Thank you for standing by. This is the conference operator. Welcome to Total Energy Services' first quarter conference call and webcast. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press Star, then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing Star and zero. I would now like to turn the conference over to Daniel Halyk, President and CEO of Total Energy Services, Inc. Please go ahead.
Thank you and good morning. Welcome to Total Energy Services first quarter 2023 conference call. Present with me is Yuliya Gorbach, Total's VP Finance and CFO. We will review with you Total's financial and operating highlights for the 3 months ended March 31st, 2023, and then provide an outlook for our business and open up the phone lines for questions. Yuliya, please go ahead.
Thank you, Dan. During the course of this conference call, information may be provided containing forward-looking information concerning Total's projected operating results, anticipated capital expenditure trends, and projected activity in oil and gas industry. Actual events or results may differ materially from those reflected in Total's forward-looking statements due to a number of risks, uncertainties, and other factors affecting Total's businesses and the oil and gas industry in general. These risks, uncertainties, and other factors are described under the heading Risk Factors and elsewhere in Total's most recently filed annual information form and other documents filed with Canadian Provincial Securities Authorities that are available to the public at www.sedarplus.ca. Our discussions during this conference call are qualified with reference to notes to the financial highlights contained in the news release issued yesterday.
Unless otherwise indicated, all financial information in this conference call is presented in Canadian dollars. Total Energy's financial results for the 3 months ended March 31st, 2023, represent record quarterly results. Underpinning our first quarter results was improved North American industry conditions in all business segments and the deployment of equipment upgraded pursuant to our 2022 capital expenditure program. First quarter consolidated revenue increased 42% on a year-over-year basis and continued to substantial year-over-year increases in cash flow, EBITDA and net income. Geographically, 56% of first quarter revenue was generated in the United States, 33% in Canada, and 11% in Australia. This represents the second consecutive quarter that the United States has surpassed Canada as the largest contributor to consolidated revenue.
By business segment, compression and process servicing generated 43% of the first quarter consolidated revenue, followed by contract drilling services at 32%, well servicing at 14%, and rentals and transportation services at 11%. In comparison, for the first quarter of 2022, the CPS segment contributed 36% of consolidated revenue, contract drilling services 37%, well servicing 17%, and the RTS segment contributed 10%. Consolidated first quarter gross margin of 26% was 6 percentage points higher than Q1 of 2022. This 30% improvement was driven by improved margins in all business segments that was sufficient to more than offset the drag on consolidated gross margin arising from the increased year-over-year relative revenue contribution of the lower margin CPS segment.
Selling, general, and administration expenses for the first quarter of 2023 increased by CAD 2.6 million or 30% compared to Q1 2022, as higher profit-based employee compensation was recognized. Increased drilling activity in Canada and stable activity in Australia offset somewhat lower activity in the United States, resulting in a 7% year-over-year increase in first quarter consolidated operating days in CDS segment. This, combined with increased pricing in all jurisdictions, resulted in a 22% year-over-year increase in first quarter CPS segment revenue, a 77% increase in segment EBITDA, and 47% increase in segment EBITDA margin. In Canada, increased activity and market share gains contributed to an 18% year-over-year increase in first quarter operating days.
Price increases, in part due to rig upgrades, resulted in a 10% year-over-year increase in first quarter Canadian drilling revenue per day, which in turn gave rise to a 30% year-over-year increase in Canadian drilling revenue and an 11-fold increase in operating income. In the United States, first quarter revenue increased by 12% as 33% year-over-year increase in revenue per operating day more than offset a 16% decrease in operating days arising from downtime between various customers drilling programs. Despite the revenue increase, cost inflation and low activity contributed to year-over-year decline in the first quarter US CPS operating income. In Australia, consistent with first quarter drilling rig utilization and a 15% increase in revenue per operating day contributed to a 15% year-over-year revenue increase and a 27% increase in operating income. The RTS segment also benefited from improved North American industry conditions.
A 12% year-over-year improvement in first quarter equipment utilization, combined with 41% increase in revenue per utilized piece of equipment, resulted in a 59% year-over-year increase in first quarter revenue in the RTS segment. This segment's leverage to high activity levels, given its relatively high fixed cost structure, was demonstrated by a 73% year-over-year increase in segment EBITDA and a 1 percentage point increase in EBITDA margin despite significant year-over-year cost inflation. First quarter revenue in Total CPS segment increased by 68% as compared to 2022. This segment saw the 10th consecutive quarterly increase to its fabrication sales backlog, which was 26% higher on a year-over-year basis and 4% higher on a sequential quarterly basis.
