Q2 2024 Calfrac Well Services Ltd Earnings Call
Paul.
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Now I will hand, the call over to the Chief Financial Officer, Michael Olenick. Please proceed.
Michael Olenick: Thank you Carmen.
Michael Olenick: Good morning, and welcome to our discussion of <unk> second quarter 2024 results.
Paul <unk>: Joining me on the call today is Paul <unk> CEO.
Speaker Change: This mornings conference call will be conducted as follows.
Speaker Change: Pat will provide some opening commentary after which I will summarize the financial performance and position of the company.
Pat: After which Pat will then provide an outlook for <unk> business and some closing remarks.
Pat: Following the completion of these remarks, we will open the conference call to questions.
In our news release issued earlier today <unk> reported its second quarter 2024 results.
Pat: Please note that all financial figures are in Canadian dollars unless otherwise indicated.
Pat: Some of our comments today will refer to non <unk> measures.
Pat: Such as adjusted EBITDA.
Speaker Change: Please go on these financial measures.
Speaker Change: Our comments today will also include forward looking statements regarding <unk> future results and prospects.
Speaker Change: We caution you that these forward looking statements are subject to a number of known and unknown risks and uncertainties.
Speaker Change: That could cause our results to differ materially from our expectations.
Speaker Change: Please see this morning's news release and Cal Frac SEDAR filings.
Speaker Change: Including our 2023 annual information form for more information on forward looking statements and these risk factors.
Speaker Change: As we have previously disclosed the company is committed to a plan to sell its Russian division and has designated the assets liabilities and operations in Russia as held for sale.
Speaker Change: In discontinued operations in our financial statements.
Speaker Change: As a result, the focus of the remainder of this call will be on <unk>, continuing operations in North America and Argentina.
Speaker Change: Unless otherwise specified.
Speaker Change: Now I will pass the call over to Pat.
Speaker Change: Yes.
Pat: Thanks, Mike.
Pat: Good morning, and thanks for joining our call today before Mike provides the financial highlights for the second quarter I'll offer some opening remarks.
During the second quarter, we were able to generate increase results, mainly by our customers transition transitioning to a more level loading of programs throughout the year, especially in Canada. The.
Pat: The more traditional shutdown over spring breakup seems to becoming more of a thing of the past.
Pat: This has been made possible because of the better road infrastructure in areas, where we know work and of course by the use of off road and location matting.
Speaker Change: That is being more wildly wide.
Speaker Change: Widely used today.
Speaker Change: The quarter the quarter was also impacted by our customers' decision to move more of their programs into the early spring.
Speaker Change: To not have to deal with the forest fires that caused many unplanned shutdowns last year.
Speaker Change: And.
Speaker Change: The chance of dry summer and prolonged drought conditions affect on the available water supply to complete the fracs.
Speaker Change: Helping our Canadian crudes to look after this condensed workload was our centrally centrally.
Speaker Change: Located gold Creek trans load facilities.
Speaker Change: Which are south of Grande Prairie rate kind of in the in the middle of where a lot of our work is done so coupled with these.
Speaker Change: <unk> facilities.
Speaker Change: As we had invested in a new fleet of 30.
Speaker Change: Super be large volume sand hauling units.
Speaker Change: This investment in the equipment give us gave us the ability to not look at not only look after our customers needs, but also enabled us to set company records for the amount of proppant pumped during our fracking operations for two consecutive months.
Speaker Change: Another record was attained by our coil tubing group, which milled out the most plugged in a 12 hour period in its history.
Speaker Change: It's these types.
Speaker Change: A well run improving operations that make our long term customers want to continue to do business with us and hopefully attract other customers to use our services.
Speaker Change: As part of our strategic objective to improve the quality of our assets in the field.
Speaker Change: We have 49 tier four DGB cat on Cat pumps service service.
Speaker Change: Serving our customers.
Speaker Change: Day, and anticipate operating the equivalent of five dual fuel fleets in North America by early next year.
Speaker Change: As we modernize our equipment safety remains a top priority as evidenced by the reduction in our 12 month trailing trip.
Speaker Change: From eight 7% to <unk> 77 during the quarter.
Speaker Change: I am proud of the way that our team executed for our customers during the second quarter and look forward to making progress on our strategic priorities.
Speaker Change: I will now pass the call back over to Mike who will.
We'll present, our quarterly financial performance.
Mike: Thank you Pat.
<unk> revenue from continuing operations during the second quarter of 2024 was $426 million a decrease of 9% from the same period in 2023.
Mike: Primarily due to lower activity and pricing for the Companys services in the United States.
Mike: Sequentially revenue from continuing operations increased 29% or approximately $96 million versus the first quarter.
Mike: Primarily due to significantly higher activity in North America.
Mike: Adjusted EBITDA during the second quarter of 2024 was $65 4 million at 26% decline from the same period last year stemming.
Mike: Stemming from lower utilization and pricing levels in the United States.
Mike: Sequentially, though adjusted EBITDA from continuing operations increased by over $39 million from the first quarter.
Mike: Driven by significantly higher activity and profitability in North America.
