ACT Energy Technologies Ltd. — Management Reports 2024

Mar 27, 2024

MANAGEMENT’S DISCUSSION & ANALYSIS

Cathedral Energy Services Ltd. (the “Company” or “Cathedral”) is a publicly traded company listed on the Toronto Stock Exchange (“TSX”) under the symbol “CET”. The Company is primarily involved and engaged in the business of providing directional drilling services to oil and natural gas companies in Western Canada and the United States (“U.S.”).

This Management’s Discussion & Analysis (“MD&A”) for the year ended December 31, 2023 is dated March 26, 2024 and should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2023, as well as the Company’s 2023 interim MD&As. This MD&A is intended to assist the reader in the understanding and assessment of significant changes and trends, as well as the risks and uncertainties, related to the results of the operations and financial position of the Company. This MD&A is presented in Canadian dollars (tabular amounts in thousands), except for average revenue per operating day and per share amounts.

Cathedral uses certain performance measures throughout this MD&A that are not defined under International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS Accounting Standards”). See the “Non-GAAP Measures” section in this MD&A.

2023 KEY HIGHLIGHTS

The Company achieved the following 2023 results and highlights:

• Revenues of $545.3 million in 2023 is the highest annual revenues in the Company’s history and represents an increase of 71%, compared to $319.0 million in 2022.

• Adjusted EBITDAS[(1)] of $90.9 million in 2023, also established a new corporate record, increasing 33%, compared to $68.2 million in 2022.

• Higher U.S. and Canadian job count and operating days in 2023, compared to 2022, despite overall lower industry rig counts[(2)] .

• An increase in the Canadian average revenue per operating day of 19% in 2023, compared to 2022.

• An increase in the U.S. average revenue per operating day of 9% in 2023 Q4, compared to 2023 Q3, owing to a greater mix of rotary steerable systems (“RSS”) work.

• Net income of $10.6 million in 2023 was lower than the $18.3 million net income in 2022. The decrease was mainly related to increased acquisition-related depreciation and amortization costs which will normalize over time. In addition, the Company recognized a non-cash provision of $5.4 million in 2023[(3).]

• Cash flow - operating activities of $70.0 million in 2023, compared to $39.9 million in 2022.

• Free cash flow[(1)] of $29.0 million in 2023, compared to $25.6 million in 2022.

• The Company purchased 4,294,900 common shares of Cathedral under its normal course issuer bid (“NCIB”) for a total amount of $3.8 million at an average price of $0.82 per common share.

• The Company acquired Rime Downhole Technologies, LLC (“Rime”), a privately-held, Texas-based, engineering business that specializes in building products for the downhole Measurement-While-Drilling (“MWD”) industry in exchange for approximately U.S. dollars (“USD”) $41.0 million[(4)] .

• Subsequent to the acquisition of Rime in July 2023, loans and borrowings less cash was $67.9 million as at December 31, 2023, compared to $69.4 million as at December 31, 2022. The Company continues to focus on reducing its loans and borrowings and generating Free cash flow[(1)] in 2024.

• The Company continues to see a significant opportunity for margin expansion in its U.S. directional business by using Rimesupplied MWD systems to reduce its third-party rental costs.

(1) As defined in the ‘Non-GAAP measures’ section of this MD&A.

(3) Refer to the ‘Provisions’ section in this MD&A.

(4) Refer to the ‘2023 Acquisitions’ section in this MD&A.

(2) Per Baker Hughes and Rig Locator.

FINANCIAL HIGHLIGHTS

Canadian dollars in 000’s except for otherwise noted

		Three months ended	Three months ended	December 31,		Year ended	Year ended	December 31,
		2023		2022		2023		2022
Revenues(2)	$	145,419	$	139,148	$	545,297	$	319,013
Gross margin %(2)		20%		23%		19%		22%
Adjusted gross margin %(1)(2)		29%		31%		27%		31%
Adjusted EBITDAS(1)	$	27,369	$	30,284	$	90,884	$	68,187
Adjusted EBITDAS margin %(1)		19%		22%		17%		21%
Cash flow - operating activities(2)	$	16,589	$	23,041	$	69,984	$	39,881
Free cash flow(1)(2)	$	14,303	$	17,301	$	28,966	$	25,612
Net income	$	1,767	$	10,270	$	10,628	$	18,347
Per share - basic and diluted	$	0.01	$	0.05	$	0.04	$	0.11
Weighted average shares outstanding:
Basic (000s)		242,265		221,475		237,562		162,551
Diluted(000s)		267,828		226,564		252,597		166,130
						December 31,		December 31,
Balance,						2023		2022
Working capital, excluding current portion of loans and		borrowings(1)			$	74,865	$	60,447
Total assets					$	403,733	$	353,990
Loans and borrowings					$	78,598	$	80,535
Shareholders’ equity					$	179,468	$	153,897

(1) Refer to the ‘Non-GAAP Measures’ section in this MD&A.

(2) Refer to the ‘Reclassifications’ section in this MD&A.

RECLASSIFICATIONS

The Company has changed the presentation of certain figures in the year ended December 31, 2022 related to equipment lost-inhole reimbursements collected from customers and the corresponding derecognition of the property, plant and equipment (“PP&E”).

More specifically, the Company reclassified its gain on disposal of PP&E as follows: a) reclassified the proceeds on disposal of PP&E, related to lost-in-hole equipment, to revenues and b) recognized a write-off of PP&E for the net book value of the lost-in-hole equipment on the consolidated statement of comprehensive income. In addition, the lost-in-hole proceeds were reclassified from the Company’s cash flows - investing activities to the cash flows - operating activities on the consolidated statement of cash flows.

The Company has changed its judgement regarding equipment lost-in-hole events that are contracted with its customers in that these events are now considered to be part of its ordinary business activities. The changes are reflected in the current and prior periods, as described above.

These reclassifications recognized in the three months and year ended December 31, 2022 are summarized below:

Consolidated Statement of Comprehensive Income (Excerpt)

		Three months	Three months	ended December	31, 2022		Year	ended December	31, 2022
		Reported		Adjustment	Adjusted		Reported	Adjustment	Adjusted
Revenues:
Canada	$	42,673	$	906 $	43,579	$	117,683 $	3,833 $	121,516
United States		85,845		9,724	95,569		180,718	16,779	197,497
Total revenues		128,518		10,630	139,148		298,401	20,612	319,013
Cost of sales		(103,929)		(2,740)	(106,669)		(243,419)	(4,798)	(248,217)
Gross margin		24,589		7,890	32,479		54,982	15,814	70,796
Write-off of PP&E		—		(1,059)	(1,059)		—	(2,545)	(2,545)
Gain(loss)on disposal of PP&E	$	6,937	$	(6,938)$	(1)	$	13,492 $	(13,376)$	116

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Consolidated Statement of Cash Flows (Excerpt)

	Three months ended December	Three months ended December	Three months ended December	Three months ended December	31, 2022		Year ended December 31, 2022	Year ended December 31, 2022	Year ended December 31, 2022
		Reported	Adjustment		Adjusted		Reported	Adjustment	Adjusted
Cash flow provided by (used in):
Operating activities
Loss (gain) on disposal of PP&E	$	(6,937)	$	6,938 $	1	$	(13,492) $	13,376 $	(116)
Write-off of PP&E		—		1,059	1,059		—	2,545	2,545
Changes in non-cash operating working capital(1)		(8,283)		684	(7,599)		(27,113)	—	(27,113)
Cash flow - operatingactivities		14,360		8,681	23,041		23,960	15,921	39,881
Investing activities
Cash paid on acquisitions, net of cash acquired(1)		(55)		(733)	(788)		(104,581)	—	(104,581)
PP&E additions		(12,152)		2,855	(9,297)		(30,894)	4,497	(26,397)
Proceeds on disposal of equipment		10,501		(10,501)	—		21,795	(20,117)	1,678
Cash flow - investing activities		(615)		(8,379)	(8,994)		(115,804)	(15,620)	(131,424)
Effect of exchange rate on changes on cash	$	2,258	$	(302)$	1,956	$	2,543 $	(301)$	2,242

(1) The Company made reclassifications in the consolidated statement of cash flows for three months ended December 31, 2022 related to the cash paid on acquisitions, net of cash acquired and the respective acquired net assets. There was no impact during the year ended December 31, 2022.

