Q3 2024 Calfrac Well Services Ltd Earnings Call
Good afternoon and welcome to the CalFRAC Well Services, 3rd quarter 2024 earnings release conference call.
All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero.
After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded.
Speaker Change: Chief Financial Officer, please go ahead.
Speaker Change: Thank you Gary Good Morning and welcome to our discussion of Cal Frock Well Services in the course of 2020 for results.
Drone me on the call today's top call, Pops Act CEO.
and his morning conference call will be conducted as follows.
Provided some opening commentary after which I was summarized with financial performance and position of the company.
Speaker Change: and our works for Carferex Business and some closing remarks.
Speaker Change: Officer, the completion of these remarks we will open the conference called the questions.
Speaker Change: and I'm in a jewelry issue earlier today.
Speaker Change: Casper reported it stood for in 2024 results.
Speaker Change: Please note that all financial figures are in Canadian dollars unless otherwise indicated.
Speaker Change: Some of our comments today will for the non-IFER FNUJUSE.
Speaker Change: Court Chiefs adjusted E to B A and that's that.
Please see our news release for additional disclosure on these financial measures.
Speaker Change: Our comments today will also include full-it-lucky statements regarding South暗's future results in cross-waves.
Speaker Change: We cautioned that these forward-looking statements are subject to a number of known and unknown risks and uncertainties that could cause our results to differ materially from our expectations.
Please see this morning's news release and CalPRAX feeder violence including our 2023 Annual Information Farm.
Speaker Change: from more information on forward-looking statements and these risk factors.
Speaker Change: As we have previously disclosed the company is committed to applying the selects Russian division and has designated the assets, liabilities and operations in Russia, that's helped for sale and discontinuing operations in the financial statements.
Speaker Change: As a result, the focus of the remainder of this call will be on staff at continuing operations in North American Argentina unless otherwise specified.
Speaker Change: Now I will pass the call a little bit of time.
Speaker Change: Thanks Michael.
Speaker Change: Good morning and thanks for joining our call today.
Speaker Change: Before Mike provides a financial high-lights for the first quarter of the third quarter, sorry. I will offer some opening remarks.
During the third quarter, Childfax Generate at Consistent Financial Results with the second quarter, has growth in our fraught, coil and cement businesses.
Speaker Change: Kuppelg was a new offshore coil to be unit in Argentina, helped to offset a defined and North American activity.
The significant profitability increase in Argentina was enabled by the deployment of a second large fracturing fleet in Nevada, and increased utilization of our offshore coil tubing equipment.
This is an off-shark coil tubing program had a zero non-productive time during the quarter, which is a significant milestone.
Speaker Change: Argentina continues to be an area of growth for CalPRAC and we look forward to providing market-leading services to our customers for years to come.
Speaker Change: In North America, we remain focused on transitioning our fracturing equipment to next-gen technologies.
Speaker Change: We have reduced our year-over-year training 12-months TRIPS from 1.14 in 2023.
Speaker Change: to 0.81 during the third quarter. These are excellent results.
I am proud of how we safely and efficiently executed for our clients during the third quarter. I expect us to finish the year strong and carry that momentum into 2025 as we continue to focus on our strategic priorities.
Speaker Change: Lastly, as a part of our continued efforts to improve CalFax's operational and financial performance
Speaker Change: I want to announce the recent leadership changes in our United States and Argentina businesses.
Marco Arurgen has been appointed to the position of President of the United States Operations to replace Mark Rosen, who is no longer with the company.
Speaker Change: In conjunction with Marcos' transfer, Adrian Martinez was appointed to the position of Director General, Argentina Division.
Mark has been with CalFAC since 2010 and has held several senior management roles, most recently as the Director General of the Argentina Division since 2019.
Speaker Change: His experience in Argentina was serving well in his new role and positioned him to implement some new ideas to drive improved operational and financial improvement.
Speaker Change: Adrian joined CALFRAC in 2008 and has been a significant contributor throughout various senior operational roles, most recently as a senior district manager for our Newcomb District.
Speaker Change: since 2017.
Speaker Change: We are happy for Adrian to lead our Argentina business and build on its tremendous successes.
Speaker Change: I believe that these recent management changes will enable CALFAC to deliver on its strategic priorities in a much shorter time frame.
Speaker Change: I will now pass the call back over to Mike who will present an overview of our quarterly financials.
Mike: Thank you, Pat.
Mike: Sequentially, revenue from continuing operations was relatively consistent with the second quarter, as its second horizontal fracturing fleet and the commencement of our new offshore coral tubing unit in Argentina offset lower utilization in North America.
