Q1 2022 Trican Well Service Ltd Earnings Call

Good morning Ladies and gentlemen. Welcome to the triiccan well service. First quarter 2022: earnings results conference, col and webcast.

As a reminder, this conference call is being recorded.

I would now like to turn the meaning over to MR bradfordora, President and Chief execut Officer. I would tricanwell service loed. Please go ahead, miss fordora.

Thank you very much. Good morning, Ladies and gentlemen. I'd like to thank you for attending the trycan conference call the brief outline on how we intend to conduct the calls. First, scot mats and our Chief Financial Officer will give an overview of the quarterly results and I will address issues pertaining to current operating conditions and near-term outlook. Daniel officinski will talk about logistics and new technologies, and then we will open up the call for questions's. Several members of our team are here with with us today and we will be available to answer any questions that may that may arise. I'll now turn the call over to scot.

Thanks Brad. So this before we begin. I'd like to remind everyone that this call may contain forward-looking statements and other information based on current expectation for the company. Certain material factors are assumptions that were applied in drawing conclusions or making projections are reflected in the forward-looking information section of our first quarter 2022 M da. Number of business risks and uncertainties could cause actual results to differ materially from these forward-looking statements and our financial outlook. Please refer to our 2021 annual information form. In the business risks section are our M da for the year end of December 30, first 2021, for a more complete description of business risks and uncertainties facing tric an. These documents are available on our website and on SEDAR. During this call, wewill will refer to several comment industry terms and will use certain non-GAAP measures which are more fully described in our 2021 annual M da and in our first quarter 2022 M da. Our quarterly results were released after close of market last night and again are available both on SEDAR and our website. So with that I'll move to our results for the quarter. Most of my comments will draw comparisons to the first quarter of last year and I'll provide some commentary with respect to our results on a sequential basis compared to Q4 of 2021 as well.

The quarter started off a bit slower than we'd expected due to some extremely cold weather experience coming out of the holiday break, but then ramped up fairly steadily after that. Activity levels across our service lines were pretty significantly improved versus last year following continued strong commodity pricing and a generally more constructive industry environment to start the year. These factors led to an averaged Western Canadian rig count of just over 200 for the quarter, moving up meaningfully from Q4 2021 levels and quite a bit stronger than the Q1 levels of last year.

Revenue for the quarter was 219 million, an increase of 48% compared to our results from Q1 of 2021. And from an activity perspective, our overall job count year-over-year was up about 13% and total profit pumped, which is a decent measure of well intensity and activity, was up 12% year-over-year.

The other major factor influencing our revenue for the quarter was a generally stronger pricing environments compared to this time last year. However, as you can tell from our relatively flat margin percentages year-over-year, we gained very little on the profitability side, as sharpenedand continuing inflation mermory pressures absorbed virtually all of the uplift.

Fracturing operations were busyier sequentially from Q4 of 2021 and significantly bus busy asys compared to the same period of last year.

We were very pleased to deploy our first Tier four dynamic gas blending frac spread coming into the year. The feedback on its operating performance has been very positive and we're seeing increasing demand for the most advanced equipment in the basin.

This brought our fracturing crewcount to seven for the quarter, with utilization of approximately 85%.

Our operations continue to be focused on pad-based programs, which helped minimize both downtime and travel time between jobs and helps our overall efficiencies, with fracturing margins remain effectively stable year-over-year compared to last year, as inflationary pressures experienced coming out of the year-end and through the first quarter served to offset most of the pricing improvements that we realized.

Our cementing service line benefited from increased rig count which provided steady utilization through much of January and February before slowing in mid-March going into spring breakup. Coiled tubing operating days increased 17% sequentially, driven by first call work with our core customers and our ongoing efforts to grow that portion of our business.

Adjusted EBITDA came in at 38.9 million, a significant improvement over the 27.3 million we generated in Q1 of 2021.

And I would note that our adjusted EBITDA figure includes expenditures related to fluid and replacements, which total one point six million in the quarter and were expensed in the period.

I would also note there was no contribution this quarter from the Canadian emergency wage and rent subsidy programs that were in place throughout 2021, which contributed five point five million to the first quarter of 2021.

It's also important to note that our adjusted EBITDA calculation does not add back the effects of cash settled stock-based compensation amounts. So to more effectively isolate these amounts and more clearly show the results of our operations, we've added the additional non-GAAP measure of adjusted EBITDA to our ongoing disclosures.

We recognized three million in expense related to cash settled stock-based compensation expense in the quarter, which reflects the rapid rise in our share price since the year-end.