NON-GAAP MEASURES

Cathedral uses certain performance measures throughout this MD&A that are not defined under IFRS Accounting Standards or Generally Accepted Accounting Principles (“GAAP”). These non-GAAP measures do not have a standardized meaning and may differ from that of other organizations, and accordingly, may not be comparable. Investors should be cautioned that these measures should not be construed as alternatives to IFRS Accounting Standards measures as an indicator of Cathedral’s performance.

These measures include the Adjusted gross margin, Adjusted gross margin %, Adjusted EBITDAS, Adjusted EBITDAS margin %, Adjusted EBITDAS per diluted share, Free cash flow, Working capital and Net capital expenditures. Management believes these measures provide supplemental financial information that is useful in the evaluation of Cathedral’s operations.

These non-GAAP measures are defined as follows:

• i) “Adjusted gross margin” - calculated as gross margin before non-cash costs (write-down of inventory, depreciation, amortization and share-based compensation); is considered a primary indicator of operating performance (see tabular calculation);

• ii) “Adjusted gross margin %” - calculated as Adjusted gross margin divided by revenues; is considered a primary indicator of operating performance (see tabular calculation);

• iii) “Adjusted EBITDAS” - calculated as net income before finance costs, unrealized foreign exchange on intercompany balances, income tax expense, depreciation, amortization, non-recurring costs (including acquisition and restructuring costs and provision), write-down of inventory and share-based compensation; provides supplemental information to net income that is useful in evaluating the results and financing of the Company’s business activities before considering certain charges (see tabular calculation);

• iv) “Adjusted EBITDAS margin %” - calculated as Adjusted EBITDAS divided by revenues; provides supplemental information to net income that is useful in evaluating the results and financing of the Company’s business activities before considering certain charges as a percentage of revenues (see tabular calculation);

• v) “Adjusted EBITDAS per diluted share” - calculated as Adjusted EBITDAS divided by the diluted weighted average shares outstanding; provides supplemental information to net income that is useful in evaluating the results and financing of the Company’s business activities before considering certain charges on a per diluted share basis;

• vi) “Free cash flow” - calculated as cash flow - operating activities prior to: i) changes in non-cash working capital, ii) income tax paid (refunded) and iii) non-recurring costs less: i) PP&E additions, excluding assets acquired in business combinations, ii) required repayments on loans and borrowings, in accordance with the Company’s credit facility agreement, and iii) repayments of lease liabilities, net of finance costs, offset by proceeds on disposals of PP&E. Management uses this measure as an indication of the Company’s ability to generate funds from its operations to support future capital expenditures, additional repayments of loans and borrowings or other initiatives (see tabular calculation).

The calculation of Free cash flow has been amended from a prior period to demonstrate a more appropriate representation of the Company’s Free cash flow by deducting the Company’s required repayments on loans and borrowings compared to no adjustment included in a prior period. It is the Company’s view that required repayments of loans and borrowings reduce its Free cash flow and, as such, should be deducted from the Free cash flow calculation.

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In addition, there were reclassification adjustments related to the cash flow - operating activities, proceeds on disposal of PP&E and PP&E additions, as described in the “Reclassifications” section in this MD&A; and

• vii) “Working capital” - calculated as current assets less current liabilities, excluding the current portion of loans and borrowings. Management uses this measure as an indication of the Company’s financial and cash liquidity position.

• viii) “Net capital expenditures” - calculated as the gross capital expenditures less reimbursements from customers for equipment lost-in-hole and damaged beyond repair, net of payments to vendors for equipment lost-in-hole or damaged beyond repair - refer to the “Capital expenditures” section of this MD&A.

The following tables provide reconciliations from the IFRS Accounting Standards to non-GAAP measures included in this MD&A.

Adjusted gross margin

	Three	months ended	months ended	December 31,		Year ended	Year ended	December 31,
		2023		2022		2023		2022
Gross margin(1)	$	29,783	$	32,479	$	105,329	$	70,796
Add non-cash items included in cost of sales:
Write-down of inventory included in cost of sales		524		107		1,501		107
Depreciation and amortization		11,171		10,660		41,019		28,687
Share-based compensation		249		302		918		622
Adjustedgross margin	$	41,727	$	43,548	$	148,767	$	100,212
Adjustedgross margin %		29%		31%		27%		31%

(1) Refer to the “Reclassifications” section in this MD&A.

Adjusted EBITDAS

	Three	months ended	months ended	December 31,		Year ended	Year ended	December 31,
		2023		2022		2023		2022
Net income	$	1,767	$	10,270	$	10,628	$	18,347
Add (deduct):
Income tax expense		5,617		5,283		9,559		4,614
Depreciation and amortization included in cost of
sales		11,171		10,660		41,019		28,687
Depreciation and amortization included in selling,
general and administrative expenses		2,289		(635)		7,596		3,009
Share-based compensation included in cost of sales		249		302		918		622
Share-based compensation included in selling,
general and administrative expenses		1,004		356		4,183		765
Finance costs - loans and borrowings		2,446		3,266		7,948		5,290
Finance costs - lease liabilities		214		200		848		784
Unrealized foreign exchange loss (gain) on
intercompany balances		69		(709)		(930)		1,802
Non-recurring expenses and inventory
write-down		2,543		1,291		9,115		4,267
Adjusted EBITDAS	$	27,369	$	30,284	$	90,884	$	68,187
Adjusted EBITDAS margin %		19%		22%		17%		21%

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Free cash flow

	Three	months ended	December 31,	Year ended	December 31,
		2023	2022	2023	2022
Cash flow - operating activities(1)	$	16,589 $	23,041 $	69,984 $	39,881
Add (deduct):
Income tax paid (refund)		4,633	(480)	5,479	(538)
Changes in non-cash operating working capital(1)		4,928	7,599	12,141	27,113
Non-recurring expenses		2,019	1,184	7,614	4,160
Proceeds on disposal of property, plant and equipment(1)		454	—	1,187	1,678
Less:
Property, plant and equipment additions(1)(2)		(8,327)	(9,297)	(46,177)	(26,397)
Required repayments on loans and borrowings(3)		(5,118)	(3,728)	(17,727)	(17,151)
Repayments of lease liabilities,net of finance costs		(875)	(1,018)	(3,535)	(3,134)
Free cash flow	$	14,303 $	17,301 $	28,966 $	25,612

(1) Refer to the ‘Reclassifications’ section in this MD&A.

