Q4 2024 Trican Well Service Ltd Earnings Call
Good morning, ladies and gentlemen, and welcome to the Tri Kanwal Services' fourth quarter 2024 earnings results conference call and webcast.
As a reminder, this conference call is being recorded.
Scott: I would now like to turn the meeting over to Mr. Scott <unk> Chief Financial Officer. Please go ahead.
Scott: Great. Thanks, very much for joining us everybody and good morning, just.
Scott: Just to give you a quick outline of how we intend to conduct the call today I'll give a quick overview of the quarterly results and then Brad will provide some comments with respect to the quarter, our current operating conditions and our outlook for the near future and we will then open up the call for questions.
Scott: As usual several members of our executive team are in the room here today and available to answer any questions you might have and will generally be around for most of the data to do some follow up questions as well.
Scott: So just before we get into the Nitty gritty I'll remind everyone that this conference call may be may contain forward looking statements and other information based on current expectations or results for the company certain material factors or assumptions that were applied in drawing conclusions or making projections are reflected in the forward looking information section of our MD&A for Q4 2024.
Scott: A number of business risks and uncertainties could cause actual results to differ materially from these forward looking statements and our financial outlook.
Scott: Please refer to our 2024 annual information form for the year ended December 31, 2024 for a more complete description of business risks and uncertainties facing <unk>.
Scott: <unk> is available both on our website and on SEDAR.
Scott: During this call we will refer to several common industry terms and use certain non-GAAP measures, which are more fully described in our Q4 2024 MD&A.
Scott: Our quarterly results were released after close of market last night and are available both on SEDAR and our website.
Scott: My comments will draw comparisons, mostly the fourth quarter of last year and also provide some commentary about our quarterly activity and our expectations going forward.
Scott: Our results for the quarter were quite similar to last year's Q4, and generally solid activity, albeit with a different job mix driven by the well design in the nature of projects being undertaken customers also completed some projects that carried forward from Q3 into Q4 that were either delayed or late starting due to permitting and access challenges experienced in Q3.
Scott: Revenues for the quarter $275 5 million.
Scott: Adjusted EBITDA of $55 6 million or 20% of revenues are quite as strong as the adjusted EBITDA of $56 4 million or 22% of revenues, we generated in Q4 of last year, but still solid in this environment.
Scott: Adjusted EBITDA for the quarter came in at $58 6 million or 21% of revenues.
Scott: To arrive at EBITDA, we add back the effects of cash settled share based compensation recognized in the quarter to more clearly show the results of our operations and remove some of the financial noise associated with changes in our share price as we mark to market. These items.
Scott: On a consolidated basis, we generated positive earnings of $27 6 million in the quarter, which translates to <unk> 14 per share both on a basic and a fully diluted basis.
Scott: Sure I can generated free cash flow of $33 9 million during the quarter. Our definition of free cash flow is essentially ebitdas less non discretionary cash expenditures, which include maintenance capital interest current taxes and cash settled stock based compensation. So you can see more details on this in our non-GAAP measures section in the MD&A.
Scott: Capex for the quarter totaled $18 7 million split between maintenance capital of about $14 2 million and upgrade capital of about $4 5 million or upgrade capital was dedicated mainly to be honest. The electrification of the third set of ancillary frac support equipment and ongoing investments to maintain the productive capability of Iraq.
Scott: Our active equipment.
Scott: For 2025, we have an approved capital budget of $70 million, which will be focused on a mixture of ongoing maintenance capital and targeted growth initiatives, including the electrification of another set of ancillary track supporting equipment investments in our logistics fleet and supporting infrastructure.
Scott: As noticed in our press as noted in our press release last night try Ken is undertaking a significant technology modernization initiative, starting with our base financial system and implementing a world class integrated ERP platform, our existing systems are functioning effectively but we need to continue moving forward on the path of modernizing our technology platform to enhance operational efficiency.
Scott: <unk> streamline internal processes and help position the company for future innovation.
Speaker Change: Sure I can anticipate to ongoing technology enhancements over the next few years, including the incorporation of artificial intelligence and enhanced data analytics capabilities to remain competitive.
Speaker Change: Evolving digital landscape.
Speaker Change: The investment for 2025 is anticipated to be approximately $10 million, which will be presented as a component of our G&A expense and according with IRS reporting requirements.
Speaker Change: Our balance sheet remains in great shape, we exited the quarter with positive working capital of approximately $128 million, including cash of about $26 million.
Speaker Change: With respect to our return of capital strategy, we repurchased and canceled $3 1 million shares under our <unk> program in the fourth quarter on an annual basis in 2024, we repurchased and cancelled $20 8 million shares at a weighted average price of $4 56 per share representing 10% of the outstanding shares at the beginning of last year.
Speaker Change: Subsequent to Q4, 2024, we've repurchased and canceled an additional one 4 million shares and continue to be active with our buyback program when market trading prices are at levels that provide a favorable investment opportunity for us.