Adjusting for these amounts. Strike generated 42 million imbit doas for the quarter, compared to the 27.3 million generated in the same period of 2000 and twenty-oneon a consolidated basis. We generated positive earnings of 13.3 million in the quarter, or five cents of share, and we are again very pleased to show positive earnings in the quarterthe second metric that we added to our ongoing disclosure is free cash flow, which we more fully outlined in our Y two mdna, but effectively our definition of free cash flow that do less nondiscretionary cash based expenditures, such things like interest, cash taxes, cash settled, stock-based comp and maintenance capital expenditures.

truck-end generated free cash flow of three point four million during the quarter, as compared to about 22 million in Q1. Of twent thousand and 21 stronger operational performance, partially offset by budgeted higher maintenance capital expenditures in the quarter.

Capital expenditures for the quarter total 21.1 million, split between maintenance capital of nine point two million and our upgrade capital of 11: nine million, dedicated mainly to our ongoing capital refurbishment program, upgrading a portion of our conventionally powered diesel pumper fleet with Tier four DGB engines.

Balance sheet remains in excellent shape as we exit the quarter, with positive noncash working capital of about one point one one one billion and no long-term bank debt.

Finally with respect to our NCIB program, we remained active during the quarter and repurchased and canceleded approximately two point eight million shares at an average price of $3 of 22 cents per share. We continue to view share repurchases of a good long-term investment opportunity for a portion of our capital in the context of returning capital to our shareholders.

So with that I'll turn the call back to Brad from that. Ok, thanks got. I'll try to keep my comments as brief as possible because most of the outlook in the commentary that we're to talk about today is quite consistent with our last conference call, which was just a few weeks or two months ago, I guess. So really nothing has changed. I think the our view on this year and next year continues to improve. Q1 activity significantly increased across all of our business lines when you compare it to Q4, and that's a result of commodity prices. We got one hundred dollar oil, $7 gas for the first time since I think the late two thousands our customers wells, are paying out in a matter of months. So that's where we're very pleased to see that you they're making money and their viewing their, their plays as great investments, especially in the context of what's happening around North America. We had an average of over two hundred rig running for the quarter. So, all things considered, generally the oil field activity.

It's pretty good. I mean, we did have a slow start to the quarter just because everybody, I think, paused that Christmas, and then by the time wells get drilled and then we get on to the completion side where we fit in. That takes a few weeks and 'sto be expected and there's always a and also we had some really bad cold weather that affects field activity and rail, but that's always to be expected. I CAn't remember a Q1 where we haven't had some type of weather event and so we build that into our budgets and certainly nothing that should be surprising there. The other thing I guess that is different this time around is we did have ongoing COVID-19 interruptions in the field, where we would have various field crew shut down for a day or two and we would have to scramble to get people to work days off, et cetera, but nothing that we didn't sort of manage our way through. But I think thankfully, that seemed to have almost disappeared and I think we're getting back to a normal with respect to with respect to COVID-19 in Western Canada.

You know we peak, that we averaged over just over 200 rigs. We peak at 200, thirty four rigs. We actually didn't get the completions activity that you would expect with that type of rig count and a lot of that activity is spilled into Q2 and as a result, we should have a fairly decent Q2. But we didn't see the tightening in the system that would correspond to the rig counts and I think we'll talk about this in the second year but and think we're going to see that forthe second half of the year. So far q:2, you know we're sitting at 90 rigs, which is a lot better than the 60 we had last year. Know we're almost halfway through breakup And so we should start to see activity, start to build momentum for the second half of Q2. And so you know things: the snow was gone, is starting to dry up and our customers are pretty anxious to get back to work. Majority of our business remains in B, C and the Alberta, Montney and deep Basin. Nothing's going to change there, you know. As you know, we have $105 oil. We are seeing oil plays Southeast of satchew and thro, Southeast and Southwest askatchew and and Southeast Alberta, you know. Know they are, they are, they are very active and we expect that they will be active. And now, with these gas prices, you know we're starting to see plans unfold for C, B M wells, which is shallow gas drilling.

It's coil base to use nitrogen in set of water. It's something that we're all very familiar with and we think tricon has an advantage in that play. So we'll be active throughout the winter and we expect that might even get more active in the next few years. We ran in the quarter. We ran sort of 6- seven crews, depending on the week: 18 cement crews and seven coil crews. So nothing's really changed there. We did add that seventh crew in the Q1.