Increased equipment overhaul activity provided tailwinds for CPS segments parts and service and rental businesses lines, with first quarter utilization of the compression equipment fleet increasing by 50% as compared to 2022. CPS segment EBITDA for the first quarter of 2023 increased by 287% on a year-over-year basis, with improved pricing and increased activity driving a 117% year-over-year increase in first quarter EBITDA margin despite significant cost inflation. The wealth servicing segment saw first quarter revenue increase by 19% as compared to 2022 and depend by an 8% increase in consolidated service hours and 11% increase in revenue per service hour. Increased service hours in North America were somewhat upset by a decrease in Australia as one active rig was taken out of service for recertification.
Improved North American pricing and utilization drove a 26% year-over-year increase in first quarter segment EBITDA and a modest increase in segment EBITDA margin. From consolidated perspective, Total Energy's financial position remains very strong. During the first quarter of 2023, Total reduced its bank debt by CAD 5.5 million of 5% and repurchased 975,000 common shares under its normal course issuer bid at a cost of CAD 8 million. Total net debt position at March 31st, 2023 was CAD 11.4 million. On April 12th, 2023, we extended the term of our syndicated credit facility to November 10th, 2026. Given the significant repayment of debt since our last renewal and in order to reduce costs, we requested a CAD 50 million reduction to the facility limit, which is now CAD 170 million.
Including an undrawn CAD 5 million operating facility maintained by a subsidiary, Total currently has CAD 105 million of credit available under its CAD 175 million of existing credit facilities. Total Energy's bank covenant consists of maximum senior debt to trailing twelve months bank-defined EBITDA of 3 times and a minimum bank-defined EBITDA to interest expense of 3 times. At March 31, 2023, the company's senior bank-to-bank EBITDA ratio was 0.36, and the bank interest coverage ratio was 30.59 times.
Thank you, Yuliya. We are pleased with our first quarter results. As Yuliya mentioned, not only do they represent record quarterly results for Total, but they also reflect the success we have had in growing our business in the United States, particularly in our CPS and RTS segments. That said, Canada remains an important market to us and we continue to see opportunities to grow our market share following several years of industry contraction. For example, we recently contracted one of our AC triples with a Canadian producer. This rig has been moved to Canada from the US and is currently being recertified and retrofitted for a drilling program scheduled to commence in June.
In response to continued strong demand for our high-spec doubles and singles in Canada, as well as for certain equipment in our RTS and well servicing segments, our board of directors has approved a CAD 14.4 million increase to our 2023 capital expenditure budget. This increase will accommodate higher anticipated upgrade and maintenance costs arising from the sustained increase in demand for such equipment that we are experiencing. A portion will also be directed towards new equipment purchases such as drill pipe. With CAD 30.3 million of our increased 2023 capital budget having been funded during the first quarter, the remaining CAD 35.8 million will be funded with cash on hand and cash flow. While industry conditions remain stable and positive, global economic uncertainty and commodity price volatility give rise to caution.
In such environment, we will continue to prudently manage our balance sheet and take advantage of depressed public market energy valuations by repurchasing our shares. From January 1st of 2023 to today, we have reduced our share count by 1,150,000 shares or 2.8%. We also continue to identify and evaluate numerous growth opportunities, but necessarily weigh such opportunities against the economics of continuing to repurchase our shares at a historically low valuation. Finally, I would like to invite you to attend our annual general meeting of shareholders that is being held this coming Tuesday, May 16th at 10:00 A.M. at the Calgary Petroleum Club. I would now like to open up the phone lines for any questions.
We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. The first question comes from Cole Pereira with Stifel. Please go ahead.
Hi. Good morning, all.
Good morning, Cole.
The compression business looks really good this quarter. Obviously, the backlog is strong, but can you just share any details about, you know, how you kind of see that business evolving throughout the remainder of the year in terms of financial performance?
As we mentioned in our Q4 call, we expected margins to improve, you know, that group delivered, you know, they continue to see strong activity and, you know, good visibility for the remainder of the year. You know, that's a business that I think is being driven as much by long-term infrastructure investment as it is to short-term gas prices. You know, our backlog there gives us pretty good visibility for the remainder of the year, we'll continue to try and execute and improve the profitability.
Got it. Just on the AC triple rig move, any further details you can offer on how much the upgrade will cost and the duration of the contract?