Speaker Change: As noted in our press release, the board of directors approved a dividend of <unk> five per share.
Speaker Change: For this quarter, reflecting an increase of 11% from our previous quarterly dividend the increase essentially offsets the reduction in share count as a result, the company's ongoing NCI V program and we'll keep the annual expected dividend payout in the $36 million range distribution is scheduled to be made on March 31, 2025 to share.
Speaker Change: Holders of record as of the close of business on March 14th 2025, and I would note that the dividends are designated as eligible dividends for Canadian income tax purposes, So with that I'll turn things over to Brad.
Brad: Okay. Thank you.
Speaker Change: And my comments, all sort of bounce around between Q4 and 2025.
Brad: But again, please read the disclaimer as I do make some forward looking observations.
Brad: For all the quarter went very well he was in fact, one of the best quarters of the year, which is kind of unusual for Q4, because now we're kind of seeing a sort of a slowdown going into Christmas but.
Brad: As Scott was saying, we had a lot of work but.
Brad: From Q3 into Q4, so Q4 actually ended up better than than we had expected.
Really happy with the results given where gas prices were last summer and into the fall.
Brad: I would say in general we get asked a lot about cost inflation and what is happening.
Brad: With respect to the U S Canadian exchange rate.
Brad: In general cost inflation has stopped or is really muted compared to the past couple of years and in fact, we've actually experienced some cost reductions in certain areas and it will just continue to look for alternatives and do our best to mitigate it.
Brad: Volatility of the exchange rate because a lot of what we buy is is coming out of the U S. But I'd say in general I think.
Brad: The cost inflation is a thing of the past for now.
And we will talk about that with respect to tariffs in a moment.
Brad: So on the fracturing division, there's really no no changes that are happening there. The division is doing very well Q4 revenue was up about 17% year over year and EBITDA was up about 13% in the fracturing division.
Brad: We are experiencing less northeast BC work, but it's being replaced by more Duvernay work in Alberta, which in the Duvernay as everybody knows is very service intensive big high pressure frac slots of sand pumped. So we're happy to make that trade and.
North East BC gets more active again.
Brad: The Duvernay, we'll be obviously additive to what we have going and we've talked about this in the past you are five three or four fleet was designed specifically for the Duvernay and high pressure areas of the Montney and that equipment continues to outperform in and is doing very well.
Brad: Our fracturing operations have not changed their focus is still the montney the duvernay and the deep basin that I don't expect that will change anytime soon on the cementing side. We're continue to be very happy with the performance of this division we consider ourselves the technical leader I think our customers consider us a technical leader.
Brad: And really the only reason.
Brad: People don't use us as we are we are a premium price service and.
Brad: We think we have a value added offering and we will continue to be so that division is operating really well very high utilization rate in Q1. It was a little lower in Q4, just because a lot of the rigs were focused in the heavier oil oily plays which we're not currently active.
Brad: But in Q1, so far the rig count is up 18 rigs year over year, and our cement rig count is up 14 rigs. So we had a great market share of the incremental work that's being done this year done this year.
Brad: Overall, we're about 35% market share in the basin, but in places like the Montney Duvernay and deep basin, we can be as high as 80%.
Brad: If you looked at the basin as a whole excluding the heavy oil areas, which where we don't have operating basis. We're at about 47% of the market share in cementing. So it's been a great division for US we will continue to invest in it and we hope to grow it in the areas that we're not currently active in.
Brad: On the coiled tubing side, we've made good progress on coiled tubing.
Brad: We've been focused on growing this we've talked a lot about it.
Brad: Thats, great fuel margins, but just too small and in Q4, our revenue was up 12% year over year and EBITDA was up almost 80%, but those are small numbers our utilization in Q1. So far is really high we continue to basically run full out in that division with actually.
Brad: More demand than we have equipment for currently.
Brad: We will continue to try to grow that.
Brad: Increased scale is required to realize the profitability potential of that.
And it's like I say it takes a lot of fixed costs. I mean, there is a lot of downtime with changing reals in different coil sizes and so scale is important.
Brad: And in that business, we are looking forward to the strategic partnership with <unk> and that was the tool company that we talked about in past calls and that's a tool that's focused on sort of the very oily multilateral well designs places like that.
Brad: The Clearwater and east into the heavy oil that's an area that we're not currently active in at all with respect to our coil division. So that'll all be additive market share for us is as that tool gets deployed.
Brad: Just on the outlook for 2025 again, we're very happy with Q1 to date, we're forecasting 2025 to be basically a repeat of 2024 I don't think Q1 will be as strong as last year's Q1, but we're expecting more level loading throughout the year and so from an activity and a financial result.
Brad: Its perspective, I would say 2025, basically just mirrors 2024.
Brad: And of course, the hot topic of ours, the potential introduction of U S tariffs, and particularly 10% tariffs on oil and gas imported from Canada into the U S. And we'll candidate you don't have retaliatory tariffs, which seems to be the tone that we're getting out of the government today.