Staffing is continues to be an issueyou know our issue is getting people to stay in the industry, and that's a priority. Obviously, if we want to expand- and we want to- we see our customers activities expand and we want to be able to keep up with them- obviously we need to not only attract people, but we need to be able to retain them. We're still losing people out of the oil and gas oil field and we're losing them to other industries as their wages increase and you know they look for better work life balance, and soyou know we're going to continue to try to get creative and address those issues going forward. But certainly the labor issue, as both know, an issue that need to work through, but also it's maybe not such a bad thing because it LL keep the oil field service companies from expanding too quickly, And so something that needs to be managed. But I think we're doing a good job of working our way through. We had- we had D C, EBITDA for the quarter and, of course, you- we've talked about this previouslyi think we need to start talking more about free cash flow than we do. Ebitda, the iice thing about free cash flows- that cleanses all the balance sheet inconsistencies between the companies and addresses the fact that some of this equipment needs significant repairs. And whether you choose exp, expen or or capitalize, you know it all gets caught up in F cash flow, and I think, in general, the market wants to see companies that are generating good free cash flow on their assets.

I think scot talked about that already. So we were. We were successful in raising prices. If you look at this versus sort of a year ago, we up anywhere from fif the 25% in our various service lines, depending on the customer and depending on the situation. Unfortunately, all of our increases were generally offset by cost inflations. So our margins have been frustratingly stable for the last 12 months. I mean we operated at a gin Vantage compared to our competitors for the last sort of 50 months, but you we would have thought by now we would have started to see margins in the mid twenty's, which is really where we where we need to be if we want to have a double digit return on invested capital. But I think we'll get there, you know it'll. Just it LL take more discussions with our customers and you know, obviously I think our customers want to see us have a sustainable business and so we'll continue to work diligently about, you know, getting some margin capture for us and not just passing it on to our suppliersyou know we did see that the inflationary pressures early and you know in Q4, Q1 we were able to mean or maintain our margins when know, many people were having margin erosion. but- and that just you know, we have a lot to our, to our, to our supply chain group on making sure that we were ahead of that and you know we'were able to model that through the winter. We'll continue to be stayed diligent on that.

And you know the inflationary pressures are' going away. You know, and I think everybody knows, with when you have $100 100, five dollars oil, there's a huge increase in diesel pricing and diesel impacts literally the entire supply chain. Nothing, nothing gets excluded and it doesn't matter it's. You know San chemicals trucking, everything. You know just even third party services at the basis, I mean they have to run trucks So diesel just ripplple through the entire, the entire supply chain. And and you know what was unfortunate is that the frequency of those changes was unprecedented. You know we expected to see inflation but we didn't see. We didn't really we were hoping we wouldn't started to get price increases from our suppliers or of ona weekly basis. And you know the customers find that very frustrating when you talk to them about price increases several times a month. But generally our customers were, were understanding. I mean they obviously working them on the gas business and you know they're taking advantages of high commodity prices but naturally that does ripple through all of their costs. So you know they did, they did take cost increases to toss. That are our cost increases and we're going to work with them again to capture some of that margin for, for triic am.

I think I'm going to pass this over to dad office know he's going to talk about supply chain and some cure four technology. Thanks, forad. So from a supply chain perspective you, if Q1 proved anything is, you know the supply chain has become major factor just with your regards to. You know how we manage our business from the context of, you know, higher activity levels but also the constant pricing pressures that you know Brad kind of noted previously. You know the entire supply chain was stretched pretty thin in Q1. If activity increases, which we think it will, at the later part of the year it will become, you know that, much more important from the managing perspective. So you know we believe that we have, you know, really good logistics and you know we welcome a tight market. You know, with respect to this and how we manag suppliers, you know active, you know as we have messaged, you know we did experience. You know inflation across the entire supply chain at a significant rate and in much higher rates than than what you know we've ever seen before. You know diesel obviously, you know directly correlated with oil prices, surg through the early part of the year. You know exponentially from from January , February and March. You know in is an example like, if you, if you look at sand, you know by the, by the time sand reaches location, about 70% of the sand cost is transportation. So which diesel? Big, the big impact on on that stuff.

And we do supply a fair bit. You know diesel to our customers. About 60% of our frac fets are are, you know, internally supply diesel. You know from a third party, trucking and logistics perspectiveyou know trucking was really tighten Q1 with the increase in proppant volumes. You know larger pads. You know more work up in the monty base and, and the biggest contributing factor to that is there's just less trucks available in the base. And you know we talk about the workforce tightening up and and those sorts of things, So just a generally smaller workforce than what we've had in the pastyou know which. You know you got to be nimble when you're managing this, this fromup logistics perspective, you know youand then the other factor that you know makes it difficult is we'reoperating and even more remote areas of the base, And so you know we face significant logistical challenges from them to that point you know. With regards the sand, you know Tier once of Tier one sand suppliers are basically operating. Know at to past the. You know there were some rail challenges early on in the year, know with respect to the cold weather, So the rail companies is essentially shut down operations when know the temperure meet certain temperature. So we did see a little bit of tightenness in the market from the proppant perspective early on in February . But you know we manched to work through through those challenges. You know the biggest you increases that we've seen with regards to sand is is dies, you fuel Sur charges driven by the rail companies and those sorts of things. So in Q1 tri to exposure to Tier once's was about 60% of of the sand. We bump this Tier once. And with regards to you chemicals, we did experience some chemical disruptions But but nothing know two meaningful to our operations. You know youa lot of the base components of our chemistry are derivatives of oil. So you, you know those have similar manufacturing processes. Is diesel. Diesel costs increase, So does the cost of our products and those. You know we- we continue to see those as we moved throughout the year- know a lot of of our chemicals come from China in the? U's. So we know we plan for expected delays and increased costs associated with transportation and those sorts of things. We're. You know we're always looking for substitutions and suppliers that get creative and our proactive with regards to how they're managing there- there supply chaes as well.