It's more retrofitting as opposed to upgrade. The rig was in good shape, but obviously when you bring a rig from the US to Canada, you've got to certify it for Canadian requirements, as well as, you know, things like changing gauges from imperial to metric and you know, equipping it for winter work, so plumbing in boilers and all that kind of stuff. Really no upgrades. It's a very good rig, but we had an opportunity to deploy it with a very good operator in Canada, and it'll commence work here in June.
Got it. Just on the Canadian drilling front, can you talk about what you're seeing for the second half of the year, just in terms of activity, you know, where pricing might be going, et cetera?
We're in the middle of breakup right now, but current indications are we're gonna have a very strong post breakup in Canada.
Got it. Okay. That's all for me. Thanks. I'll turn it back.
Thanks, Cole.
The next question comes from Josef Schachter with Schachter Energy Research. Please go ahead.
Good morning, Dan and Julio. Congratulations on the quarter. The markets sure likes what you've done. It's pushing up 9% on the day right now, they love the numbers. On the compression, adding to a little on that, are you starting to see you know, equipment sizes that people are buying for compression and for the facilities that they're gonna be building in northeast BC and northwest Alberta for LNG takeaway? What sizes are you building, and are you building the biggest sizes that may be needed by, you know, TC Energy and others? Or is that a different business run by larger entities?
Josef, basically, we will build as big a package for gas-driven and electric-driven compression as anyone will build. Where we generally don't play is turbine driven compressors. That's a very, very niche market. But anything, you know, with gas drive or electric drive, we'll build the biggest that's out there. you know, on the gas-driven side, you've got the Cat 3616 is the biggest engine. You know, we're a big player in that market. Electric drive, we built, you know, north of 10,000 horsepower packages. We compete, I would suggest, in well over 90% of the market, and so we'll build pretty much anything there.
Are you starting to see, long-term, delivery requirements into 2024, 2025, 2026, for LNG takeaway from, you know, any of the potential projects that everybody's talking about on the West Coast?
Currently, a big portion of our business is US infrastructure. My sense is there's going to be a round in Canada coming. You know, we're obviously playing in it, but I would say the immediate term is more driven south of the border. You know, the lead times on, for example, Cat engines are north of a year, so we've had to step up our inventory investments to put ourselves in a good position to compete as, you know, increased Canadian activity occurs over the next several quarters as we expect. Honestly, I would say most of our current Q1 activity is demonstrated by our revenue mix on a consolidated basis, you know, north of 50% coming out of the US A lot of that is driven by US compression deliveries.
Good. Is there any, a number of companies that are involved in activity in Australia have talked about difficult times there, no real improvement in their profitability. Can you talk about when you see Australia being a more generous contributor, and what will it take to get there?
We've seen a bit of the same. I think over the last year, Australia seems to lag North America both up and down. Three, four years ago, it definitely contribute above its weight as North America was going down, and it's kind of lag. Our drilling group had a good quarter there. You know, we've over the last year, diversified our customer base quite a bit. As you know, we've got a 6th rig that'll be heading over there in Q1 of next year. On the service rig side, definitely seen some pullback there a bit. Part of it is just customers trying to catch up with programs and a bit choppy with weather. You know, weather's always an issue in Australia.
Yeah, no, you know, Australia is a good market for us. We look forward to the next year. I think, we position ourselves to have a good market share in both drilling and well servicing, and I'm optimistic over the next couple of years.
Lastly, for me, you mentioned, M&A, M&A activity not really providing the returns versus buying back the stock. Are you contemplating, given the great financial results and your optimism about later this year, that the board would look at potentially raising the regular dividend sometime in this year as a possibility?
I would defer to the board, you know, as they consider that in due course. Certainly, you know, as you know, Josef Schachter, we're committed to shareholder returns, and I think, our board is always looking at ways to do that in a, you know, in a sustainable manner and also get the biggest bang for our buck.
Yeah. Yeah. Well, thanks very much, congratulations on the great quarter, the market is voting very favorably in for the company today.
Great. Thank you, Josef.
The next question comes from John Bereznicki with Canaccord Genuity. Please go ahead.
Yeah, thanks. Good morning, everyone.
Good morning, John.
Good morning.
Most of my questions were answered here, but one big picture question for you here. I mean, with the Blueberry agreement, you know, and LNG, you know, moving closer to first gas, do you get the sense that maybe Canada could have a bit of a leg up on the US in some regards? In that light, you know, your rig relocation, could there be more to come in terms of assets coming back to Canada?