(2) Property, plant and equipment additions exclude non-cash additions and assets acquired in business combinations.

(3) Required repayments on loans and borrowings in accordance with the credit facility agreement. Excludes discretionary debt repayments.

2023 ACQUISITION

On July 11, 2023, Cathedral, through a wholly-owned subsidiary, acquired Rime, a privately-held, Texas-based, engineering business that specializes in building products for the downhole MWD industry (the “Rime acquisition”) in exchange for approximately USD $41.0 million (approximately CAD $54.1 million) comprised of: i) the payment of USD $21.0 million in cash (approximately CAD $28.0 million); and ii) the issuance of principal amount of USD $20.0 million (approximately CAD $26.4 million) of subordinated exchangeable promissory notes (“EP Notes”) that are exchangeable into a maximum of 24,570,000 common shares of Cathedral (“EP Shares”) at an issue price of CAD $1.10 per common share. In accordance with International Accounting Standards (“IAS”) 32 and IFRS 13, the EP notes were determined to be a compound instrument and, accordingly, recognized at the fair value of their respective debt component of $23.4 million and equity component of $1.2 million totaling $24.6 million.

The EP Notes have a three-year term and accrue interest payable quarterly at a rate of 5% per annum. Any time prior to expiry of the EP Notes, if the 20-day volume weighted average trading price of the common shares of Cathedral equals or exceeds CAD $1.10 per common share, Cathedral may cause the exchange of the EP Notes for common shares. Cathedral and the holders of the EP Notes may agree to an earlier exchange of the EP Notes into common shares. In addition to the statutory hold periods applicable to the EP Shares under Canadian and U.S. securities laws, the parties agreed to contractual restrictions on resale of any EP Shares as follows: 33% of the EP Shares are restricted until July 11, 2024; a further 33% of the EP Shares are restricted until July 11, 2025; and a further 34% of the EP Shares are restricted until July 11, 2026, subject to certain exceptions contained in the terms governing the EP Notes. In connection with the Rime acquisition, the Company entered into a three-year term credit facility (the “Credit Facility”), replacing its existing credit facility with its syndicate of lenders led by ATB Financial (“ATB”) - refer to the “Liquidity and capital resources” section in this MD&A.

The purchase price allocation was recognized under IFRS 3 Business combinations as follows:

As at		July11,2023
Consideration:
Cash	$	27,954
Exchangeable promissory notes		24,632
Total consideration	$	52,586
Purchase price allocation:
Cash	$	528
Inventory		7,119
Other net working capital		3,373
Property, plant and equipment		3,817
Right-of-use assets		492
Lease liabilities		(492)
Intangible assets		35,850
Goodwill		1,487
Deferred tax asset		412
Totalpurchaseprice allocation	$	52,586

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2022 ACQUISITIONS

2022 ACQUISITIONS
	Discovery Compass LEXA Altitude Ensign Total
Consideration:
Number of common shares issued Common share price of issuances	5,254,112 6,253,475 1,772,727 67,031,032 7,017,988 87,329,334
	0.52 0.69 0.63 0.55 0.85
Common share consideration	$ 2,732 $ 4,315 $ 1,117 $ 36,867 $ 5,965 $ 50,996
Settlement of technology license from pre-existing relationship	—	—	644 —	—	644
Cash consideration	18,160 4,000 — 87,245 — 109,405
	$ 20,892 $ 8,315 $ 1,761 $ 124,112 $ 5,965 $ 161,045
Allocation of purchase price:
Cash Inventory Other net working capital Property, plant and equipment Right-of-use assets Lease liabilities Intangible assets Goodwill Deferred tax liability	$ — $ — $ 70 $ 4,754 $ — $ 4,824
	3,301 444 — 8,768 1,790 14,303
	— — 291 (1,068) — (777)
	17,591 8,518 — 43,667 4,175 73,951 1,579 316 — 2,354 — 4,249 (1,579) (316) — (2,354) — (4,249) — — 1,574 35,720 — 37,294 — — — 37,753 — 37,753
	— (647) (174) (5,482) — (6,303)
	$ 20,892$ 8,315$ 1,761$ 124,112$ 5,965$161,045

In 2022, the Company executed five strategic acquisitions as detailed below:

• U.S.- based company, Altitude Energy Partners, LLC (“Altitude”) in July 2022 for total consideration of $124.1 million, comprised of a cash payment of $87.2 million and a common share issuance of $36.9 million. Altitude was a privately-held, U.S.- based, directional drilling services business with headquarters in Wyoming, executive leadership based in Houston, and significant operations in Texas, most prominently in the Permian Basin. The Company continues to use the Altitude name and brand in the U.S. Cathedral’s former U.S. directional drilling business has been integrated into Altitude’s business;

• U.S.- based operations, Discovery Downhole Services (“Discovery”) in February 2022 for total consideration of $20.9 million, comprised of a cash payment of $18.2 million and a common share issuance of $2.7 million. The acquisition included the operating assets and non-executive personnel of Discovery's U.S.- based, high-performance mud motor technology rental business;

• LEXA Drilling Technologies Inc. (“Lexa”), a Calgary, Alberta based technology company, in June 2022 for total consideration of $1.8 million;

• the operating assets of Compass Directional Services (“Compass”) in June 2022 for total consideration of $8.3 million, comprised of a cash payment of $4.0 million and a common share issuance of $4.3 million; and

• the Canadian directional drilling business of Ensign Energy Services (“Ensign”) in October 2022 for total common share consideration of $6.0 million.

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RESULTS OF OPERATIONS

RESULTS OF OPERATIONS
	Three months ended			December 31,		Year ended		December 31,
		2023		2022		2023		2022
Revenues
United States(2)	$	100,106	$	95,569	$	383,904	$	197,497
Canada(2)		45,313		43,579		161,393		121,516
Total revenues(2)		145,419		139,148		545,297		319,013
Cost of sales
Direct costs(2)		(104,216)		(95,707)		(398,031)		(218,908)
Depreciation and amortization		(11,171)		(10,660)		(41,019)		(28,687)
Share-based compensation		(249)		(302)		(918)		(622)
Cost of sales		(115,636)		(106,669)		(439,968)		(248,217)
Gross margin(2)	$	29,783	$	32,479	$	105,329	$	70,796
Gross margin %(2)		20%		23%		19%		22%
Adjusted gross margin %(1)(2)		29%		31%		27%		31%

(1) Refer to the ‘Non-GAAP Measures’ section in this MD&A.

(2) Refer to the ‘Reclassifications’ section in this MD&A.

Consolidated

The Company recognized $145.4 million of revenues in the three months ended December 31, 2023, an increase of $6.3 million or 5%, compared to $139.1 million for the same period in 2022. The increase is due to a 3% increase in operating days (2023 - 7,014; 2022 - 6,822) and a 2% increase in the average revenue per operating day (2023 - $20,733; 2022 - $20,397).

The Company recognized $545.3 million of revenues in 2023, an increase of $226.3 million or 71%, compared to $319.0 million in 2022. The increase in 2023 is mainly attributed to a full year of results from acquisitions completed in 2022. For 2023, there was a 53% increase in operating days (2023 - 26,956; 2022 - 17,662) and a 12% increase in the average revenue per operating day (2023 - $20,229; 2022 - $18,062).

The Company recognized $115.6 million of cost of sales in the three months ended December 31, 2023, an increase of $8.9 million or 8%, compared to $106.7 million for the same period in 2022. The increase is mainly due to higher repairs, labour, and the inclusion of manufacturing costs related to Rime, which was acquired in July 2023.