As we previously messaged, we are extremely excited that we rolled out our first Tier four D GB fleet here in Q1. We are extremely happy with how it's been operating. Field performance, particularly diesel displacement, is in line or better, better than expected. So what these engines were burnon, loss of natural gas and displaceing diesel at great rates. We will be activating a second and third Tier four fleet in the summer and late Q4 and the value proposition for this equipment is significant with respect to fuel savings, the missions reduction and ultimately we expected to get paid for it and as the gap between, as diesel prices increase in natural gas is more or less a consistent cost, it's an even more of an excuse for us to get a premium for these fleets.

N chaer for engines. They burn more natural gas and diesel, So the net benefit for the environment is also on the cost side, with natural gas less expensive than diesel and- and this technology will, like me, be the standard in the next few years- is at least for triican. We are really excited about this and we're proud to be the first Canada company in Canada to roll this out. 'll throw the call over to Brad. Discussed Q2 and our second half outlook, just So the remainder of year we it's. We're very positive that we think budgets are just going to creep up. As commodity prices hanging in there, we use that opportunity to put more, more equipment into the field, if we can do so at attractive pricing.

We're very focused on return on invested capital and free cash flow, So we will continue to try to maximize that wherever we can. What we found is breakup now is is becoming less of a breakup as people try to level load their activity throughout the year and take advantage of the warmer weather with respect to things like water heating and just a less frenzied oil field. So we do expect to see Q2 be less punitive to our financials than it has been in the past. The Basin remains extremely gas focused, but we are seeing more oil activity as we have oil being sustained over $100 a barrel and again we're going to use this activity to try to deploy more equipment at at profitable rates.

evencoil, which in the past has been one of our worst performing divisions, is now frankly, one of our best performing divisionswe've seen that market tighten up. Cement activity will correlate directly with the rig count and we continue to look to add staff and that department and maintain or grow our market share. We're very- we're still very- focused on the Deep Basin with respect to cement coil But as activity expands throughout the basin we expect to expand our geographical market share in those two divisions as well. There's about 30 frac crews running in Canada and aggregate between all the services companies and that's basically balanced at about two hundred drilling rigs and we expect the rig count to exceed two hundred for the second half of the year and as a result we expect frac pricing to go up as the year goes on.

And we know that that repayment and return a capital is still the main focus for our customer base. But at these commodity prices we're only- and they're really only- reinvesting about 30% of their cash flow. Know, we do expect that activity will increase as the year goes on and will be there to take advantage of it. Our big bottlenecks at this stage now our people- and I think we discuss this already, but we have to get very creative on attracting people to this industry. We're going to have to start expanding our search to all parts of Canada, like we have in the past, and now that covidit seems to be petering out, we do expect that people will come back to work in the oil field that had previously worked here, that now live in places throughout Eastern Canada and even the far West parts of B? C and hopefully that we can attract them back to the industry- and we can. We can provide our customers with cruise and equipment as they increase their, as they increase their budgets.

On the technology side's not a lot new to report here. Technologies always been a big driver of efficiencies in the oil patchand we will continue to to stay well informed in all technological masses in our industry. We're not married to any technologies. We're very agnostic with respect to that and we'will continue to review the advantages in the costs of it and deploy it where we think we can get a return on it. You know, I think there's too much talk about technology without talking about the payback of those investments. So I can assure you that you know we will not deploy technology for technology sake. We will only do it if, if it improves our service offering and our returns. I think the next big phase of technology is going to be the digitization of data and data collection So that we can offer our customers with higher value service, and we expect to sort of take a deep dive on this over the next few years. Things like artificial intelligence to reduce maintenance, get more predictive to to ensure that we have less breakdowns- you know that's an area that we're going to be looking into- and things where you can maximize fuel consumptions, whether it's operating at a certain our P M versus certain pressures. All of that is the potential to reduce costs and provide a more reliable service. We did release our first sustainability report last year and we'will be releasing our second sustain sustainability report late in Q2. So look for that and and again, I think we talked about this, but our industry has done so much in the past with respect to E's, ES G initiatives and frankly, we're we're thankful to have a forum in which to to summarize those and report them. We we will continue to be very G focused. We have the balance sheet to.

