a tremendous amount of, or a lack of investment worldwide in oil and gas. Lots of different pressures, the shaming and blaming of, you know, the environmental world coming down on money managers, and banks, and insurance companies to not deal with the oil and gas industry. That's created a tremendous amount of, or a lack of investment, in reserves and production going forward, at a time where, demand...
You know, obviously, if you remove COVID and you look at the demand worldwide for oil and gas, it's only going up. And we've done ourselves a disservice at the lack of investment into get that backfill of reserves, like, there's been very few new field developments, new field finds in the world in the past 10, 12 years. It's dropped off dramatically. So on that backdrop or that landscape, we feel there's a tremendous amount of run room, certainly in with what global LNG describing. There's some deals that are being done by countries that are- they're going out 27-30-year contracts for LNG supply, and so forth. So I think going forward, I'm not...
You know, we're gonna have some wavy cycles and what have you, but generally speaking, I think, the long-term driver for the energy sector globally, and how Canada fits into that, going forward, I think we're in a very, very good spot going forward.
Totally.
Super. Thank you. Little bit of an accounting question here for you, Warren, and, again, this might be something that you guys don't disclose publicly, so I just want to make sure that, I'll ask and you can answer it appropriately. How much of your 2023 and Q1 revenue is related to Evolution's natural gas to power services?
Yeah, that is information we don't break down publicly. We've just found that any type of divisional or product line type of thing, mainly for competitive reasons, we just don't want to put out that information.
Yeah, super. Understood. Another question around Evolution Power: Congrats on the great results. Can you talk about how you were able to get exclusivity to this proprietary technology?
Well, exclusivity is, that, that's, you know, there's some vagueness to that. What's happening is we're first up and best dressed, if you can think of that little nomenclature here. And what we've been doing is our, the orders and the amount of business that we're doing, certainly with this microturbine manufacturer, it's a serious amount of activity in a very short period of time. So we have got their attention, and we are working very, very closely. And, you know, as we develop that relationship going down the road, there'll be more for us to talk about. But they see us as absolute leaders in this segment of short-term mobile operations.
Like I said, these microturbines are usually installed in one location, and they stay there. They've seen what we've done with their equipment, and they are aligning very, very well behind us. So we do have their support in with strength.
Great. Super, thank you. Can you comment on your customer concentration? What percentage of sales come from the top five customers?
Warren, do you wanna take that one?
Sure, I can do that. Let me just look for some information here. We do disclose in our, in our financial statements concentration of customers.
While you're digging that up, I'll make one comment, that from-
Yeah
Depending on quarter to quarter, that those, those customers do shuffle around a little bit. So it's. So the concentration, you know, Warren might dig out those numbers and tell you those numbers-
Mm-hmm.
But they're not always the same clients because of just what's happening, project-wise in the field. Go ahead, Warren.
Yeah. No, thanks, Des. Good, that's, that's good color on, on how these numbers come about. So at March 31st, our most recent quarter, we had for that quarter, 45% of revenue came from two customers, versus in the prior year, 37% came from three customers. And we did make a comment that no other customers comprise more than 10% of revenues. So you could see that in that quarter there was some, some very large projects for a couple of our, our main customers that, generated a significant amount of revenue for that quarter.
Okay, thank you. Next question: Q1 seems to be a large portion of your full year earnings, CAD 0.08 in Q1 of 2023, versus CAD 0.12 for the entire 2023 year. Is there any seasonality to the business? And if you... so, can you explain that?
Sure. We do have historically some seasonality in our business. You could look at the cycles for the last few years, and Q1, Q4 are usually our top quarters. Q3 is close behind. And we do have a normal spring cycle when we have road bans and various types of weather issues that come about in the energy sector, that usually has our results a little bit lower in Q2. So that is very common for us, and we've seen that over the last few years.
Perfect, thank you. Can you comment on the savings that a customer would see on using the electrification versus diesel?
Oh, Des-
I-
You get that one.
Well, I mean, you know, I showed a bit of a chart on a very simplistic scenario. But clearly when you switch from diesel power on a site, just a singular that 350 kW unit, and swap in our same size unit in a micro turbine, the fuel savings are massive. I mean, look at what natural gas is trading at, you know, worldwide. I mean, at a 5.6x BTU rating, you know, what's natural gas on the Henry Hub? It's $2 and something. Multiply that by 5.6, and a barrel of oil is trading at $78. There's a massive disconnect.
So gas prices, even when we get a third party and they're paying, like I said on that chart, $7 an MCF, the difference between a liquid fuel like a diesel compared to the natural gas, I mean, it, it's an 86% savings if we bring on to our site, compressed natural gas.