The Company recognized $440.0 million of cost of sales in 2023, an increase of $191.8 million or 77%, compared to $248.2 million in 2022. The increase in 2023 is mainly attributed to a full year of results from acquisitions completed in 2022. In addition, the Company continued to experience inflationary costs on the business in 2023, namely higher labour, repair and equipment rental costs.

The Gross margin % decreased to 20% and 19% in the three months and year ended December 31, 2023, compared to 23% and 22% for the same periods in 2022, respectively. The Adjusted gross margin % decreased to 29% and 27% in the three months and year ended December 31, 2023, compared to 31% for the same periods in 2022, respectively. The decline in Adjusted gross margins noted above were mainly related to increased labour, repairs and equipment rental costs.

Depreciation and amortization expense included in cost of sales increased to $11.2 million and $41.0 million in the three months and year ended December 31, 2023, compared to $10.7 million and $28.7 million for the same periods in 2022, respectively, due to property, plant and equipment additions, including those related to the 2022 acquisitions.

Depreciation and amortization expense included in cost of sales as a percentage of revenue was 8% in the three months and year ended December 31, 2023, compared to 8% and 9% for the same periods in 2022, respectively.

United States segment

Revenues

U.S. revenues were $100.1 million in the three months ended December 31, 2023, an increase of $4.5 million or 5%, compared to $95.6 million for the same period in 2022. The Company realized a 13% increase in operating days to 3,625 days in the three months ended December 31, 2023, compared to 3,205 days for the same period in 2022. The increase is mainly related to the Company realizing a higher market share in the three months ended December 31, 2023. The average revenue per operating day decreased 7% to $27,615 per day in the three months ended December 31, 2023, compared to $29,819 per day for the same period in 2022, mainly as a result of a change in job mix.

U.S. revenues were $383.9 million in 2023, an increase of $186.4 million or 94%, compared to $197.5 million in 2022, mainly as a result of the U.S. acquisitions completed in 2022, including Discovery and Altitude. The Company realized a 118% increase in operating days to 14,858 days in 2023, compared to 6,818 days in 2022, mainly as a result of the Altitude acquisition. The average revenue per operating day decreased 11% to $25,838 per day in 2023, compared to $28,967 per day in 2022, mainly as a result of a change in job mix.

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Direct costs

U.S. direct costs included in cost of sales were $74.2 million in the three months ended December 31, 2023, an increase of $9.0 million or 14%, compared to $65.2 million for the same period in 2022. The increase is mainly due to higher repairs, labour and equipment rental costs. As a percentage of revenues, direct costs also increased to 74% in the three months ended December 31, 2023, from 68% for the same period in 2022, mainly due to higher repairs, labour, equipment rental and other minor costs.

U.S. direct costs included in cost of sales were $290.4 million in 2023, an increase of $153.9 million or 113%, compared to $136.5 million in 2022. The increase is mainly due to higher costs related to the 2022 acquisitions, including Discovery and Altitude. As a percentage of revenues, direct costs increased to 76% in 2023, compared to 69% in 2022, mainly due to higher labour and equipment rental costs.

Canadian segment

Revenues

Canadian revenues were $45.3 million in the three months ended December 31, 2023, an increase of $1.7 million or 4%, compared to $43.6 million for the same period in 2022. The Company realized a 6% decrease in operating days to 3,389 days in the three months ended December 31, 2023, compared to 3,617 days for the same period in 2022. The decrease in operating days is mainly attributable to lower market demand in the three months ended December 31, 2023. The average revenue per operating day increased 11% to $13,371 per day in the three months ended December 31, 2023, compared to $12,048 per day for the same period in 2022. The increase in the average revenue per operating day is mainly attributed to a change in job mix, including higher charges for premium tools.

Canadian revenues were $161.4 million in 2023, an increase of $39.9 million or 33%, compared to $121.5 million in 2022, mainly due to acquisitions completed in 2022, including Compass and Ensign. The Company realized a 12% increase in operating days to 12,098 days in 2023, compared to 10,844 days in 2022, mainly related to the 2022 acquisitions. The average revenue per operating day increased 19% to $13,341 per day in 2023, compared to $11,206 per day in 2022, mainly attributed to a change in job mix, including higher charges for premium tools, as well as price increases implemented in late 2022.

Direct costs

Canadian direct costs included in cost of sales were $30.1 million in the three months ended December 31, 2023, a decrease of $0.4 million or 1%, compared to $30.5 million for the same period in 2022. The decrease is mainly due to lower equipment rental costs incurred in the three months ended December 31, 2023. As a percentage of revenues, direct costs were 66% in the three months ended December 31, 2023, compared to 70% for the same period in 2022.

Canadian direct costs included in cost of sales were $107.6 million in 2023, an increase of $25.2 million or 31%, compared to $82.4 million in 2022. The increase is mainly due to higher costs related to the 2022 acquisitions. As a percentage of revenues, direct costs were 67% and 68% in 2023 and 2022, respectively.

Selling, general and administrative (“SG&A”) expenses

	Three	months ended	months ended	December 31,		Year ended	Year ended	December 31,
		2023		2022		2023		2022
Selling, general and administrative expenses:
Direct costs	$	14,801	$	11,814	$	52,502	$	27,933
Depreciation and amortization		2,289		(635)		7,596		3,009
Share-based compensation		1,004		356		4,183		765
Selling,general and administrative expenses	$	18,094	$	11,535	$	64,281	$	31,707

The Company recognized SG&A expenses of $18.1 million and $64.3 million in the three months and year ended December 31, 2023, an increase of $6.6 million and $32.6 million, compared to $11.5 million and $31.7 million for the same periods in 2022, respectively. The increase is mainly due to acquisition activity and discretionary short-term incentive program payments, which were approved and recognized in 2023, compared to no discretionary incentive payments recognized in 2022. SG&A expenses as a percentage of revenues were 12% in the three months and year ended December 31, 2023, compared to 8% and 10% for the same periods in 2022, respectively.

Depreciation and amortization included in SG&A were $2.3 million and $7.6 million in the three months and year ended December 31, 2023, compared to a recovery of $0.6 million and $3.0 million for the same periods in 2022, respectively. The three months ended December 31, 2022 was impacted by adjustments related to the intangible assets acquired from Altitude. The increase in the year ended December 31, 2023 amount is mainly related to a full period of depreciation and amortization of Altitude assets in 2023 and amortization recognized in relation to the intangible assets acquired from Rime.

Stock-based compensation included in SG&A were $1.0 million and $4.2 million in the three months and year ended December 31, 2023, compared to $0.4 million and $0.8 million for the same periods in 2022, respectively. The increase is related to stock options granted in the period, including those related to the Rime acquisition.

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Provision

The Company has recognized a provision of $7.6 million related to an ongoing U.S. tax audit matter. A portion of the provision was recognized as an expense of $5.4 million and a portion was recognized as property, plant and equipment and inventory of $2.2 million. The estimate was made by management using the latest information available and is subject to measurement uncertainty. Actual results may differ from this estimate.

Research and development (“R&D”) costs

The Company recognized R&D costs of $0.3 million and $1.8 million in the three months and year ended December 31, 2023, compared to $0.4 million and $1.3 million for the same periods in 2022, respectively. R&D costs are salaries, benefits and shop supply costs related to new product development and technology.