Provide us to the flexibility to look at anything and everything we've done a great job on reducing emissions. Whether it's with Tier four natural gas engines or idle reduction technologies getting better at picking certain rpm ranges in which to operate all of that. I think we've done lots of and the next phase is to focus on the social and the governance and we will will put lots of efforts into those initiatives and we'will providing a report here in a few months. So lastly before I wrap up.

I want to remind everybody there's about one point nine million Horse power operating in Canada or available in Canada and about one point three million of that is operating today, the equipment that is parked and is hopefully we'll come back into the basin one day. triiccan does zownable 40% of that. We're operating seven out of 12 frac crews, So we have substantial upside. As activity continues to increase throughout the rest of this year and into next year, we're extremely well positioned. We have a clean balance sheet and we're ready and able to make investments where we think we can get sustainable returns. I'll now turn the call back to the operator and we'll take questions.

Thank you.

We will now begin the question-and answer session.

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Thank you. Our first question comes from colepr with steple.

Good morning. So knowledge just question is an oversimplification, But as we think about Q3, are able to provide any goal post around. How much net pricing has increased relative to Q1 across the whole fleet? Maybe just on a percentage basis?

A.

We would expect at the minimum another 10% over Q1.

We've had eliminary discussion yes. We've had preliminary discussions with our our customers and.

We would expect that would be the minimum.

Got it. And then just sort of curiosity: how much would pricing be up on a gross basis? First Q3 of last year.

Ballpark versus Q3 of 2021. yes, So just year-over-year Q3 comparison.

Total 20%.

Okay got cha and on the shareholder returns front, So obviously the balance sheets in great shape- you're continuing to buy back shares. How do you think about a dividend? I mean, I assume it's maybe more of a 20 20- three consideration, just given a lack of visibility beyond Q3.

Yes it's a tough time of year to think about dividends, just obviously. The budgets for the second half have not been finalized by all of our customers.

And as the stock price goes up, its relative attractiveness.

Goes down when you think about the other opportunities, And so I do. We're very open to dividends. It's obviously a cyclical business and they may come and go, as they have in the past, but I do think there's a place for dividends in this industry where the money just cannot be deployed effectively at certain. At certain points- and I think, as we've all learned, we don't want to overbuild and there's only so many people available- we don't have any debt to pay off, So eventually there's too much cash on the balance sheet and needs to be given back to shareholders.

gotd it. And then, just out to curiosity, if you were to order a tear force spread today, how long would it be too? You could actually get in the field.

A year.

Ok can I?

50 sixty million.

Tell you if, if you were to buy a brand new Tier fource spread the new billion.

gotcha and then scot just quickly on the working capital front. I mean should we assume kind of a modest net investment for the rest of 2020 two.

Well I I mean that we built pretty significly in Q1. I would expect it to unwind a bunch in Q2 right, and then we'll slow build up a little bit as we go at the end of the year. So we're probably at the peak coming out of Q1 as I think, where we'd be for the year.

Ok perfect, that's helpful. Thanks, I'll turn it back.

My next question comes in the line of maccar, cited with atv capital markets. Please see your question.

Just a couple of questions here. First of all, the two TI four upgrades. Would those be incremental fleets based on what you know today, or would those be replacement for something that's currently active?

Good question, we have demand.

In particular for the Tier four technologies.

We will only add them incrementally if.

The activity levels continue to increase. If activity levels stay flat.

Depending on customer conversations, we may- they may be replacement for fleets that are operating today, but there's several factors that haven't weren't worked out yet and that's the two main ones, or industry activity and availability of labor.

Q.

And the 10% type price increase that you expect for Q3, would that justify an additional fleet or not?

I'm additional to your four fleet.

Yes that's right, incremental fleet being added.

Well the tierfourre technology gets deployed at a premium, So it's sort of a separate price discussion.

But it's always had a premium to conventional equipment.

And so it's.

yids.

It's sort of a subsector of the market because a certain it needs a certain customer that is concerned about not just fuel savings but emissions and is willing to pay for that.

And I just say we need to be able to staff it with good crews. So.

I'm not sure a general price increasees is the main driver of our.

Are desired at tiyour four technology.

And as you, making these investments are.

Is a return on that investment locked up because you mayneed- I don't know what- a year- two years- to recover that return? Is that locked up with the contract behind it?

Yes we're still. We don't want to talk about the particulars of contracts, but certainly we have a direct line of sight on return.

yesand. Then in terms of cementing in coil, biness cementing year' 18 and active units and coil 7, how do you see that kind of growing in the second half?