Brad: Of course, this introduces uncertainty and potential volatility.
Brad: And will it will have that.
Brad: Impact activity levels with our customer.
Brad: It's still too early to draw any firm or definite conclusions at this point there is way more questions than answers, but a 10% U S. Tariff on energy, we don't expect it to have a big impact on on activity here in Canada, because with the tariff introductions.
Brad: The exchange rate has has gone up so customers may be getting a lower price, but when you convert it to Canadian dollars Youre mitigating a lot of that downside.
Brad: The retaliatory tariffs from from Canada on U S goods coming into the country as is probably our biggest concern.
About half the sand we pump it comes from the U S and when we have preliminary analysis shows that there will be that could result in about a $15 Canadian per tonne tariff on sand coming into Canada.
Brad: And we'll continue to look for alternatives things like parts and chemicals, we're not really sure where that's going to shake out yet but were actively looking for alternatives.
Brad: To sourcing those from places other than the U S and unfortunately, the Canadian government has introduced the concept of exclusionary provisions for tariffs on products for which there is no alternatives such as sand and so forth. The economic impact is overly punitive and that would apply to a lot of the parts in the sand that we're bringing in from the U S.
Brad: So we're hoping when this all shakes out there actually the tariffs will not impact us but.
Brad: To mitigate that risk will just continue to look for alternative sources, we can get chemical in part out of China.
Brad: At a relatively attractive prices there. The issue is always just qualities concerns as really the only issue, but we'll continue to monitor this going forward and do our best to mitigate the impact of that.
Brad: Fortunately.
Brad: Natural gas prices have firmed up the strip for the summer and the winter of 2020 fives at very economic levels, our customers are able to hedge gas if they want to certainly this basin goes around at $3 50, a co without any problems at all on the financial discipline, that's been displayed by our customers over the last few years means that deal their balance sheets are in.
Brad: Great shape their programs are very level loaded from quarter to quarter and year to year a lot of the gas basin has a high liquids component. So when the when there are periods of low gas prices thats offset by by condensate pricing as an example, so we're expecting.
Brad: We still expect 2025 to be a good year, even though there's lots of sort of tariff concerns in the media right now.
Brad: On the pricing side, we did experience some pricing pressure in Q4, just because some of our competitors werent quite as busy as we were you that is all subsided youre not really seeing big pressure on any pricing.
Brad: So far in 2025, I think everybody's order are pretty full up and so everybody is busy and I think it's just more focused on on doing doing working servicing the customer we still expected the montney and the duvernay will be the focal point of activity in this basin.
Brad: The Duvernay is working out as well or better than expected. It is very very frac intensive users high pressure treatments lots of sand.
Brad: Long laterals, so whether youre cementing our fracking are running in coil those are big service intensive wells that we're very happy to be a part of.
Brad: And again, we built that Duvernay specific Frac fleet, that's been performing very well and it is fully utilized and wish we had built a couple of them actually.
Brad: On the sand side I.
Brad: I just wanted to just give an update on the on the.
Brad: The agreement that we entered into with with source. We are building a trans load facility in northeast BC just to service that market. As a reminder, these only one rail line running into northeast BC and so a lot of that sand gets trucks. So we invested alongside source into trans load facility, which will be fully.
Brad: In Q2 of this year, we have had construction delays, but I think we can confidently say at this point that it will be ready and fully operational with sand storage in Q2 of this year and the idea behind that investment is to reduce the trucking times.
Brad: From Grand Prairie into northeast, BC, which could have 12 hour round trips and so we can rail the sand into northeast BC and truck from there we could use our trucking fleet much more efficiently and deploy our own trucking fleet to our customers, where we where we can make a margin opposed to having third party trucking.
Brad: Get pass through to the customer, which we we do not make any margin on so.
Brad: Logistics, given how much sand is being pumped in the space and now and how much sand is going into the wells.
Brad: Last mile logistics and your ability to strategically.
Brad: Trans loaded will be an important driver of our profitability going forward.
On the technology side I don't think really has a lot of what has changed since our last call.
Brad: Reviewing a few different pumping technologies and we're trying to figure out what is next but the ultimate goal in all of the technology that we review, where we trial is that it has 100% natural gas fueled.
Brad: Operations 100, the natural gas operations are what the customers want it's much less expensive than diesel burns cleaner it's available.
Brad: Pretty much everybody is pad.
Brad: And the issue. There is just can you get enough of it and can you treat it to get it to the right pressure in liquids content and temperature of course, but we've looked at.
Brad: We're using the tier four technology, which is about 75% substitution, we've trialed electric pumps, and we're building electric ancillary equipment, that's performing really well, we're keeping an eye on the turbine space, we're looking at 100% natural gas Recip engines.
Brad: Each of these technology has their own pros and cons, but typically the issues or will it run with variable gas quality whats the physical footprint of it on location.