Speaker Change: Adjusted EBDA during the third quarter of 2024 was $65 million, a 29% decline from the same period last year, stemming from lower utilization in North America and pricing in the United States.
Speaker Change: Sequentially adjusted EBITDA from continuing operations was consistent with the second quarter as an increase in profitability generated by our Argentinian operations offset the decline in North America.
Speaker Change: Sequentially the net loss of continuing operations is lower than the second quarter, primarily due to higher foreign exchange losses, income taxes, and depreciation expense.
Speaker Change: CalFAC incurred capital expenditures of $22.5 million during the third quarter versus $50.8 million in the same period of 2023, as continued capital investments in Argentina were more than offset by decline in spending related to the company's Tier 4 Fleet Modernization Program.
Speaker Change: Moving to the balance sheet, the company had working capital of $307.1 million from continuing operations at the end of the third quarter, including $17.7 million in cash, of which approximately $13.6 million was held in Argentina.
Speaker Change: During the quarter, CALFRAC began receiving funds from Argentina related to the redemption of its Oprio bonds and expects to receive the remaining monthly amounts through to the middle of 2025.
Speaker Change: At the end of the third quarter of 2024, CalFrac used $3.6 million of its credit facilities for letters of credit and had $190 million of borrowings under its revolving term loan facility, which left the company with available credit of approximately $56 million.
Speaker Change: CalFrac exited the third quarter with a net debt to adjust to be the DEA ratio of 1.62.
Speaker Change: Now we would like to turn the call back to the PATH to provide our outlook.
Speaker Change: Thanks, Mike.
Speaker Change: I will now present an outlook for CALFRAC's continuing operations across our geographic footprint.
Path: We expect to have a solid finish to the year in North America, as the strong momentum that we've built in the third quarter from our operations in the United States has carried over into the fourth quarter.
Path: Barring the typical end-of-year seasonality, we anticipate that the increased utilization in the United States will drive improved sequential profitability in North America.
Path: The Argentina team
Path: achieved a record-adjusted EBITDA during the third quarter, which was driven predominantly by our expanded operations.
Path: But we look forward to strong profitability growth next year with the planned addition of a permanent second large fracturing fleet to service the growing development in the Nakamoto Plain.
Path: I'm proud of the substantial effort exhibited by the entire Caltrack team and I'm encouraged by our long-term opportunity.
Path: I know that our rigorous cost focus and prudent capital allocation will allow us to generate sustainable returns for CalFrac and its shareholders.
Speaker Change: and Michael Grieco. For more information, visit www.fema.gov. For more information, visit www.fema.gov.
Speaker Change: I will now turn the call back to Mike to begin the Q&A portion of this call.
Speaker Change: Thank you.
Speaker Change: Thank you, Pat. I will now ask Gary to begin the Q&A portion of today's call.
Gary: Our first question is from Keith Mackey with RBC Capital Markets. Please go ahead.
Keith Mackey: Hi, good morning. Maybe just to start out in Argentina, I think certainly had a very strong quarter in Q3 and I think I heard you expect Q4 to return kind of back to Q2 levels.
Keith Mackey: Can you just talk to us about the general earnings power of that business now that you've got two fleets in the Vaca Muerta and do you expect that to continue?
Keith Mackey: through 2025 is...
Keith Mackey: is 20 to 30, say, million of EBITDA per quarter kind of the new norm, whereas historically it was kind of 15 to 20. Maybe just help us frame that up a little bit more in terms of what you're seeing in the country and your strategy to achieve that growth.
Speaker Change: Good morning, Keith. Thanks for the question. It's Mike here.
Speaker Change: We achieved very strong financial performance in the third quarter. Some of that was due to how we transitioned equipment from other parts of Argentina up into the Vaca Merita operations.
Speaker Change: as well as supplementing with some rental equipment. So, as we go forward, we certainly see the earnings power of Argentina being able to maintain kind of the levels that we executed upon in the third quarter, but that's likely not to begin until the second quarter of next year.
Speaker Change: And as you can see, as we're messaging for the fourth quarter, things are going to return back to kind of a normal.
Speaker Change: Michael Olinek, CFO Alphabet and Google
Speaker Change: got it okay so you've got one in the vacuum where to under contract and and you're looking to finish up the second one and and get that one under contract as well as that is that right
Speaker Change: That's right Keith, yeah. We certainly can't finalize the contract until all that equipment is in place and operational in the country and we don't foresee that happening until the first quarter at the earliest.
Keith: Got it. How do the fleets...
Keith: and operations generally compared to North America in terms of the amount of horsepower needed per fleet.