Again I mean, I hate to say it, but assuming we can, So it with cementing.

We would expect. We would expect to just grow directly with, with the rig count, assuming we can get the labor. So' 18 cement crews turns into 23 to 25 cement crews and seven coil crews probably turns into something like 10. I think we have to be realistic about how much, how much good labor, we can add. Both those markets are very, very tight.

And it really what is constraining our service offering: there is labor.

In no additional.

yeah we Y we have equipment.

On the sidelines, ready to go. It's in great shape.

It just needs operators.

Right.

Okay in terms of the margins between the different businesses that you run, how would you rank? Or the current profitability of the 3? Is the percentage of revenues? What's the highest? What's the lowest? Right now, Ong big three business lines.

Coil would be the highest, and then cementan fracturing would be pretty very, very close to each other.

Would' be tied for second.

Great that's all I have. Thank you sir, Thank you.

Thank you once again. If you have a question, Please press star, then one.

The next questions from the line of Andrew Bradford was Raymond James. Please receive your questions.

boorting guys Thank for taking my call So.

When just looking back in the first quarter, you said in the call you had between six and-seven crews working, depending upon the day or the week.

Is there. It was a one crew that was sort of up and down through the quarter PL, or was it, and was that a function of the plate it was in, or geography, or was it kind of all spread all over your, your operating area?

yeah.

I think, unlike the? U's what, what makes up a frac fleet on any given day is pretty fluid in Canada just because the the differences in the. There's significant differences in equipment demands from one plate to the next than even within even within the same place. If you you've got a pump down crew or a plug and perf crew versus a coil crew, you can have different amounts of people in equipment on location. So wouldn't get to bogg down on.

Was one crew working half the time. It doesn't really work that way. The people in the equipment gets spread around on any given week and it may result is seven crews, it may result in six or five and, as we've discussed before, it's like lego. This equipment at all is intermixable and it goes where it's needed.

There's no, there's no ring fence around any particular fleet.

Okay no, I appreciate that going at every Andrew just just as to finish that optimalmodeal, the horsepower being deployed.

On any given day may not even change, but the rig count or the fleet count may.

Or you could have seven crews out one day and with less total horsepower than the following week with five fleets out. It's.

Well that will not us all.

In that case, then is it maybe.

More helpful to talk about horsepower demand or firstse power utilization.

thenite like, like. How would you describe that? Through the quarter.

But's pretty consistent with the exception.

Of March which basically took everything we had there was a slow ramp-up in January and then a bit of a pause in February . When the really nasty weather was here. So.

It ebden flowed sort of as it does every year.

And it's been the last few years. I think March has been.

A lot of work is getting. It's getting somewhat concerning as to how much work is getting pushed into March by operators, because one of these years you're going to get an early spring.

And there's going to be some disappointments.

But.

scot. Is it the fact that there was so much work late in March that kind of contributed to the to the higher-than usual receivables on the balance sheet?

That's probably a fair statement. Under yes look, I mean our activity ramped coming out at year-end but really peak in March right, So that does drive a pretty significant uptick.

Ok.

Just want to jump around looking forward here into the second quarter.

So some of your competitors have been talking about an absence or at least a lack of typical spring discounting.

And I wonder, like could you that? Was that your experience, and is that part of why you say that this maybe the second quarter? All will be less punitive than usual.

Yes in fact we've actually had increases go up Q2.

There's been no discounting and we've continued to pass on inflation V prices in particular have taken another step up.

So yes, if anything, pricing is higher today than it was two months ago.

Okay So that's useful, Thank you. Does that kind of give you a more confidident SpringBoard into summer pricing or?

Does you that play? Do it at all?

Fort sure it does. And one thing that you know I didn't.

The pricing discussion is never ending. As you can imagine, and certainly everybody in the past, is used spring breakup to pause pricing momentum and, in fact, reverse it.

I think the industry, just given the cost pressures this year, has done a good job of not allowing that to happen.

And so I think- more so than any breakup I can remember- I feel like we're in a better position to talk about price increases than we.

That we have in the past and I think our competitors are.

Are viewing it very similarly to us, in that there's just no, there's always a bad operator out there. We all know that.

But this inflation is not going away. Our margins have been very frustratingly stable, now for five quarters in a row.

Something something has to change and eventually we have to capture. We have to capture margin.

welli's going to ask you about the tenor of this call. In the past you've been more confident. We sounded more confident about pricing.

And today it sort of seems like you're.

You're maybe a little bit less confident. You'd like it to come. You're having some early discussions. Is it like, would you say, that you're as confident as you've been, but you're that these prices, the net pricing increases, are coming?

Thanks for calling me out. No, like I am very confident- no less or no more confident than we've been in the past- on pricing, but we underestimated the inflation.