Write-off of property, plant and equipment

The Company recognized a write-off of property, plant and equipment of $1.0 million and $5.0 million in the three months and year ended December 31, 2023, compared to $1.1 million and $2.5 million for the same periods in 2022. The write-offs related to equipment lost-in-hole and damaged beyond repair. Reimbursements on lost-in-hole equipment and damage beyond repair are based on service agreements held with clients and are recognized as revenues. Refer to the “Reclassifications” section of this MD&A.

Finance costs

Finance costs - loans and borrowings were $2.4 million in the three months ended December 31, 2023, a decrease of $0.9 million, compared to $3.3 million for the same period in 2022. The decrease is mainly due to a lower outstanding balance of loans and borrowing in the three months ended December 31, 2023 compared to 2022. The decrease was offset by higher finance costs related to the Company’s EP notes issued in 2023 and higher interest rates in 2023.

Finance costs - loans and borrowings were $7.9 million in 2023, an increase of $2.6 million, compared to $5.3 million in 2022. The higher costs are mainly due to the Company's increased debt levels (including the principal amount of the EP notes), which were $105.6 million and $80.5 million as at December 31, 2023 and 2022, respectively (refer to the “Liquidity and Capital Resources” section in this MD&A). In addition, interest rates increased in 2023 relative to 2022 contributing to higher finance costs.

In addition, the Company had $0.2 million and $0.8 million of finance costs in the three months and year ended December 31, 2023 related to lease liabilities, compared to $0.2 million and $0.8 million for the same periods in 2022, respectively.

Foreign exchange

The Company recognized a foreign exchange gain of $0.6 million in the three months ended December 31, 2023, compared to $0.7 million for the same period in 2022. The Company recognized a foreign exchange gain of $0.8 million in 2023, compared to a foreign exchange loss of $2.2 million in 2022. The impact of foreign exchange is due to fluctuations of the Canadian dollar relative to the USD related to foreign currency transactions recognized in net income.

The Company recognized a foreign currency translation loss on foreign operations of $4.9 million in the three months ended December 31, 2023, compared to $3.6 million for the same period in 2022. The Company recognized a foreign currency translation loss on foreign operations of $4.3 million in 2023, compared to a gain of $8.4 million in 2022. The Company’s foreign operations are denominated in USD and differences due to fluctuations in the foreign currency exchange rates are recorded in other comprehensive income.

Income tax

The Company recognized an income tax expense of $5.6 million and $9.6 million in three months and year ended December 31, 2023, compared to an income tax expense of $5.3 million and $4.6 million for the same periods in 2022, respectively. The increase is mainly due to the Company’s acquisition of Altitude in 2022.

Income tax expense is booked based upon expected annualized rates using the statutory rates of 23% for both Canada and the U.S.

LIQUIDITY AND CAPITAL RESOURCES

Annually, the Company’s principal source of liquidity is cash generated from its operations. In addition, the Company has the ability to fund liquidity requirements through its Credit Facility and the issuance of additional debt and/or equity, if available.

In order to facilitate the management of its liquidity, the Company prepares an annual budget, which is updated, as necessary, depending on varying factors, including changes in capital structure, execution of the Company’s business plan and general industry conditions. The annual budget is approved by the Board of Directors and updated forecasts are prepared as the fiscal year progresses with changes reviewed by the Board of Directors.

Cash flow - operating activities was $16.6 million and $70.0 million in the three months and year ended December 31, 2023, compared to $23.0 million and $39.9 million for the same periods in 2022, respectively. Cathedral continues to be focused on reducing its loans and borrowings and generating Free cash flow, as defined in the ‘Non-GAAP measures’ section of this MD&A. In addition, the Company will remain opportunistic in executing its NCIB and making strategic and accretive acquisitions.

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At December 31, 2023, the Company had working capital, excluding current portion of loans and borrowings of $74.9 million (December 31, 2022 - $60.4 million).

Warrants

During the year ended December 31, 2023, 17,731,888 of the April 2022 bought deal offering warrants (2022 - 1,106,000), 575,000 of the February 2021 private placement warrants and 2,000,000 of the warrants related to the July 2021 Precision Drilling acquisition were exercised at $0.85 per warrant, $0.24 per warrant and $0.60 per warrant totaling $15.1 million, $0.1 million, and $1.2 million in gross cash proceeds, respectively. On April 26, 2023, the remaining 55,462 unexercised warrants from the April 2022 bought deal offering warrants expired.

Normal course issuer bid

On July 3, 2023, the Company received approval from the TSX to purchase up to 12,160,008, or 5%, of the 243,200,173 issued and outstanding common shares of the Company under the NCIB. The ability to purchase common shares under the NCIB commenced on July 17, 2023, and will terminate no later than July 16, 2024. The actual number of common shares purchased under the NCIB, the timing of purchases and the price at which the common shares are purchased will be subject to management’s discretion.

Under the TSX rules, the Company is entitled to purchase up to the greater of: 25% of the average daily trading volume of the respective class of shares; or 1,000 shares on any trading day; or a larger amount of shares per calendar week, subject to the maximum number that may be acquired under the NCIB, if the transaction meets the block purchase exception rule under TSX rules. Accordingly, unless a block purchase meets the block purchase exception under TSX rules, the Company is entitled to purchase up to 99,621 common shares on any trading day.

During the year ended December 31, 2023, 4,294,900 common shares were purchased under the NCIB for a total purchase amount of $3.8 million at an average price of $0.82 per common share. A portion of the purchase amount reduced share capital by $3.5 million and the residual purchase amount of $0.3 million was recorded to the deficit.

In connection with the NCIB, the Company has established an automatic securities purchase plan (“the Plan”) for the common shares. Accordingly, the Company may repurchase its common shares under the Plan on any trading day during the NCIB, including during regulatory restrictions or self-imposed trading blackout periods. The Plan commenced on July 17, 2023 and will terminate on July 16, 2024.

Subsequent to December 31, 2023, the Company purchased 2,471,700 common shares for a total purchase amount of $2.1 million at an average purchase price of $0.85 per common share.

Syndicated credit facility

On July 11, 2023, the Company entered into a three-year term credit facility, replacing its existing credit facility with its syndicate of lenders led by ATB related to the acquisition of Rime. The Credit Facility provided an approximate $137 million principal amount comprised of: i) a $59.0 million CAD Syndicated Term Facility (replacing the existing Syndicated Term Facility), ii) a new $21 million USD Syndicated Term Facility, repayable in equal quarterly installments over a five-year amortization period, iii) a $35 million Syndicated Operating Facility (previously $15 million) and iv) a $15 million Revolving Operating Facility (previously $10 million). The Credit Facility was utilized to replace and repay Cathedral’s existing credit facility. The interest rate and financial covenants remained unchanged from the existing Syndicated Facility. The maturity date of the Credit Facility was extended to July 11, 2026.

During the year ended December 31, 2023, the Company also repaid its balance owing on the Syndicated Operating Facility of $13 million. In addition, the Company made contractual repayments totaling $14.8 million related to its CAD Syndicated Term Facility, and $2.8 million related to its USD Syndicated Term Facility, reducing the carrying values to $51.4 million and $24.8 million, respectively, as at December 31, 2023. The carrying values of the CAD Syndicated Term Facility and the USD Syndicated Term Facility are net of unamortized upfront financing fees of $0.6 million as at December 31, 2023.