Brad: Can you get a return on it.
Brad: Issue, a walk with electric which is run very well, whether it's the ancillary equipment that we built or the actual frac pumps that we trialed.
Brad: Well, but it's a big footprint because of all the electrical generation <unk>.
Brad: Equipment, Thats required and it's costly and so it's hard to get a return out of that equipment with with todays rates.
Brad: On the yield on the electric ancillary equipment that we are building that equipment has performed very well. The blender performance is far superior to the conventional designs of the past we wish we had more of it frankly.
Brad: All of our customers pretty much wed like to see that equipment on their location. So we will continue to invest in that space and what we're finding is it's lower R&M costs, a few less people required to operate it.
Less.
Brad: Hydraulic lines et cetera, so it performed well in the cold.
Brad: Overall, it's been an overwhelming success and when you combine the electric ancillary equipment with our tier four pumps, we're looking at 80% to 85% substitution on location with natural gas for diesel. So the customers are happy because the fuel costs are greatly reduced.
Brad: Just on the strategy the corporate strategy side.
Brad: Again, there has been no real changes here.
Brad: Even though things that might feel a little choppy due to the tariff talks were still very bullish on on Canada.
Brad: View Western Canada is a very attractive place to operate the montney in northwest, Alberta, and northeast B C is second to none in North America. The returns are very good on this in this play any on the plate deal with the question. We get asked a lot of sort of where are we from a lifecycle of the montney and <unk>.
Brad: <unk> like its the second or third inning at the most and you compare that to the places in the U S where they are probably in the seventh eighth inning of those place. So I think having exposure to the montney. The Duvernay is it gives you a very long runway.
Brad: We're excited to see our customers are active in making money and those place. So we consider western Canada to be a great place to continue to invest in growth LNG, Canada will finally be exporting gas. This year I think in the next six months or so and once at full capacity of exports over 10% of the natural gas production in Canada. So this will without a doubt.
Very positive impact on natural gas pricing, particularly station too which is northeast BC. So we're obviously, we're looking forward to that and anticipate the gas pricing deferred up in Canada in the future.
Brad: <unk> is also the operational now and not full so it provides the growth outlook for the oil widely customers and they are able to get global pricing and reducing their differential. So that's that's also additive to two.
Brad: <unk>.
Brad: To the LNG exports.
Brad: Overall, our priorities have not changed we want to build a resilient sustainable and differentiated company in deploying technology and discipline to provide good returns we want to invest in high quality growth.
Brad: <unk>, whether they're on our own equipment to earn new service offerings. We will just continue to look and make sure that we're getting a return in excess of our cost of capital and then along the way because we do generate a lot of free cash will provide a consistent return to our shareholders with the dividend in particular and then also use the NCI when it's.
Brad: When it's appropriate.
Brad: As Scott talked about we have a very clean conservative balance sheet. So we have the financial capacity to act on opportunities as they arise.
Brad: Sure.
Brad: We want to just point out we've been very very active in the in CIB in the last few years.
Brad: This has provided a very good investment for us we actually think of this as M&A, we're basically buying our own company.
Brad: And we're not but that.
Brad: That NCI will have to compete with sort of the organic opportunities that we're seeing and I would say at this stage, we are seeing more sort of acquisition and organic growth opportunities that we have in the past, but cannot comment on those at this time of course, and we're always looking at things and some euro successful long hopefully but.
Brad: The bid ask is always the issue, but I do want to say probably expect more volatility on the CIB. This year than we have in the past years, just because so many good things for us to look at at this time.
Brad: As Scott mentioned, we upped our dividend by about 11% and the idea here is we want to keep our aggregate payout than sort of $36 million to $38 million.
Brad: A year range and we'll just adjust that dividend accordingly, and we'll we'll look at that every year at about this time, but I expect that we should be able to provide dividend growth going forward.
Brad: I think I'll stop there operator, and we will go to questions.
Brad: We will now begin the question and answer session.
Brad: Joining the question queue you May Press Star then one on your telephone keypad.
Go ahead, Tony acknowledging your request.
Brad: If you are using a speakerphone, please pick up your handset or press.
Brad: <unk>.
Brad: Your question. Please questions. Thank you.
Speaker Change: We will pause for a moment our callers join the queue.
Brad: Okay.
Brad: The first question.
Brad: Aaron Macneil with Keybanc Cowen. Please go ahead.
Aaron MacNeil: Hey, good morning, all thanks for taking my questions.
Speaker Change: Brad I wanted to get into this montney versus <unk>.
Aaron MacNeil: <unk> dynamic.
Aaron MacNeil: We saw higher proppant volumes in the quarter higher revenues margins were a little lower at least than what I was expecting.
Aaron MacNeil: Is that that dynamic playing out and then you mentioned the fit for purpose equipment in the prepared remarks.
Aaron MacNeil: And I guess I'm, just wanting to understand the R&M dynamic of doing arguably higher intensity work.