Well, well, per site could be CAD 3,000-CAD 5,000 a day.
Well, actually well more than that, yeah. I mean, when you do the math, yeah.
Okay.
Yeah.
Thank you. Can you talk about what the average duration of your leases are, and what the average payback period on the equipment is?
Well, I think we've discussed that a little bit. We'll get Warren to chime in here, but we have different equipment classes. Some pay out, in simple terms, pay out, you know, much quicker than others. But, you know, Warren, give the folks an understanding of maybe what are our longest term, and then bring it down to our quickest term, in simple payout.
Yeah, they do vary quite a bit. As you can imagine, they go along with the cost of the units. You know, we mentioned earlier that a package for one turbine can run you in the CAD 1 million. You know, we have mobile structures that can come in the CAD 250,000 range per item to acquire. You know, all the way down to cording or more simplistic things like walkways that are, you know, simple to acquire, low cost, provide a very good turnover for us. We target to have our fleet within three years of a payback time for our entire fleet, and that does vary a bit, as I mentioned, but that's kind of our overall target.
So we do take that very seriously when we are doing CapEx decisions as to what the payback might be based on our daily rate and what the customer demands are, and that helps us kind of steer those decisions along the way. So, you know, like I said, we target for an overall fleet of at least a three-year payback period. Some will be quicker, some will be a little bit longer than that, but we don't skew too far off of that number, as far as going a little bit past that.
Okay, thank you. Can you talk about how many natural gas powered microturbines you currently have? How many did you have at the beginning of 2022, 2023, and sort of how you see this moving forward in terms of adding to the fleet?
Mm-hmm. Well, natural gas systems, we're past 25 discrete systems in itself. That will grow again this year with the CapEx. I think we've got another two units coming at us here in this week, so that will add to that. Obviously, going forward, where we see that going, listen, customer demand has been driving, you know, our CapEx. And we expect, like Len mentioned, we had a, I believe, CAD 6 million CapEx for 2023, and it ended up being, you know, CAD 15 million. I mean, there was a CAD 2 million piece of land in there, so call it CAD 13 million, when it was originally budgeted at CAD 6 million, and that was driven by the client asking for the equipment.
Yeah, and I want to add that, you know, we have a CAD 10 million CapEx for 2024, and we're already almost CAD 6 million into it. I mean, I just signed CAD 1.5 million worth of AFEs yesterday. So, the demand is huge right now, investors. This is the future of the oil patch and, you know, quite simply, we're just electrifying the oil patch.
Yeah, thank you-
I'll just add one more thing, how a lot of the CapEx is coming about, you know, as shown earlier in our presentation, a picture of a site with buildings and light towers and generators going on. Our customers are kind of, they are adopting the natural gas premise, and they're seeing the value of it from a cost benefit and also from an emissions benefit. So they will start in one spot and use maybe a smaller type of generator in natural gas, see how it works, compare that to everything that they've done before, make sure it's reliable, make sure we provide exactly what we're saying we can. Once they're happy with that, then they expand on that same site, so it grows to a larger generator or multiple generators.
You can imagine, you know, the paneling, the cording, the light towers, the additions all just continue on. So much of our growth is kind of that way.
Mm-hmm.
And so as we obtain new equipment or the customer comes to us and says, "hey, can you guys add this and this and this?" Perfect. We'll go acquire the equipment, add that to the site, and it kind of grows from there.
Super. Thanks.
I'll just add to that, Glen. It's kind of important. You know, three years ago, when we were in the throes of, you know, building this up, a client site would, we'd put out 160 kW unit on site, and it had some headroom. Today, very few sites have a unit that small. And, you know, for example, we're now powering things like water transfer pumps that are filling for the frack. We're powering the conveyor belts that are moving the sand from the pit up to the wellhead at the frack. So they're just plugging in more and more items, and what's happening is their demand on site is growing.
Like I said, three years ago, you know, a large generator for us was 250 kW. Now we're onto the 333-kilowatt microturbines. And like I said, this is very advanced equipment. We can actually cable them together, sync them together, and have multiple of these units, these microturbines, operating as a singular power plant. So it's got modular ability. Not only that, our technicians have remote connectivity to our units that are operating on site. So they'll see a dashboard, gas qualities coming into the unit, gas pressures, performance of the microturbine. So if anything's going sideways, we know it before anybody on site does, and we can get a field tech out there and deal with that.