Mike: <unk> net income from continuing operations was $24 $6 million during the second quarter of 2024 versus net income of $55 million in the comparable quarter of 2023.
However, net income from continuing operations increased $27 5 million from the first quarter.
Mike: <unk> incurred capital expenditures of $66 8 million during the second quarter versus 37.
Mike: $10 million.
Mike: This increase was mainly related to the company's tier four.
Mike: Modernization program.
Mike: Deployment of new sand transportation equipment in Canada.
Mike: And continued capital investments in Argentina.
Mike: During the quarter. The company spent $36 7 million on the tier four a modernization program as compared to $12 8 million in 2023.
Mike: On July 31.
Mike: The board of directors approved a reinstatement of $40 million of its original capital budget.
Mike: Mainly to facilitate the expansion of the Companys fracturing fleet and the Vaca <unk> play.
Mike: As well as also to fund some incremental maintenance capital requirements in North America.
Mike: Moving to the balance sheet. The company had working capital of approximately $304 million from continuing operations at the end of the second quarter.
Including <unk> 43.
Mike: $7 million in cash of which approximately $40 million was held in Argentina.
Mike: <unk> expects to begin repatriating a portion of this cash from Argentina to Canada on a monthly basis.
Mike: Beginning in the third quarter of 2024.
At the end of the second quarter Cal Frac had used $3 7 million of its credit facilities for letters of credit and had borrowings of $200 million under its revolving term loan facility, which left the company with available credit of approximately $46 million.
Mike: <unk> exited the second quarter with a net debt to adjusted EBITDA ratio of 139.
Mike: <unk>.
Mike: In June the company also amended its revolving credit facility agreement to reflect changes to certain financial covenants.
Speaker Change: And accommodate the benchmark rate reforms that occurred in the quarter as the Canadian dollar offered rate cease publication on June 28, and was replaced by the Canadian overnight repo rate average.
Mike: Sure.
Mike: Now I would like to turn the call back to Pat to provide our outlook.
Mike: Yeah.
Thank you Mike.
Yeah.
Pat: Activity in North America progress better than expected in the second quarter.
Pat: While down from last year.
Mike: Which Mike has discussed in his financial overview overview.
Mike: While a good thing for 'twenty four it will impact on the third quarter, but some of the anticipated work programs were completed in the second quarter.
Mike: Today, we respected expecting for the second half of the year to be in line with the first half outside the typical end of year weather interruptions and some unplanned.
Mike: Customer exhaustion, which also depends on the commodity price.
Speaker Change: We are very excited about Argentina. The impressive progress that is being made in that country is giving us the optionality to deploy additional capital and equipment.
Speaker Change: The adoption of our North American best practices.
Speaker Change: Have made us a leading service provider in this region our teams Ritu <unk>.
Speaker Change: Routinely set internal activity and financial records.
Speaker Change: Our reputation as a high performance service provider has caused demand for our services to exceed the local supply in country.
Speaker Change: So to meet the request of the operators we are in a process of moving some good tier two dual fuel frac pumps from North America, where they are not optimal to Argentina, where there are in high demand.
Speaker Change: We have also commissioned our first offshore coil tubing rig, which is under contract and creating revenue and profit as we speak.
Speaker Change: So we're excited about the long term future of Cal Frac and anticipate continuing to invest prudently to improve our assets on location.
Speaker Change: While at the same time, we expect to leverage our safe and efficient operations with stringent cost management to maximize net income and free cash flow for the benefit of Cal Frac and its stakeholders.
Speaker Change: With that ill.
Speaker Change: Turning back to Mike to begin the Q&A portion.
Mike: Thank you Pat.
Carmen: I'll now ask Carmen to begin our Q&A portion of today's call. Thank you so much and as a reminder to ask a question simply press star one on your telephone and wait for your name to be announced to remove yourself from the queue Press Star one again.
Speaker Change: First question comes from Waqar Syed with ATB capital markets. Please proceed.
Waqar Syed: Thank you for taking my question.
Waqar Syed: Mike what's the Capex number for the year.
Speaker Change: The overall guidance is around $200 million on a full year basis with a lot of that increase being.
Speaker Change: Being borne by the Argentinian and segment.
Speaker Change: Okay.
Speaker Change: Great and.
Speaker Change: In Q2, we saw a nice pick up in quality of <unk> revenues in Argentina, I'm, assuming that's for the offshore coil tubing unit is that $20 million type quarterly number and call.
Speaker Change: Keeping in Argentina kind of sustainable in future quarters as well.
Speaker Change: I think a bit of the.
Speaker Change: A bit of the uptake was was certainly that coiled tubing.
Speaker Change: Offshore rig, but generally we are just busier in Argentina with the equipment that we have there.
Speaker Change: And expect to continue.
Waqar Syed: And expect to continue so yes, waqar, we added a new coil tubing rig a large one onshore late last year and we're just starting to hit our stride with those operations in the Vaca <unk> as well as the offshore and did have an impact on the second quarter revenue for sure.
Waqar Syed: Okay.
Waqar Syed: Great and then in terms of.