Aaron MacNeil: Yeah, I'll answer that one first so whether it's heavy duty equipment its built to operate for long.
Aaron MacNeil: Time at higher pressure.
Aaron MacNeil: And it does result in lower R&M, we're not going to get into the details of that obviously for competitive reasons, but.
Aaron MacNeil: Its thoughts.
Aaron MacNeil: What we don't know why the customers like it is it's less downtime on location less pumps smaller footprint.
Aaron MacNeil: More reliable operation and yet, but overall, if you're doing any given frac with these pumps versus sort of a conventional non heavy duty spread you would have a less equipment and then the.
Aaron MacNeil: Less people.
Aaron MacNeil: So we look at it from a from a cost perspective is it's a win and from a reliability perspective.
Aaron MacNeil: You know not just for us but for the customer.
Aaron MacNeil: So.
Aaron MacNeil: I hope that answers the question there I can't give you obviously details exactly.
Aaron MacNeil: Exactly on R&M and dollars.
Aaron MacNeil: But from a duvernay versus Montney perspective.
Yes.
Aaron MacNeil: Yes, Youre right Theres more sand being pumped in these duvernay wells and where you see on the average montney well I would say the average duvernay wells is more fracturing intensive than the average montney well.
Aaron MacNeil: The margins going down I would say, we're more and more a matter of sort of price competition in the marketing.
More than sort of.
Aaron MacNeil: I would say there is no other that would be the primary driver of why the margins were slightly lower than we saw year over year.
Aaron MacNeil: The issue that we're always dealing with of course is one of the sand we buy it comes out of the U S and the exchange rate worked against us in Q4 versus the prior year or even the year to date last year.
Speaker Change: Got you and maybe just.
Aaron MacNeil: To ask the question a bit differently.
Speaker Change: Capex is down year over year, a little bit I know growth.
Speaker Change: Growth maintenance split it could be different but.
Speaker Change: Like if youre going to do more duvernay wells in Montney wells this year or the mix is changing.
Speaker Change: And all of that kind of assuming a repeat year.
Speaker Change: Maybe with more proppant pumped year over year.
Speaker Change: Like should that and again I know you expense some of this stuff, but just trying to get your sense of.
Speaker Change: That's the impact.
Speaker Change: Switching to the Duvernay and dynamic.
Speaker Change: I don't think there will be.
Speaker Change: Sort of a significant impact of any kind because yield equipment perform so well.
Speaker Change: If you.
Speaker Change: Take a I guess, a a non heavy duty pump and deployed into the Montney. Your R&M is going to go up materially for sure.
Speaker Change: And that's why we built that that spread towards redesign that spread like we did as we anticipated that the duvernay with pickup.
Pick up steam and momentum.
Speaker Change: We wish I like I said, it which we have more of that equipment frankly, because it's pretty much sold out every day.
Speaker Change: But if you're deploying sort of what I would say normal equipment into the Duvernay you would expect a material change in in R&M, but because we are using the heavy duty, we're really not experiencing any changes.
Speaker Change: And our economy.
Speaker Change: That's what I'm looking for.
Speaker Change: I don't know it was a very long winded answer but no.
Brad: Thats great Brad Thank you.
Speaker Change: On that.
Speaker Change: Tech modernization investment I guess two questions.
Speaker Change: Do you think there's any synergies on the backend of implementing the ERP and then.
Speaker Change: That advanced analytics side or AI like are you just positioning at this point are you actually seeing something come down the pipe on that front, yes ill just as Scott will comment on this after them but of course like this project like everything else, we don't spend a dime without a positive.
Speaker Change: Attractive IRR, certainly we wouldnt be spending money on this technology, we didn't think it was going to be.
Speaker Change: A positive MPV project.
Speaker Change: Part of the issues with with <unk>.
Speaker Change: Very old company right and so you've got a mix of new and old.
Speaker Change: And but the benefit of being as old as we are as we have collected an incredible amount of equipment data, that's very valuable and we expect that maybe not this year, but.
Speaker Change: Next year, we will build two.
Speaker Change: To use AI to mine that data and <unk>.
Speaker Change: And we particularly with respect to predictive maintenance and overall maintenance, we have a lot of very good pump and engine data here that is going to be valuable in the north.
Speaker Change: Basically the operations and engineering team that.
Speaker Change: They had the foresight to collect that data.
Speaker Change: Got you.
Speaker Change: Well I guess I'll turn it back thanks.
Speaker Change: Thanks, Sir.
Speaker Change: The next question comes from Keith Mackey with RBC capital markets. Please go ahead.
Keith Mackey: Hey, Thanks, and good morning.
Speaker Change: Maybe if we could just start out Brad can you give us a bit a bit more color or a bit of a rundown on the coiled tubing market just I know you've talked about it.
Speaker Change: And as being a little is a priority for you, but a little bit small as it currently is like how fragmented is that market.
