Bri-Chem Corp. Letter to Shareholders

Core Viewpoint - Fiscal 2026 represents a significant turning point for Bri-Chem, with a strategic realignment aimed at enhancing competitive positioning, financial resilience, and operational execution [1] Strategic Initiatives - The reconstituted Board possesses over a century of combined experience in drilling chemicals, focusing on internal manufacturing, commercial discipline, working capital efficiency, and improved returns on invested capital [2] - A core strategy involves optimizing the product portfolio by transitioning select third-party products to internal manufacturing, which aims to recapture margins and reduce supplier concentration risk [3] - A comprehensive product review is being conducted to rationalize underperforming SKUs and introduce higher-performing chemistries, enhancing margins and customer penetration [4] Sales and Market Development - The sales strategy is being realigned to engage operators and service companies earlier in the well-planning process, improving product pull-through and reducing margin dilution [5] - International market development is prioritized, with plans for expansion into the Middle East, Far East, Caribbean, and South America, representing modest near-term investments with potential for significant long-term returns [6] Operational Changes - The company has decided to exit the oil-based mud business, reallocating capital and inventory towards higher-margin technologies, which is expected to improve overall profitability [7] - A revision of the customer return policy is underway to limit unrestricted returns, aiming to reduce inventory volatility and margin erosion [8] - The operating footprint is being rationalized through the closure of underperforming facilities in Canada and the U.S., with expected substantial SG&A savings from workforce optimization and real estate consolidation [9] Financial Outlook - These initiatives are projected to deliver financial benefits, including gross margin expansion, reduced interest expenses, and over $1.6 million in annualized SG&A savings, positioning Bri-Chem for a simpler and more resilient operating model [10] - The broader industry outlook for 2026 is stable to modestly improving, driven by LNG demand, increased cementing activity, and a shift towards frac-based production, with diversification into adjacent chemical markets reducing exposure to drilling-cycle volatility [11] - The management team is committed to restoring operational strength and unlocking long-term shareholder value, laying the foundation for a stronger company in the years ahead [12]