Michael Olinek: Michael Olinek
Michael Olinek: I can't get that
Michael Olinek: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show.
Speaker Change: One of the differences is it's all unionized in Argentina, so maybe our crew size is a little higher, but the pump, of course, follows about the same.
Speaker Change: North America and the the fleet upgrade so it sounds like you're going to be at at five fleets and 60 pumps by early next year
Speaker Change: Can you just talk about your plans for the rest of the fleet? Do you keep what you've got or do you continue on?
Speaker Change: to a 200 pumps or something like that which I think was kind of what the original plan back when it was commenced was. So how do you think about further upgrades to the fleet in North America?
Speaker Change: Well, at the fleet calc today, we have 60 pumps working, and by early in the first quarter we will have 80. We've still got 20 that are in the process of being built out.
Speaker Change: Now that was a fairly, fairly, uh...
Speaker Change: large
Speaker Change: Meiksel, Branden Ruebel
Speaker Change: and I would expect another
Speaker Change: know maybe 15 pumps depending on how the year goes, you know, hopefully maybe 20. To come in which will put us at close to the 100 mark by the end of 2025. But we will definitely not be building another 80 pumps.
Speaker Change: Yeah. Okay. Well, that's it for me. Thanks very much.
Speaker Change: Thanks, Keith.
Speaker Change: The next question is from Waqar Syed with ATB Capital Markets. Please go ahead.
Waqar Syed: Thank you for taking my question. I have a couple of questions. So, as you reduce your upgrade cadence next year, how do you see CapEx kind of shaking out next year?
Speaker Change: Waqar, that's a very good question. I think we're certainly looking at capital spending being lower than we are going to exit this year with.
Speaker Change: It's largely due to the North American program. I think we're going to tamper our investments.
Speaker Change: That will be all funded through Argentina.
Speaker Change: I think, you know, overall as an enterprise, we're looking at next year with a bit more caution just given the commodity price outlook and so our directive will be to continue to invest but certainly to bring overall leverage metrics lower than where we are today.
Speaker Change: And then, you know, this quarter and year-to-date, working capital has been absorbing cash. Do you expect any unwind in Q4, and is it mostly being driven by this, you know, strong growth in Argentina revenues?
Speaker Change: I'm sorry, it broke up on my side here, Waqar. Could I get you to repeat the question, please?
Waqar Syed: Sure, yes. So, working capital absorbed cash by roughly about $21 million in the quarter and year-to-date as well as it has been absorbing cash.
Speaker Change: Do you expect some unwind in Q4 and then, if Argentina is growing, should we be assuming that working capital is going to be a drag on cash?
Speaker Change: You're very correct. I think as we look at our North American business and then the seasonal slowdown, working capital should be an inflow in the fourth quarter. We'll likely see that out of Argentina as well just given how strong Q3 was. As we go forward
Speaker Change: The Argentinian business with a second fleet will likely need to grow a working capital next year.
Speaker Change: inflow coming from the fourth quarter and relatively stable thereafter.
Speaker Change: Given there may be some seasonality in the Canadian businesses, we always tend to have it in the spring breakup period.
Speaker Change: Sure, yeah. And then your coil tubing unit, offshore coil tubing unit, what's the outlook for next year for that?
Speaker Change: That rig is working, and it's...
Speaker Change: It's under contract right now, and it's either working or it's on standby, which also...
Speaker Change: It's fairly lucrative because it's not doing anything, but it's booked through until February. And then after that, we've got some other, but nothing really solid for it after that.
Speaker Change: and it continues to stay in Argentina. Are you looking at prospects outside of Argentina as well after February?
Speaker Change: Well, you know, we would, of course, we would prefer to keep it in Argentina, that just makes sense, but there is some talk of some work in Brazil, and then just crossed my desk this morning when we were talking Mexico, so, I mean, there's just...
Speaker Change: Okay
Speaker Change: And then this last question on the number of crews.
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Speaker Change: I think, Laquar, you know, we're certainly looking at our North American platform with our client base.
Speaker Change: You know we're in that budget horizon right now, so it's tough to say
Speaker Change: What our fleet count will be as we get into next year and where that those fleets will reside What I can tell you is that we're going to put our tier 4 fleets to work with customers that appreciate That equipment base and where we think we're going to get high utilization So it's one of those things that today it's a little early to be able to give you much color on that
Speaker Change: Well, thank you very much. I appreciate all the color.
Speaker Change: All right. Thank you, Waqar.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Michael Olinek for any closing remarks.
Michael Olinek: Thank you Gary and thank you everyone for joining the call today. We look forward to hosting our fourth quarter call in March of next year.
Speaker Change: Thanks very much.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.