Speaker Change: Normally find you compete with do you find it's more of a price sensitive market versus a service quality market.
Speaker Change: Just what are the what are the key factors you see that make that.
Speaker Change: Look look like an attractive place for <unk> to be.
Speaker Change: Yes, I mean, the longer that well just from.
Speaker Change: In general the longer the wells get more stages, we have for.
Speaker Change: You are seeing in growing demand for coil to do clean outs and drill outs I wouldn't say the fracking through coil has if anything that has declined.
Speaker Change: And if we use coil to open and close leads et cetera. So we like the market. We do think it's a growing market is just a natural evolution of this basin with how it's unfolding.
Speaker Change: Theres not a lot of players in the deep coil market.
Speaker Change: I think it's the obvious people like us and our competitors at.
Speaker Change: Element and step in and.
Speaker Change: Other private companies, but.
The issue with with coil is theres a lot of physical infrastructure required in a lot of investment in various coil sizes, because your ability to compete in the market.
Speaker Change: Do you have the right coil in the right place on the right day and do you have the team that can execute very well once you get to location and I think.
Speaker Change: We have all of that.
Speaker Change: And so we're going to continue to try to grow it and of course like everything of course, it's price sensitive.
But we I think we're finding we have good we have good field margins and where you typically in coiled smack you see a little more price stability and discipline that you would see on the fracturing side.
Speaker Change: So we're just going to continue to grow it and like I said, we have good fuel margins, but we have a big infrastructure and big fixed cost in that division and so its modest nearly as profitable as we would like but it doesn't take a lot of growth.
Speaker Change: Get that to a point, where it's showing attractive returns.
Speaker Change: And I can't really I'm not prepared to sort of give you any more details than that on the call.
Speaker Change: Fair enough. Okay. Thanks for that maybe just turning to the tariffs for a second here.
Speaker Change: <unk> certainly has been.
Speaker Change: Been one potential expense that stands out.
Speaker Change: At 15 Bucks, a ton and maybe Thats 75 to 125 Grand a well I would I would think.
Speaker Change: So maybe just on.
Speaker Change: On that how much of your sand has been say pre bought tour has already is already in Canada for.
Speaker Change: Do you have the sand for the next quarter to two already in Canada or is there going to be more of that will have to be imported if we do see tariffs and if we do see tariffs. What's your ability you think to pass those costs through to the customer.
Speaker Change: Yes, I mean keep in mind, you have sort of 50 to 100 railcars of sand going into a well. So there is there is not a lot of storage in western Canada.
Speaker Change: Would it be like a week's worth of sand one weeks.
Speaker Change: Yes so.
Speaker Change: 65% to 60% of what we pump comes from the U S.
Speaker Change: So no. Unfortunately, it's not like parks, where you can pre biased to avoid tariffs.
Speaker Change: There's just too much of it physically that takes up too much space.
Speaker Change: I want to keep it dry and all that jazz so there.
Speaker Change: There's not a whole lot you can do about the stand other than we're obviously going to advocate through ourselves through.
Speaker Change: Organizations like in service that were going to advocate to the government that it should not be tariff because there is no alternative.
Speaker Change: The domestic providers cannot ramp up production enough to meet the demand for the U S. And today you will they would they would literally have to more than double our domestic production.
Speaker Change: <unk> takes years years, and a lot of money and of investment.
Speaker Change: So theres nothing we can do about it now and so.
Speaker Change: If worst case scenario, we do get the $15 a metric ton tariff yeah of course, we will pass that along to the customers but.
I think we have probably.
Speaker Change: Probably one of the best cases that there is for that exclusionary provisions that.
Speaker Change: Had been had been talked about by the government. So I'm, hoping this is.
Speaker Change: Just noise and it doesn't it doesn't I don't think it will come true.
Speaker Change: Yeah fair enough. Okay. That's it for me thanks very much.
Speaker Change: The next question comes from Clark.
Speaker Change: Paul.
Speaker Change: TB capital market. Please.
Speaker Change: Go ahead.
Speaker Change: Good morning, and great quarter and congrats on that.
Speaker Change: But I saw that you had a bit of bulk.
Speaker Change: Bulk <unk> have dropped from five can for the bumping affecting clues and overall the horsepower has not really changed. So is it that you are now dedicating more horsepower per crew or what's the rationale for that yes exactly.
Speaker Change: We've tried to sell as much will be really old gear as possible but.
Speaker Change: Quite frankly, we were delinquent and making that change.
Speaker Change: For anybody that's listening we're referring to are the.
Speaker Change: Parked equipment, we've gone from five to four crews and it's because you're always frac crews, just keep getting bigger and so and yet.
Speaker Change: We sort of take our idled capacity in and divided by 'twenty. We're realizing there isn't I'd crews worth of pumps that we have lots of blenders and all the other equipment, but your typical montney duvernay spread just takes a lot of pumps and so it feels more like three or four frankly than it does five.
Speaker Change: Okay.