As at December 31, 2023, the $35 million Syndicated Operating Facility remained undrawn. In addition, the Company continues to hold a Highly Affected Sectors Credit Availability Program (“HASCAP”) loan.

At December 31, 2023, the Company was in compliance with its financial covenants, which were as follows:

• Consolidated Funded Debt to Consolidated Credit Agreement EBITDA ratio shall not exceed 2.5:1; and

• Consolidated Fixed Charge Coverage ratio shall not be less than 1.25:1

Contractual obligations and contingencies

As at December 31, 2023, the Company's commitment to purchase property, plant and equipment is approximately $8.1 million, which is expected to be incurred over the next six months.

The Company also holds six letters of credit totaling $1.7 million related to rent payments, corporate credit cards and a utilities deposit.

The Company is involved in various other legal claims associated with the normal course of operations. The Company believes that any liabilities that may arise pertaining to such matters would not have a material impact on its financial position.

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The following table outlines the anticipated payments related to contractual commitments subsequent to December 31, 2023:

Balance,December 31,2023	Carryingamount	Carryingamount	Oneyear	1-2years	3-5years	Thereafter
Loans and borrowings - principal	$	79,212 $	21,043 $	20,220 $	37,949 $	—
EP Notes - principal		26,400	—	—	26,400	—
Interest payments on loans and
borrowings and EP Notes		14,100	6,912	5,163	2,025	—
Lease liabilities - undiscounted		17,725	4,169	3,840	8,624	1,092
Trade and otherpayables		93,661	93,661	—	—	—
Total	$	231,098 $	125,785 $	29,223 $	74,998 $	1,092

Capital structure

As at March 26, 2024, the Company has 239,663,990 common shares, no warrants, 22,593,700 stock options and EP Notes that are exchangeable into a maximum of 24,570,000 common shares outstanding.

Change of Transfer Agent

Effective July 11, 2023, Cathedral replaced Computershare Trust Company, as the registrar and transfer agent of the Company’s common shares, with Odyssey Trust Company. Shareholders do not need to take any action with respect to the change in registrar and transfer agent services. All inquiries and correspondence related to shareholder records, transfers of shares, lost certificates and changes of address should now be directed to Odyssey Trust Company, through their offices in Calgary, Vancouver and Toronto: https://odysseytrust.com/.

NET CAPITAL EXPENDITURES

The following table details the Company’s Net capital expenditures:

	Three	months ended	December 31,		Year ended	Year ended	December 31,
		2023	2022		2023		2022
Motors and related equipment	$	2,818 $	3,747	$	25,604	$	12,579
MWD and related equipment		4,364	4,104		14,218		12,335
Shop and automotive equipment		151	876		2,235		876
Other		988	844		4,097		881
Gross capital expenditures	$	8,321 $	9,571	$	46,154	$	26,671
Less: equipment lost-in-hole and damaged beyond
repair reimbursements		(5,078)	(7,996)		(20,338)		(15,921)
Net capital expenditures(1)	$	3,243 $	1,575	$	25,816	$	10,750

(1) Refer to the ‘Non-GAAP Measures’ section in this MD&A.

The Company’s 2024 Net capital expenditure budget is expected to be approximately $30 to $35 million (2023 - $27 million to $32 million), excluding any potential acquisitions. The Net capital expenditure budget is targeted at growing Cathedral’s highperformance mud motors, MWD in both Canada and the U.S., and RSS in the U.S. Cathedral intends to fund its 2024 capital plan from cash flow - operating activities. The Net capital expenditure budget is defined as gross capital expenditures less reimbursements from customers for equipment lost-in-hole and damaged beyond repair, net of payments to vendors for equipment lost-in-hole or damaged beyond repair.

OUTLOOK

Global oil and North American natural gas prices weakened considerably in the fourth quarter of 2023, which caused an approximate 5% decline in both the Western Canada and U.S. average active land rig counts when compared to their respective 2023 Q3 averages (sources: Baker Hughes and Rig Locator). Specifically, West Texas Intermediate (“WTI”) oil prices began 2023 Q4 at just under USD $90.00 per barrel and exited 2023 Q4 just over USD $70.00 per barrel, more than a 20% intra-quarter move. U.S. NYMEX natural gas prices began the quarter just under USD $3.00 per million cubic feet (“mmbtu”) and exited 2023 Q4 at close to USD $2.50 per mmbtu – also close to a 20% decline.

In the futures market, oil as traded on NYMEX remains in backwardation. With each successive future month price lower than the preceding month, there is no meaningful incentive for speculators to put oil into storage as is the case when the oil futures curve is in contango. This typically implies that the current oil supply-demand balance remains healthy. As such, Cathedral believes that the current WTI oil price of around USD $80.00 per barrel is likely considered a healthy price by most of Cathedral’s exploration and production (“E&P”) clients to deploy planned oil-directed capital programs in North America for 2024.

The natural gas market outlook remains challenging in the short term with a twelve-month strip price on the U.S. NYMEX futures curve of approximately USD $2.75 per mmbtu, which compares to the approximate USD $3.00 per mmbtu strip price when Cathedral released its 2023 Q3 results. A warm El Nino winter in many key consuming North American markets dampened gas demand considerably in latter Q4 and through early March 2024, which has added to the excess natural gas being produced as a

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by-product of strong U.S. crude oil production in areas, such as the Permian. The effect of both has been a severe weakening of near-term North American natural gas prices to levels last seen at the depth of the global COVID-19 pandemic or in some cases lower. This price compression is likely to have the effect of a further weakening of natural gas-targeted activity in U.S. areas such as the Haynesville, Marcellus and the Rockies as the year progresses. Cathedral’s substantial presence in the oil-focused Permian and smaller presence in the Haynesville should act as a stabilizing influence amidst potential future E&P natural gas capital program cuts and potential declines in activity.

In Canada, the presence of natural gas liquids in the natural gas production stream gives an oil-like revenue stream to many E&P companies – a revenue stream that is much less common in U.S. operating areas. As such, Cathedral’s Canadian client base is affected to a lower degree and we expect a fairly flat overall market in 2024. A survey of energy service analysts is consistent with the Company’s view that 2024 is likely to be reasonably flat to 2023 from an overall activity perspective with a bias to some potential strengthening in the market toward the latter half of the year on improving natural gas prices. Canada has some encouraging prospects for activity in the future given it was announced recently that the gas transmission pipeline (Coastal GasLink) for the LNG Canada project has now reached mechanical completion and with the looming start-up of the Trans Mountain oil pipeline expansion in months to come. Once both projects initiate operations they should support some degree of growth and stability in incremental drilling activity in the Canadian market for many years into the future.

Finally, looking at the first quarter of 2024, Cathedral is seeing more of the same trends evidenced in the fourth quarter of 2023. The Company’s 2024 Q1 U.S. job count remains generally consistent with 2023 Q4 levels. The first ten Rime-supplied MWD kits have now been deployed into Altitude, which should also help increase divisional margins going forward as third party MWD systems are displaced. Cathedral anticipates introducing and deploying forty Rime-supplied MWD kits throughout the remainder of 2024. In Canada, Cathedral was the most active directional drilling provider in 2024 Q1 with some of the highest job counts achieved in the Company’s history. Cathedral’s clients have been particularly active in drilling wells with a high number of multi-laterals, with the Company’s proven experience in those areas supporting a growth in job count over prior periods.