I think in our year-end conference call, I recall someone asking a question about, you know, demand for our heavy end, and I think my question was, where are the rigs gonna come from? I know now where one of them is coming from. You know, the reality is, B.C., definitely on a year-over-year basis, has increased dramatically. I think, you know, if you look at the Canadian well count, March actually had higher activity than January and February, and a lot of that increase was B.C. I think the moratorium on well licensing in B.C. really, you know, has put that area on, a bit under the gun.
You know, your drilling is your lead indicator and, you know, to, I think, Josef's question, compression always follows. Drilling and, you know, we're reasonably bullish on Canada here in the next next while.
Got it. That's terrific color. Appreciate it. You know, that's it for me. Thank you.
Thanks, John.
Once again, if you have a question, please press star, then one. The next question comes from Tim Monachello with ATB Capital Markets. Please go ahead.
Hey, good morning.
Good morning, Tim.
I just wanted to focus in on the RTS segment. It probably doesn't get enough airtime. You know, I guess Q4, Q1, we've seen a step change in revenue from the first half of 2022. The margins are really strong in Q1 here. How should we think about demand going forward? Was there anything, you know, one time in nature? Is this just sort of a culmination of efforts to get equipment to the right markets over the last, you know, through 2022 that's starting to come to fruition now?
Sorry, was that RTS, Tim?
Yeah.
Okay. Yeah, no, I think, you know, first of all, you know, that segment historically in Canada, you know, has been much larger. You know, we've had a rough 7 years in Canada, really since 2015. You know, we've spent a lot of time and effort rationalizing the cost structure and, you know, time and expense to bring equipment to seed our US operations. You know, our utilizations are steadily creeping up, and we continue to see that, you know, provided we have stable industry conditions. I think the biggest driver we're gonna see over the next year is there are a lot of entities leaving the market. It's been tough.
As much as, you know, demand increases will help drive that business, I think equally, if not more so, will be contraction in supply. You know, we're long-term thinkers. It's been tough. You know, we've had to weather some pretty tough years there, but we're starting to get a payback, and I'm optimistic, you know, that we'll continue to improve the business there, you know, including by, you know, increasing market share. You know, we'll see. Again, pleased with the direction it's going and, you know, it's been a tough many years, but we're going in the right direction. You know, it's not the high fixed cost structure, you just need to get that utilization up and get the pricing up.
Has there been any change in marketing strategy or anything, in Canada? The revenue, you know, has been... It was really strong in Q1. You know, outpaced the growth in industry activity on a year-over-year basis. Is there anything more to it than-
No.
just-
Just do a good job for your customers. You know, give good quality equipment. You know, it's, it seems like a simple business, but there's a lot of moving parts, and you've got to deliver. You know, the last thing your customers want is a frack being held up, because you've got improperly serviced tanks. You know, so we've always committed to do a good job. You know, we declined business in tougher times where it didn't make sense. You know, we weren't prepared to wear our equipment out for nothing. Now we're starting to get a benefit of it. You know, there were competitors that chose to work at prices that we believe weren't sustainable, some of them are gone and more are leaving. It's a capital-intensive business as well.
You know, to wear your equipment out just for no money is just not our way, and we will try to avoid that as best we can.
Okay.
No change in strategies.
Okay. The Australian rates in the drilling segment were up pretty strongly from 2022 levels. Is that just the absence of weather-related impacts and less standby?
Partly that, yeah, less, standby, but also, we upgraded, two rigs, and so you got the full impact of that. We also, there's been some general price increases in that market as well.
Okay. Good to see in the well servicing business that rates are continuing to improve. Do you expect that to continue to move in the, in the right direction, or are we starting to reach a stabilization?
I think, breakup's always a time where everyone takes a deep breath. I don't really. You don't have a lot of clarity or visibility in breakup in spot market priced businesses. I think, you know, generally we look to see where we're at post-breakup, and, you know, that'll give us a better indication of pricing. I would say, our visibility, obviously, and compression is strongest given the nature of the contracts there. Drilling, we're seeing you know, good visibility post-breakup, and typically service rigs will follow your drilling rigs.
That's all for me. Thanks so much for that.
Thanks, Tim.
This concludes the question and answer session. I would like to turn the conference back over to Mr. Halyk for any closing remarks. Please go ahead.
Thank you all for participating in our conference call, and I look forward to seeing some of you at our AGM next week. Have a good weekend.
This concludes today's conference call. You may disconnect your lines. Thank you for participating. Have a pleasant day.