Speaker Change: Fleet renewals.
<unk> upgrades, so Europe 49 units.
Speaker Change: At the end.
In Q2.
Speaker Change: Is that base in line with your expectations or is it a little bit it feels a little bit slower than I think.
Speaker Change: What we were modeling at least.
Speaker Change: Okay.
Speaker Change: I would say, it's a little bit slower than then we just kind of slowed it down a little bit to have to have a look we we always build off ramps into our into our build just were not quite like what we see we can slow down or speed them up a little bit.
Speaker Change: And we chose to kind of slow.
All of that back a little bit from what we were seeing in the first quarter, but we.
Speaker Change: We plan to finish the year, where we are today, we now plan to finish the year as anticipated with.
Speaker Change: Yes.
Speaker Change: 80 pumps tier four.
Speaker Change: In North America.
Speaker Change: Okay.
Speaker Change: And just one last question.
Speaker Change: For the U S are all keys.
Speaker Change: I think.
Speaker Change: I read in the MD&A that helix.
Speaker Change: The work has been pushed into the second half.
Speaker Change: So you expect.
Speaker Change: U S revenues improved from Q2 levels.
Speaker Change: Well, we're sure hoping so.
Speaker Change: Yes.
Speaker Change: We expect to have.
Speaker Change: Eight.
Speaker Change: Fleets are operating here.
Speaker Change: Next week, we should be update fleets, which which is pretty much fully utilized for us right now and it looks fairly steady.
Speaker Change: From what we have on the book right through to the fourth quarter.
Speaker Change: And end of the fourth quarter.
Okay great.
Speaker Change: Well. Thank you very much appreciate the color.
Francesca: Thanks, Francesca thank you.
Speaker Change: Our next question comes from the line of Keith Markey with RBC capital markets. Please go ahead.
Keith Markey: Perfect Hi, good morning.
Speaker Change: I'm, just hoping we can start out on the Argentina fleet.
Keith Markey: It was around $30 million or a little bit less that youre going to spend on taking that tier two fleet down there can you just talk about.
Speaker Change: The market dynamics Youre seeing that justifies the investment and the move is the fleet contracted.
Speaker Change: Things of that nature would be able to put some context around the <unk>.
Speaker Change: The earnings impact from from the investment.
So the.
Speaker Change: The south of Argentina has had.
Speaker Change: It has slowed down dramatically why PFS has kind of pulled out of the south which allowed us to pull some of our equipment back from the South which also allowed us to put together a.
Speaker Change: Our second large fleet in Argentina.
Speaker Change: It's not it's not optimal we've rented some pumps and a few things like that to make this happen.
Speaker Change: So the work is there its under contract and we will shore that up with this with this <unk>.
Equipment that that is not <unk>.
Speaker Change: Optimal in the U S anymore.
Speaker Change: Where it's in high demand in Argentina, So, it's kind of what I've been saying for quite a while it.
Speaker Change: Ah.
Speaker Change: A bit of an advantage I believe that <unk> has is that we have the ability to send some of this equipment that is not at end of life.
Speaker Change: Actually wear it out down there.
Speaker Change: Got it seem to be operating two full two full fleets in the Vaca <unk>.
Speaker Change: Net of this okay.
Speaker Change: And.
Speaker Change: Maybe just on capital more generally so understand.
Speaker Change: $200 million Youre going to spend this year.
Speaker Change: We're already trying to get a handle on what we think you might spend in 2025 I know it's early but can you just help us think about the pieces of the capital spend.
Speaker Change: Whats maintenance what type of.
Speaker Change: Tier four upgrades you might think about for 2025.
Speaker Change: And then ultimately where that where that.
Speaker Change: Yeah.
Speaker Change: Where that should land you for 2025 are thinking.
Speaker Change: We're between one and 200 is probably the right place to be but help us think about those pieces.
Speaker Change: Certainly would.
Speaker Change: Would be nice to have.
Speaker Change: Hi, Keith It's Mike Yeah. As you can appreciate we're evaluating market opportunities and we're going to get into the budget cycle in the fall. So its a bit early for us to be looking at next year in capital understanding that the tier four modernization program is still a priority for us.
Speaker Change: The company.
But we also want to look at what's the best allocation of capital. So it's a bit early to give guidance around capital spending for next year.
Speaker Change: So sorry to soft pedal.
Speaker Change: It's a bit early to be be looking that far ahead for us ultimately I think what we're trying to do is optimize capital spending and see where we're going to get proper returns.
Speaker Change: Certainly the justification of the increase for the Argentina capital for this year and we will look at opportunities and what we want to do closer to next year. So it's probably a.
Speaker Change: A question that's better suited for our call up to the third quarter.
Speaker Change: Fair enough. Okay. Thanks, a lot that's it for me.
Michael <unk>: Thank you and I see no further questions in queue I will turn the call back to Michael <unk> for his final comments.
Michael: Thank you Carmen and thank you everyone for joining us on the call today.
Michael: Look forward to hosting our third quarter call in November thanks, very much.
Speaker Change: And thank you participating in today's conference and you may now disconnect.