CONTROLS AND PROCEDURES

In order to ensure that information with regard to reports filed or submitted under securities legislation present fairly in all material respect the financial information of the Company, management including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) are responsible for establishing and maintaining disclosure controls and procedures, as well as internal controls over financial reporting based upon The Committee of Sponsoring Organizations of the Treadway Commission (“2013 framework”).

Disclosure controls and procedures

The Company's disclosure controls and procedures (“DC&P”) are designed to provide reasonable assurance that information required to be disclosed by the Company is reported within the time periods specified under securities laws, and include controls and procedures that are designed to ensure that information is communicated to management of the Company, including the CEO and CFO, to allow timely decisions regarding required disclosure. An evaluation of the effectiveness of the Company's DC&P (as defined in Multilateral Instrument 52-109, Certification of Disclosure in Issuers’ Annual Financial and Interim Filings) was conducted as at December 31, 2023. Based on this evaluation, the CEO and CFO of Cathedral have concluded that the design and operation of the Company’s DC&P were effective as at December 31, 2023.

Internal controls over financial reporting

Management is responsible for establishing and maintaining adequate internal controls over financial reporting (“ICFR”) to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS Accounting Standards. The CEO and CFO have designed or have caused such ICFR (as defined in Multilateral Instrument 52-109, Certification of Disclosure in Issuers’ Annual Financial and Interim Filings) to be designed under their supervision to provide reasonable assurance regarding the reliability of financial reporting and preparation of the Company's financial statements for external purposes in accordance with IFRS Accounting Standards. In addition, the CEO and CFO directed the assessment of the design and operating effectiveness of the Company’s internal controls over financial reporting as at December 31, 2023 and based upon that assessment determined that the Company's internal controls over financial reporting were, in all material respects, appropriately designed and operating effectively.

Management of the Company believe that “cost effective” DC&P and internal controls over financial reporting, no matter how well conceived or implemented, can only provide reasonable assurance, and not absolute assurance, that the objective controls and procedures are met. Because of inherent limitations, DC&P and ICFR may not prevent errors or fraud.

Cathedral has limited the scope of design of DC&P and ICFR to exclude controls, policies and procedures of Rime which was acquired on July 11, 2023, the financial performance of which is included in the consolidated financial statements for the year ended December 31, 2023. The scope limitation is in accordance with section 3.3(1)(b) of NI 52-109 which allows an issuer to limit its design of DC&P and ICFR to exclude controls, policies and procedures of a business that the issuer acquired not more than 365 days before the end of the fiscal period.

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The tables below presents the summary of financial information of Rime:

	Period from July 11, 2023 to	Period from July 11, 2023 to
	December 31,2023
Revenues	$	9,267
Net income		193
	Balance,December 31,2023
Current assets	$	14,289
Non-current assets		44,309
Current liabilities		2,949
Non-current liabilities		100
Capital purchase commitments		6,240

RISK FACTORS

The operations of Cathedral face a number of risks and uncertainties in the normal course of business that may be beyond its control, but which could have a material adverse effect on Cathedral’s financial condition, results of operations and cash flows. Many of these risk factors and uncertainties are outlined in the annual information form (“AIF”) of Cathedral for the year ended December 31, 2023, which is available on SEDAR+ at www.sedarplus.ca. Additional risks and uncertainties, including those that the Company does not know about now or that it currently deems immaterial, may also adversely affect its business, financial condition, results of operations or cash flows.

GOVERNANCE

The Audit Committee of the Board of Directors has reviewed this MD&A and the related consolidated financial statements and recommended they be approved to the Board of Directors. Following a review by the Board of Directors, the MD&A and the consolidated financial statements for the year ended December 31, 2023 were approved on March 26, 2024.

SUPPLEMENTARY INFORMATION

Additional information regarding the Company, including the Annual Information Form (“AIF”), is available on SEDAR+ at www.sedarplus.ca.

NEW AND FUTURE ACCOUNTING POLICIES

Changes in accounting policy

On January 1, 2023, the Company adopted Deferred Tax related to Assets and Liabilities arising from a Single Transaction, issued by the International Accounting Standards Board as an amendment to IAS 12 Income Taxes. This amendment requires entities to recognize deferred tax on transactions at initial recognition, resulting in equal amounts of taxable and deductible temporary differences. In pursuant with this amendment, the Company adopted the Pillar Two Model Rules that provides an exception that an entity does not recognize and (or) disclose information about deferred tax assets and liabilities related to the Pillar Two Income taxes. There was no material impact on the Company’s financial statements for the adoption of this amended standard.

Accounting standards and amendments not yet effective

Effective January 1, 2024, IAS 1 - Presentation of Financial Statements, has been amended, resulting in changes to the classification of loans and borrowings as current or non-current. The amendment will help determine whether an entity has the right to defer settlement of a liability, that is subject to covenants, within twelve months following the reporting period. The Company does not expect this amendment to have a material impact on the Company’s financial statements following adoption.

Other accounting pronouncements issued, but not yet effective, in the period include: IFRS 7 Financial instruments: Disclosures, IFRS 16 Leases, IAS 7 Statement of Cash Flows, and IAS 21 The Effects of Changes in Foreign Exchange Rates. None of the new or amended standards issued are expected to have a significant impact on the Company’s financial statements.

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SUMMARY OF ANNUAL RESULTS

											Year ended December 31,	Year ended December 31,	Year ended December 31,	Year ended December 31,
							2023				2022		2021
Revenues(2)						$	545,297			$	319,013	$		62,524
Gross margin %(2)									19%		22%			(2%)
Adjusted gross margin %(1)(2)									27%		31%			18%
Adjusted EBITDAS(1)						$		90,884		$	68,187	$		4,829
Adjusted EBITDAS margin %(1)									17%		21%			8%
Cash flow - operating activities(2)						$		69,984		$	39,881	$		(3,499)
Free cash flow(1)(2)						$		28,966		$	25,612	$		(2,150)
Net income (loss)						$		10,628		$	18,347	$		(8,626)
Basic and diluted per share						$			0.04	$	0.11	$		(0.13)
Weighted average shares outstanding
Basic (000s)							237,562				162,551			65,031
Diluted (000s)							252,597				166,130			65,740
Working capital, excluding current portion of			loans and borrowings			$		74,865		$	60,447	$		15,117
Total assets						$	403,733			$	353,990	$		75,423
Loans and borrowings						$		78,598		$	80,535	$		6,035
Shareholders’ equity						$	179,468			$	153,897	$		42,504
(1) Refer to the ‘Non-GAAP Measures’ section in this MD&A.
(2)Refer to the ‘Reclassifications’ section in this MD&A.
SUMMARY OF QUARTERLY RESULTS
		Dec		Sep	Jun		Mar			Dec	Sep	Jun		Mar
Three months ended		2023		2023	2023		2023		2022		2022	2022		2022
Revenues(2)
Revenues - reported	$	145,419	$ 145,591 $		115,058 $	127,665		$	128,518 $		107,846 $	27,652	$	34,385
Adjustment		—		—	6,281		5,283		10,630		7,337	1,416		1,229
Revenues - adjusted	$	145,419	$ 145,591 $		121,339 $	132,948		$	139,148 $		115,183 $	29,068	$	35,614
Adjusted EBITDAS(1)	$	27,369	$	30,106 $	18,222 $	15,187		$	30,284 $		28,065 $	2,894	$	6,944
Adjusted EBITDAS per share - diluted(1)	$	0.10	$	0.11 $	0.08 $		0.06	$	0.13 $		0.14 $	0.02	$	0.07
Net income (loss)	$	1,767	$	5,651 $	2,416 $		794	$	10,270 $		8,658 $	(2,824)	$	2,243
Net income (loss) per share -
diluted	$	0.01	$	0.02 $	0.01 $		—	$	0.05 $		0.04 $	(0.02)	$	0.02

(1) Refer to the ‘Non-GAAP Measures’ section in this MD&A.