So we've had all these price increases, if just didn't result in anything.

So I'm a little less assertive that.

I guess to highlight price increases, because we haven't seen margin expansion.

Even though we've had the price increases that we talked about.

So when we look back on it, when we do the one year and look back on price increase predictions versus realized price increases, they generally all came true and higher. We achieve more priceing gains and than expected. In certain situations. You look at cementing, I mean we had some fairly steep price changes there.

But the inflation was just absolutely unrelenting on products.

And so margins are flat.

And I'm assuming that's all. Anybody really CARES what, at the end of the day, is.

You can talk about price all at want, But until until it results in a margin expansion, that it's not really. It's all just hot air.

Well it's, it's good that you're at the minimum keeping up with inflation. On the second quarter's, it's interesting you said pricing is up in the second quarter. Is that is not net pricing? And I'm not saying you when to get margin expansion in the second quarter because you have, you know, have operating leverage sheets or challenges, but that just that, just sort of kept paid as well.

Pretty much.

okaypretty much it certainly hasn't. Our net margin certainly have not gone down. They may be inch struck lightly, but that more than gets offset with the built-up R, nm that gets done.

Okay I, I just have one more personress rep, sorry. yeah no, and I just want to highlight.

Are biases to expense rm.

Right I think when we ve got, you got to sort of keep that in mind when you're looking at triiccan's financials. And this is- this is tall- the analysts that are on the line. We expense. When in doubt, it is expensed.

It definitely appreciatedok. So the last question before I jump back in the queue is: you know you've spoken about how the rig count in the second half should have a drove with two hundred.

There's one point three million of the one point nine horsepower.

Notionally active today. You care to take a stab at what that one point three number turns into in the third quarter or fourth quarter this year.

At the most, one point four.

But just isn 't the people.

Okay that's good for me from now. Thank you very much, guys.

That's.

The next questions from the line of keys mackkey with RBC capital markets. Please just use your questions.

Hagood morning and thanks for taking my questions. Maybe just wanted to go back to the pricing a little bit more, and certainly that was something that I was interested in asking about as well is: has it been the case of?

Of just not being able to get enough pricing to grow margins, or has the inflation, inflationary factors sort of caught up the pricing you did expect to get, So it sounds like it's more. It's more the inflation versus versus the market. So I guess as we go into the second half and certainly now, EMP operators are starting to feel the inflation a little bit more themselves. How does your like, does your strategy change at all as far as what price to ask for in order to get the margins you need to be able to make profitable reinvestments, or or how do you now try to make sure that you can actually get some, some expanded margin from from these next round of price increases?

Well I think what we learned is.

Don't underestimate your own suppliers with respect to their.

intensions of pricice increases and it's not surprising. You know, the whole value chain, right from us to the sand mine and w iscons, has had, you know, seven incredibly tough years and pricing has we've let our prices get beaten down to just these ridiculously low levels and- and where, where a possible, people are trying to recover that. It's this going to be a bit of a long wer, but it's you. We're still not actually back to twentthousand 18 pricing yet, but I would say there's, you know there's. Some of our suppliers are just in a much better position to increase prices than then we were, and some of our suppliers, like trucking, just did a better job of it than we did. And so what we've learned is: you know, when you think prices are going to go up x percent, you may want to factor in two x, because you know the whole, the whole value chain, is trying to, is trying to fight it's way back to being a sustainable business. And you know, from a customers perspective, that's incredibly frustrating to them right, because they have, you know they, they don't. Obviously it's not their responsibility to understand how our businesses work. You know there're seeing major price increases and and you know they get it. They get a price increase and you know we're in their offices three weeks later talking about another 1, and you know that's it's hard, to hard to make plans, And so you know we've, we've tried to, we've tried to sort of pass on price increases as we got them youand I think maybe what we need to do now just, you know, for the benefit of everybody, is be a little bit more long term predictive as to, with respective, to where ices are going to end up, and that will allow our customers to to make more accurate plans on a F fe's and and what, what well, in September of this year is actually going to cost versus, you know, just incrementally, but bumping it up every two weeks for the next three months.

And it's. Maybe there's going to be some sticker shock and there's going to be some uncomfortable conversations and maybe be some fallout from that, but I think we owe it to our customers to say: Hey look, this is what we, we think a frac is going to cost three months from now, based on our experience as to what's coming our way from a pricing.

Pricing, increase perspective from both our suppliers and and from the labor and everything, whether it's hotels, the diesel costs, chemical costs and CN rail fuel surcharges. All of it has come fast and hard and has not stopped.

And so I think we're going to get a little bit more.

Predictive and where this is all going to end up.