That helps with that reliability of the turbine technology on site that we say to you today that when we go to a natural gas turbine as opposed to diesel, it's a tremendous amount of reduction of us going out to site to solve problems mechanically.
Okay, super.
Yeah, thank-
Thanks, guys.
Okay, good.
Go ahead, Len.
I was going to say, we have a number of clients that want to electrify their whole sites, which means the fracking, and everything else that goes with it. So when a subcontractor comes onto a site, they want that product to be electrified, so they plug into our system. So it's basically plug and play.
Super, thanks. I guess we're touching on the next question, and I'm going to combine like three or four questions here into one and then just let you guys sort of address it. But I guess all of these questions relate to the total addressable market. Have you guys done any calculation of what that market size could be in Canada and the U.S. just for these natural gas microgrid turbines? And also, can you talk about whether or not they could serve mining operations, data centers, things of that nature?
Well, all of those, and I think I explained that on our growth strategy slide. I mentioned all of those things. Like I said, we have a terrific reputation, 20 years long, in the energy sector. We have a tremendous runway in the energy sector, and we're going to make sure that we don't get distracted while we're in this position. Having said that, there are these other adjacent industries that we are very much analyzing and planning for in the future, such as the mining, both at the mining development stage and build-out and operations. The construction sites that are going on where they're not near power, those are absolutely an extension of what we do as well.
Len mentions, you know, the fracking. If we can get and we're talking with our clients about electrifying the fracking, which is an extension of what we do on site. It's just gonna take, you know, 8-15 megawatts of power, and of course, the manufacturer that we're dealing with also makes a couple of models that are, you know, 2-megawatt and 5-megawatt units as well. So we have access to that type of extension of our services. I hope that gives you an indication of where we're going with this, but we're trying to stay focused and disciplined in our growth pattern.
Yeah.
Perfect. I think the message there is the opportunity is massive. I'm doing a time check now, and I notice we're a little bit after 3:00 P.M. So again, I'm gonna remind our audience, this call is being recorded. If you need to drop off, we'll stay on for another few minutes, and we'll send around a recording. I've got a few more questions in the queue here that I think we can get to, and remember, management is open to one-on-one availability if you wanna spend more time specifically on any of these topics. Next question for you guys is, can you talk a little bit more about M&A, what the pipeline looks like, and your strategy? Clearly, you got here through M&A, and so how do you think about it going forward?
I'll take that one. With that 7-year downturn, we lost a lot of our manufacturers of these well site shacks. Des has showed you pictures of these medic shacks and offices and sleepers that are on the job sites. A lot of the manufacturers, they either pulled out or they changed their business into building modular homes. So there's a real shortage of shacks right now. With that downturn, a lot of stuff was sold off in auctions and left Western Canada. So we could use another 50 in our operation, and there's a small manufacturer in Alberta that we have our eye on.
We've been talking with him, and I think now that we've got through the busiest quarter of our year, we will start putting a little bit more time on putting, maybe putting together a deal where we can make it at manufacturer, and it's totally accretive. He can manufacture, r ight now, we're one of his biggest buyers of product, and totally accretive, very profitable, and I think would fit right into our operation, so that's in front of us. I'm hoping that will happen within this year. And then outside of that, there are some bigger opportunities, but we will deal with those as we move along. Mm-hmm.
Super. Can you just comment on multiples that you tend to look at, for paying for any acquisitions?
Well, you know, Des and I, and Warren, we've been working together for a long time, and we've never paid more than 3x EBITDA for a business. And that's in good times, and during bad times, we paid, you know, 1x EBITDA for a small company. But you know, that's our mandate, but it's more bringing them into the family of the business. In all of our acquisitions we've made, all of the employees and management and owners stayed for five years to run their business for us until we can learn their business, and five-year non-competes, and as it turned out, most of them stayed for seven, nine years. I mean, end of the day, we're building a family of companies here.
Okay, super. Thanks, Len. I think I got to most of the questions. I think the ones remaining in the queue have sort of been answered along the way. Again, to our audience, if you feel your question hasn't been answered, just email me, and we'll make sure it gets done. I have a final comment for you guys. Great job. Keep up the good work from a happy shareholder, and I'll let you guys sort of close it off with any closing remarks, and then we'll end the presentation.
Well, I'll jump in, and I'll let Des finish it off, but you know, I really appreciate everybody taking their time to hear our presentation, and like Des said, we welcome one-on-ones. We can get more detailed, I guess, and you know, thank you for taking your time.
Super. Thanks, Leonard. Thanks, Des. Thanks, Warren, and thank you to our audience. This concludes this presentation.
Thank you.
Cheers, thanks!