(2) Refer to the ‘Reclassifications’ section in this MD&A.

A portion of the Company's operations are carried on in Western Canada where activity levels in the oilfield services industry are subject to a degree of seasonality. Operating activities in Western Canada are generally lower during “spring breakup” which normally commences in mid to late-March and continues through to May. Operating activities generally peak in the winter months from December until mid to late-March. Additionally, volatility in the weather and temperatures not only during this period, but yearround, can create additional unpredictability in operational results. Activity levels in the oil and natural gas basins in the U.S. are not subject to the same level of seasonality that occurs in the Western Canada region.

FORWARD LOOKING STATEMENTS

This MD&A contains certain forward-looking statements and forward-looking information (collectively referred to herein as “forwardlooking statements”) within the meaning of applicable Canadian securities laws. All statements other than statements of present or historical fact are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “anticipate”, “achieve”, “believe”, “plan”, “intend”, “objective”, “continuous”, “ongoing”, “estimate”, “outlook”, “expect”, “may”, “will”, “project”, “should” or similar words suggesting future outcomes. In particular, this MD&A contains forward-looking statements relating to, among other things:

• Future commitments;

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• The 2024 Net capital expenditure budget and financing thereof;

• Cathedral’s purchase of Rime in July 2023 will allow the Company to address one of the major value capture opportunities in its U.S. directional business – the operating margin lost from renting third-party MWD systems.

• At current activity levels, Cathedral estimates that it is spending USD $25 million to $30 million of margin annually to third parties for MWD technology to supply on its own work, which represents a substantial opportunity for margin expansion over the next twelve to eighteen months for very reasonable levels of capital investment and very compelling rates of return.

• Rime has already supplied ten MWD systems for Altitude to help replace third-party rental products and begin the process of margin expansion in 2024.

• In a year where forecasted activity levels are anticipated to be flat-to-slightly negative versus 2023 in North America, Cathedral can demonstrate meaningful continued growth driven by a reduction in expenses utilizing organically-developed technology.

• In regard to our ongoing efforts to strengthen the balance sheet, Cathedral remains focused on paying down its loans and borrowings generating Free cash flow.

• The Company continues to target the reduction of loans and borrowings to less than 0.5x Adjusted EBITDAS by year end 2024, which should help it move closer to a broader shareholder return strategy.

• Management believes that buying Cathedral shares at current share price levels represents good value and a sensible use of capital while also staying focused on paying down loans and borrowings built up from the strategic acquisitions of Altitude and more recently Rime.

• The Company continues to see a significant opportunity for margin expansion in its U.S. directional business by using Rime-supplied MWD systems to reduce its third-party rental costs.

• Cathedral believes that the current WTI oil price of around USD $80.00 per barrel is likely considered a healthy price by most of Cathedral’s E&P clients to deploy planned oil-directed capital programs in North America for 2024.

• The natural gas market outlook remains challenging in the short term with a twelve-month strip price on the U.S. NYMEX futures curve of approximately USD $2.75 per mmbtu, which compares to the approximate USD $3.00 per mmbtu strip price when Cathedral released its 2023 Q3 results.

• This price compression is likely to have the effect of a further weakening of natural gas-targeted activity in U.S. areas such as the Haynesville, Marcellus and the Rockies as the year progresses.

• Cathedral’s substantial presence in the oil-focused Permian and smaller presence in the Haynesville should act as a stabilizing influence amidst potential future E&P natural gas capital program cuts and potential declines in activity.

• Cathedral’s Canadian client base is affected to a lower degree and we expect a fairly flat overall market in 2024.

• A survey of energy service analysts is consistent with the Company’s view that 2024 is likely to be reasonably flat to 2023 from an overall activity perspective with a bias to some potential strengthening in the market toward the latter half of the year on improving natural gas prices.

• Canada has some encouraging prospects for activity in the future given it was announced recently that the gas transmission pipeline (Coastal GasLink) for the LNG Canada project has now reached mechanical completion and with the looming start-up of the Trans Mountain oil pipeline expansion in months to come. Once both projects initiate operations they should support some degree of growth and stability in incremental drilling activity in the Canadian market for many years into the future.

• The first ten Rime-supplied MWD kits have now been deployed into Altitude, which should also help increase divisional margins going forward as third party MWD systems are displaced. Cathedral anticipates introducing and deploying forty Rime-supplied MWD kits throughout the remainder of 2024.

The Company believes the expectations reflected in such forward-looking statements are reasonable as of the date hereof but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon.

Various material factors and assumptions are typically applied in drawing conclusions or making the forecasts or projections set out in forward-looking statements. Those material factors and assumptions are based on information currently available to the Company, including information obtained from third-party industry analysts and other third-party sources. In some instances, material assumptions and material factors are presented elsewhere in this MD&A in connection with the forward-looking statements. You are cautioned that the following list of material factors and assumptions is not exhaustive. Specific material factors and assumptions include, but are not limited to:

• the performance of Cathedral's business;

• impact of economic and social trends;

• oil and natural gas commodity prices and production levels;

• capital expenditure programs and other expenditures by Cathedral and its customers;

• the ability of Cathedral to attract and retain key management personnel;

• the ability of Cathedral to retain and hire qualified personnel;

• the ability of Cathedral to obtain parts, consumables, equipment, technology, and supplies in a timely manner to carry out its activities;

• the ability of Cathedral to maintain good working relationships with key suppliers;

• the ability of Cathedral to retain customers, market its services successfully to existing and new customers and reliance on major customers;

• risks associated with technology development and intellectual property rights;

• obsolescence of Cathedral’s equipment and/or technology;

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• the ability of Cathedral to maintain safety performance;

• the ability of Cathedral to obtain adequate and timely financing on acceptable terms;

• the ability of Cathedral to comply with the terms and conditions of its credit facility;

• the ability to obtain sufficient insurance coverage to mitigate operational risks;

• currency exchange and interest rates;

• risks associated with future foreign operations;

• the ability of Cathedral to integrate its transactions and the benefits of any acquisitions, dispositions and business development efforts;

• environmental risks;

• business risks resulting from weather, disasters and related to information technology;

• changes under governmental regulatory regimes and tax, environmental, climate and other laws in Canada and the U.S.; and

• competitive risks.

Forward-looking statements are not a guarantee of future performance and involve a number of risks and uncertainties some of which are described herein. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause the Company's actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the risks identified in this MD&A and in the Company's Annual Information Form under the heading “Risk Factors”. Any forward-looking statements are made as of the date hereof and, except as required by law, the Company assumes no obligation to publicly update or revise such statements to reflect new information, subsequent or otherwise.

All forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement. Further information about the factors affecting forward-looking statements is available in the Company's current Annual Information Form that has been filed with Canadian provincial securities commissions and is available on www.sedarplus.ca and the Company's website (www.cathedralenergyservices.com

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