Speaker Change: No.
Speaker Change: Revenues in our factoring low higher in Q4 versus the Q1 of 'twenty four and when I look at the utilization that you have.
Speaker Change: Up from 64%.
Speaker Change: 71% in Q1 to 64%.
Speaker Change: In Q4.
Speaker Change: But yet the revenues were higher is it mostly being driven by more sand being pumped in duvernay at all or is there some other.
Speaker Change: Other drivers as well.
Speaker Change: Yeah, I would say that's a primary piece of it right like higher sand volumes and depending on the programs that are being executed theres always drives it quite like that job mix.
Speaker Change: Not from a specific perspective, but yes that job mix and what youre doing in any particular quarter has a big impact on that will occur.
Speaker Change: Separately.
Speaker Change: If your body agenda.
Speaker Change: In Q4, how did in fact thing how did that compared to the EBITDA in Q1 of 'twenty four.
Speaker Change: Lower.
Speaker Change: Okay.
Q4 was the okay.
Speaker Change: That makes sense alright.
Speaker Change: And then just a revenue perspective in Q1 of fastening revenues you could still exceed last year's Q1, right, even though the EBITDA may be lower.
Speaker Change: No.
Speaker Change: I don't think so I think overall.
Speaker Change: The quarter is a little slower than I, just kind of pull up some numbers.
Speaker Change: Okay.
Speaker Change: I think were generally lower <unk> revenue and.
Speaker Change: Youre talking Q1 of this year versus Q1 of last year.
Speaker Change: Yes.
Speaker Change: The first thing side yet.
Speaker Change: They're pretty close but.
Speaker Change: I would say there is.
Speaker Change: On the cost side.
Speaker Change: The revenues are very similar but the costs have gone up because of the exchange rate So works suspecting.
Speaker Change: <unk> EBITDA.
Speaker Change: Obviously.
Speaker Change: Okay.
Speaker Change: And then either.
Speaker Change: EBITDA bode well.
Speaker Change: Is it five in duvernay listeners montney well.
Speaker Change: EBITDA per well.
Speaker Change: Yes.
Please.
Speaker Change: Does that pull through on.
Speaker Change: On average, yes, like the average montney versus the average Duvernay I would say, yes, it's higher.
Speaker Change: And <unk> is free cash flow as well because I'm sure that it.
Speaker Change: It has an impact on your equipment as wallboard and Duvernay.
Speaker Change: Again that goes back to the.
Speaker Change: What we're talking about with the FDA.
Speaker Change: Equipment design, so yes, the EBITDA should result in.
Speaker Change: The annual free cash flow that is higher because we're just not seeing the equipment perform so while we're not seeing increased R&M.
Speaker Change: Okay and then.
Scott: Scott on the G&A side.
Speaker Change: We include the $10 million charge.
Speaker Change: For AI ml is the G&A run rate going to be around 13 to 14 million per quarter known when you quantify it.
Speaker Change: Yes, I mean, it'll be very similar to what we saw this year just with that incremental 10 stacked on top of it which will be pretty even throughout the year.
Speaker Change: Okay great.
Speaker Change:
Speaker Change: I think that is all I have thank you very much.
Kurt: Thanks Kurt.
Speaker Change: Once again, if you have a question please press star.
Kurt: During the course.
The next question comes from Jon Hickman with BMO capital markets. Please go ahead.
Jon Hickman: Good morning, guys.
Congrats on the strong quarter here just following on your M&A comment preamble. It seems like there's a lot of opportunities out there.
Jon Hickman: My understanding is you don't want to get specific but with these opportunities would be sort of horizontal.
Jon Hickman: That our businesses are more I guess, Alex to your primary Frac and so that's important.
Jon Hickman: Yes, I would say in general Theres always both.
Jon Hickman: Obviously about all I can say.
Jon Hickman: Okay.
Speaker Change: What I would say is we're not we're certainly not afraid added new business lineup.
Speaker Change: We think we can add value and provide good service to the customer in that business line.
Speaker Change: We'll provide the kind of returns that we require.
Speaker Change: When you want to have it it has to make sense of course, but we're not afraid to step out of our three.
Speaker Change: Three divisions and look at on a stock split.
Speaker Change: We're happy to happy to look at opportunities outside of our space.
Speaker Change: Sure.
Speaker Change: Okay got it.
Speaker Change: Just thinking ahead to LNG, Canada potentially gas as early as midyear are you starting to have conversations with customers.
Speaker Change: Around incremental activity or is it more.
Speaker Change: Wait and see until we actually start to see gas moving kind of like what happened with the Tms last year.
Speaker Change: But both depending on the customer, but I would say.
Speaker Change: Just given all of the media.
Speaker Change: With the tariff talk and all that jazz.
Speaker Change: We're not.
Speaker Change: I would say I would say people are being more of a wait and see mode.
Speaker Change: Okay.
And then last one.