Got it, appreciate it. So maybe just to follow up: how is inflation that you say hasn't stopped? Is it actually continuing at the same? You know rate of increase, as you've seen, or things getting more expensive, faster or more expensive. You know less faster how how, how are you would characterize that? yeah, I think the rate of change has has slowed.

Whereas the rate of change from November to March was shocking. We expected infla, tion. We just didn't. The slope of that curve was steepit's flat. It's flattening out, it'.s not going to stop, but I think the rate of change and that and the size of the change from one event to the other is going to slow.

Got it Ok.

Maybe just talk a little bit about the market for Tier four DGP equipment. It sounds like you've got good confidence about increasing demand for that, for that category of equipment. Are you seeing a greater number of customers looking at potentially contracting some of these new fleets? You comes as they become available, or or it it has it not really not really picked up like you like it, like you might expect.

noit.

We needed a quarter for data collection and getting some actual fuel performance behind us, And so Q1 was pivotal in how we are, how how we are relaying information and marketing this technology to our customer base. So now that we've got three months of operating data and some hard data, I would say the interest in the equipment is growingthe, of course.

Diesel prices are extremely high and seem very sticky. That is helping our value proposition. So the market, I would say, is getting better, But in a lot of it is just we needed hard operating data. It's easy to say how this is going to is going to operate in the field in theory, but we've been through a full quarter now and a tough quarter with respect to cold weather. So we've worked out a lot of the kinkks and we're really happy with things and as a result, I would say our customer interest has grown.

Got it and I know it's up to 85% substitution. Do you have the? Do you have the numbers for what you're actually able to do?

Yes when you average, when you average the equipment out over ramping up and ramping down, and depending on the lengths of stages, these numbers bounce all around, but something in the mid- seventy's is what you would expect over the life cycle of the frac.

Good Ok, very helpful thanks, that's it for me.

Thank you.

Thank you. Our next question is a followout from the line of and w bradroom threeay and James, please just use your question.

And just just came up and keep this question there. How do most of your customers kind of look at?

Go the availability of the Tier force spread. That has higher costs than you know at this point. You know if they nominate now they bringi get 1, one major service one in the fourth quarter versus, you know, Tier two dual fuel conversion which they could probably get sooner and maybe it at at less pricing. How do the like other the they bring this up at all?

Yes you remember whether it's Tier two or Tier four technology, there's a fairly significant fuel savings.

And the, the incremental fuels. The incremental fuel savings from Tier for Tier, from over Tier 2, is very significantand the other issue is the methane emissions reductions. Like one of the one of the problems with Tier two technology is it there's a lot of what we call methane slip, which is, you know, natural gases going into the engine but it's not being burned and it's been being released into the environment. As everybody gets very focused on methane slip or a methane emissions, you know that of course becomes less palatable to them and and frankly we, you know, if you look back sort of 5, 10 years, when two technology was being deployed in the field we, we frankly didn't focus on the methane slip element of the technology enough that you know some of our customers are doing emissions le, actual live emissions testing, particularly methane.

And the advantages of Tier four over Tier two don't stop at the fuel savings.

There's a very, very concerted effort to.

Almost completely: reduce slash eliminate, the methane, slip in this new Tier four technology. So if you're only after costs.

Depending on your well design and just set up to provide natural gas at the well site it would be. You may flip back and forth as to which is better for you. If, if you're looking at this and you're saying listen, we want. We want great economicsbut we also want to reduce our emissions, then there's Tier four is the only answer.

Is that methane slip? Is that accounted for in greenhouse gas or a co two equivalent?

Emissions.

Yes today it's, but remember it's about fifth, 13 times worse than COO two So when you convert it to sort of ghhds you multiply methane by it's- 13 times worse than co two I'm probably not saying that very eloquly, but it's much worse than COO two alone.

yeah exactly okay So, and then just the quick. You know you mentioned.

Is a discussion that try can about gr opportunities to maybe even further vertically integrate your business. That take control some of these cost items.

Like fan comes to mind as a sort of a cliche sort of avenue that you could pursue, but or further pursuit.

The general answer to that question would be: we look at that, but we have not seen an opportunity that we find attractive yet.

The big issue is: do you have the scale?

To be a sole owner of one of your supply inputs.

And in most cases the answer to that is really no.

What there's other creative ways of working around this to give you preferential access.

To supplies and that's why frankly, we think, from a competitive position, we're at our best when the industry is operating is incredibly, our activity is incredibly robust and things get very competitive and there's lots of planning required and that's when we I think that's when we're operating at our best.

Thanks for that. That's the for meian.

Thanks.

Okay everyone. Thank you very much for joining the call. We're approaching an hour, So we'll sign off now. The management team at triican is available for questions throughout all day today and tomorrow of any more questions arising again. Thank you for joining the call.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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