Speaker Change: Can you talk about how much equipment, you and your competitors have on the sidelines right now in Canada, I guess is taken into account.
Speaker Change: Intensity changes.
Speaker Change: <unk> sort of increases this spare capacity shrunk.
Speaker Change: Over the past few quarters like that.
Speaker Change:
Speaker Change: I don't think its shrunk because I don't think there ever was a whole lot of spare capacity.
Speaker Change: People.
Speaker Change: I think the market in general thinks theres more spare capacity than there is.
Speaker Change: Savi I think.
Speaker Change: We finally sort of got around to maybe recognizing our spare capacity more accurately is looks like sort of three or four spreads that it does five and if you look at our competitors there is very little.
Speaker Change: Theres very little spare capacity out there that's.
Speaker Change: Actually functional yes, and remember too like if you have a 12 year old diesel pump nobody wants it.
Speaker Change: Great They want brand, new tier fours with upgraded transmissions and pumps.
Speaker Change: We get tons of questions about electric and so.
Speaker Change: Yeah.
Speaker Change: Theory, here's spare capacity out there.
Speaker Change: The amount of investment it would take to make it competitive.
Speaker Change: Would be significant and the time it would take to.
Speaker Change: To add a tier four engine to it.
Speaker Change: But the year.
Speaker Change: So.
Speaker Change: I'm actually really glad you asked that question because I think it's important for your side of the street to recognize that when we see increased activity due.
Speaker Change: To better gas pricing and LNG et cetera.
Speaker Change: We are able to respond but not very much.
Speaker Change: Right. So a little the Frac the Frac fleet in Canada will tighten up very very quickly.
Speaker Change: We're kind of humming, along and then sort of perfectly balanced state, which I think sort of gives people the impression that there's a lot more capacity than there is to take on more activity either there really isn't.
Speaker Change: Talk about on this call and prior calls link.
Speaker Change: The pumping times in the sand volumes and the pressures with hard on equipment.
Speaker Change: So if you were to compare how much of your Canadian fleet would be down.
Speaker Change: Austin on all of our competitors how much of the Canadian fleet would be down on any given day due to maintenance is higher.
Speaker Change: These tier four engines are very finicky.
Speaker Change: And as we sort of keep pushing forward on technology as everybody knows things get a little more finicky.
Speaker Change: And so we used to be sort of used to plan sort of 15% of the fleet to be down in any given day I would say that's probably closer to 18 now that is roughly it changes from.
Speaker Change: Quarter to quarter, obviously, but.
Speaker Change: So.
Speaker Change: What are the splits are really part of the reason like.
Speaker Change: We're very bullish on on our business in the next five years.
Speaker Change: Fracturing intensive in the services sector, the service sectors ability to respond.
Speaker Change: There is not really there.
Speaker Change: It's going to tighten up very very quickly.
Could I just ask one more and then I guess like if.
Speaker Change: If demand calls for two more tier four fleets in the back half of the year of 2025.
Speaker Change: Is it fair to say that.
Speaker Change: The base and really good service them right now yeah, you're absolutely right.
Speaker Change: On any given day akshay on almost every day without exception, we don't have enough tier four pumps.
Speaker Change: And I would assume that would be the same everywhere else.
Speaker Change: So that's just today.
Speaker Change: Any increased activity as well.
Speaker Change: Okay.
Speaker Change: We're going to we're already out of.
Speaker Change: Tier four gear.
Speaker Change: We wish we have built.
Speaker Change: Seven of those electric back sites.
Speaker Change: We have three more along the way, but we.
Speaker Change: We wanted to evaluate the technology before we jumped in.
Speaker Change: At first but.
Speaker Change: The blender performance in particular has been fantastic.
Speaker Change: So I'm going to sneak one more and then along the same lines how much would a tier four fleet costs now with.
Speaker Change: Understanding a lot of moving parts, but with.
Speaker Change: Tariff implications, but in there yes.
Speaker Change: 45 to $55 given just the FX would be there.
Speaker Change: <unk>.
Speaker Change: Increase, but if you were to build a new tier four fleet and you put electric ancillary equipment with it.
Speaker Change: We'd be sort of 55 ish.
Speaker Change: 60, maybe yes.
Speaker Change: Got it.
Speaker Change: Really appreciate your responses I'll turn it back here. Thank.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Yes, sorry, operator go ahead please.
Operator: This concludes the question and answer session I would like to turn the conference back over to Mr. Taylor for any closing remarks.
Taylor: Thanks, everyone. Thanks for your time I know, there's lots of calls happening on days like this but.
Taylor: Scott and I and the rest of the team will be around for the rest of today and tomorrow. If you have any follow up questions, but thank you very much for dialing in.
Taylor: Okay.
Taylor: Today's conference call you May now disconnect your lines.
Speaker Change: Thank you for participating and have a pleasant day.
Taylor: Okay.
Taylor: Okay.
Taylor: Yes.
Taylor: Sure.
Taylor: [music].